Leeds Building Society is taking a new approach to credit scoring to help more first-time buyers get a mortgage and buy a home.

The building society has joined forces with credit reference agency Experian. They’ll allow first-time buyers applying for a mortgage to prove their financial track record with a wider range of payments.

Traditionally, credit scores only incorporate repayments for debt, such as credit cards, mortgages or loans.

But Leeds will now consider other regular direct debits during the past 12 months. They’ll include payments for council tax, subscriptions and even Netflix or Spotify.

Richard Fearon, chief executive at Leeds Building Society, said: “We’re proud to be the first mortgage lender in the UK to make it easier for aspiring homeowners by incorporating free ‘boosted’ credit scores.”

Leeds offers mortgages that require only a 5% deposit, with rates starting at 4.94% for a five-year fixed rate deal with a £999 product fee.

How does the new credit scoring work for first-time buyer mortgages?

Leeds Building Society will incorporate information from Experian’s free Experian Boost service. This will show you have kept up with regular payments.

The service uses Open Banking to look at payments made through your current account.

The Open Banking initiative allows you to share your banking data with third parties that are regulated by the Financial Conduct Authority through secure connections. The data cannot be shared without your explicit consent.

While Experian Boost is free for consumers to use, Leeds is the first mortgage lender to use it for lending decisions.

How many first-time buyers will be helped by this credit-scoring approach for mortgages?

Testing for the new approach found that 7.5% of applicants improved their credit score through using Experian Boost.

For some first-time buyers, this could be the difference between qualifying for a mortgage and not qualifying for one.

Leeds believes Experian Boost is particularly helpful for younger borrowers, first-time buyers, and those on lower incomes, who typically face the toughest challenges in proving they are credit-worthy.

Fearton said: “Often through no fault of their own, these groups can struggle to build a good credit score because they need to spend most of their earnings on rent and other regular payments. Indeed, the vast majority of existing Boost users are renters.”

How is your credit score worked out?

Credit reference agencies like Experian collect information about you from registers, lenders and other service providers.

Lots of factors impact your credit score, including credit applications, the amount you’ve borrowed and missed or late payments.

What is a good credit score?

Most credit agencies in the UK use a points system to determine your credit score.

This usually ranges from 0 - which is the lowest possible credit score - to 999 or 1000, which is the best credit score.

With Experian for example, a good credit score is anything above 721, while scores above 961 are deemed ‘excellent’.

What credit score do you need for a mortgage?

In general, the higher your credit score, the better your chances of getting a mortgage.

Lenders will take your score into account to decide how risky it is to lend to you.

So if you’ve shown you can pay all your bills on time, they deem you safer to lend to. This can mean they offer you a lower interest rate.

However, lenders also look at other things like affordability, income and account history to decide if you’re eligible for a mortgage.

In some cases, you can still get a mortgage if you have a bad credit score.

Each mortgage lender considers different scores to be ‘bad’. How much you owe and whether you’ve repaid debts can also make a difference.

What other initiatives can help first-time buyers get on the property ladder?

The Leeds Building Society initiative comes as Skipton Building Society has launched the first 100% mortgage to be offered since 2008.

The mortgage enables first-time buyers to purchase a property without a deposit and without a guarantor.

Instead, borrowers must provide evidence they have paid their rent on time for the past 12 months, as well as meeting the lender’s credit score and affordability criteria.

Another innovative scheme that was launched earlier this year to help first-time buyers is the Save to Buy initiative.

Offered by housebuilder Fairview New Homes, Save to Buy enables first-time buyers to move into their home and pay ‘rent’ at a fixed cost for between six months and two years. The money is set aside until it is enough to use as a deposit to qualify for a mortgage.

100% no-deposit mortgages have made a return for the first time since 2008.

It means first-time buyers can step onto the property ladder without saving for a deposit or having a guarantor.

Instead, first-time buyers must show they have paid their rent on time for the past 12 months. They must also meet the lender’s credit score and affordability criteria.

Skipton Building Society's Track Record Mortgage is aimed at first-time buyers who are currently renting.

The Track Record Mortgage offers a fixed interest rate of 5.49% for five years, with a maximum term of 35 years.

What is a 100% no-deposit mortgage?

A 100% no-deposit mortgage is a loan for the full purchase price of the property you’re buying.

Normally, you would put down a deposit - often around 10% to 20% of the property price - and borrow the rest from a mortgage lender.

With a 100% mortgage, you need zero deposit - which overcomes the challenge of saving for a deposit.

The no-deposit mortgage from Skipton is a fixed-rate mortgage for five years, which means the interest you pay will stay the same for the first five years of your term.

What Skipton Building Society said about their new no-deposit mortgage

Charlotte Harrison, Skipton's CEO of Home Financing, said: "With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people get onto the property ladder.

"We recognise there’s a clear gap in the market for people who have a strong history of making rental payments over a period of time - so can evidence affordability of a mortgage. But there is currently no solution for them to buy a property due to lack of savings or access to family wealth.

"This is why we’re introducing our Track Record Mortgage."

Is the 100% no-deposit mortgage more expensive than other mortgage products?

The new no-deposit mortgage is good news for first-time buyers who want to get on to the property ladder but are struggling to save a deposit.

But it’s important to note that the product is slightly more expensive than the average five-year fixed rate mortgage, which currently has an interest rate of 5%.

On a £200,000 mortgage, this would cost you an extra £60 a month.

It is also worth remembering that 100% mortgages do not offer you any cushion if house prices fall. This means you face a higher risk of ending up in negative equity, when you owe more than your property is worth.

That said, if you’re frustrated about paying high rent and are not able to put together a deposit, the deal could still make sense for you.

When did 100% no-deposit mortgages stop?

Before 2008, 100% no-deposit mortgages were widely available. Some lenders even offered mortgages of up to 125% of the property’s value.

But the financial crisis of 2008 saw most 100% no-deposit mortgages stop. Mortgage lenders saw them as too risky to lend on during more difficult economic times.

They currently make up just 0.3% of all available mortgage products in the UK, according to moneyfacts.co.uk.

And they all require some form of financial backing from family or friends of the borrower. This makes the guarantor responsible for any missed mortgage payments.

It means Skipton's new no-deposit mortgage is the first of its kind to be available since 2008.

Can I afford to buy the home I rent with a 100% mortgage?

In the North East and Scotland, it works out cheaper to buy the home you rent with a 100% mortgage than to continue renting.

However, as you travel further south, the cost of paying a mortgage becomes more expensive as property values increase.

In London, where the average rent is £1,815 pcm, the monthly mortgage repayments on a £512K mortgage tested to an 8% stress rate would work out to be more than double the cost of renting, at £3,787.

That said, the repayments at a 5% mortgage rate would be considerably lower at £2,773.

A similar picture emerges for the South East, where rents are currently £1,160 pcm but monthly mortgage payments for a £300K mortgage tested to 8% would be £2,236.

The repayments at a 5% mortgage rate would be £1,638.

How much would it cost to buy the home I rent with a 100% mortgage?

The calculations below compare the cost of renting a home versus the cost of buying it across the UK.

The chart shows calculations based on a 35-year mortgage term for maximum buying power.

Why has Skipton Building Society brought out a 100% no-deposit mortgage?

Skipton has said that their 100% no-deposit mortgage aims to help renters trapped in renting cycles.

“We know there isn’t one quick solution to addressing this huge societal challenge of tenants being trapped in renting cycles, with rents escalating faster than mortgage payments and the increasing costs of living,” says Charlotte Harrison from Skipton.

“But doing nothing isn’t going to solve this UK housing issue.

"As a responsible lender, we need to be sensible with our approach for bringing this product to the market and ensure tenants don’t take on more than they can realistically afford.

“We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy.”

Our take on the 100% no-deposit mortgage

Our Executive Director of Research, Richard Donnell says: "The reduction in availability of higher LTV mortgages has had a big impact on first-time buyers, where the deposit required is the biggest barrier to home ownership.

"Data from the FCA shows that just 6% of first time buyers used a mortgage at or over 90% LTV in 2021."

Understanding loan-to-value ratios

"First time buyers who can raise a 20% deposit would see their mortgage repayments become up to 20% less than the monthly cost of renting in all regions of the UK outside of the south east of England, even with mortgage rates of 5%.

"But to do this, many will need to get help from parents and family.

"The introduction of 100% loans is designed to assist those with small deposits to access home ownership.

"The proposals from Skipton require the mortgage to cost the same - or less - than the monthly rental payments.

"This means the scheme will primarily benefit renters in more affordable housing markets in the north of England and Scotland, where house prices are lower, making a 100% mortgage more attainable.

"The scheme is unlikely to work as well in southern England, where prices are much higher, meaning mortgage repayments would be well over the level of rents.

"The exception would be if first-time buyers were moving from a home where the rent is currently high, for example central London or central Manchester, to the outskirts of a city where the mortgage for a property is likely to be cheaper.

"High loan to value lending is set to remain a niche product but innovations such as this do help improve home ownership options for some households.

"That said, households will be wary of negative equity, should prices fall back in the areas where this product works."

What other 100% mortgages are available?

A handful of lenders already offer 100% mortgages that require some form of guarantee from a parent, family member or friend.

For example, Barclay’s Family Springboard Mortgage enables first-time buyers to borrow 100% of their property’s value if a ‘helper’ deposits savings equivalent to 10% of the purchase price in a designated savings account.

Other deals require family members to guarantee a portion of the loan above a certain level.

Compare 100% mortgage deals at Money.co.uk

Other financial help for first-time buyers

If a 100% no-deposit mortgage isn’t right for you, a buying scheme could be an option instead.

There are a number of schemes available to help you buy a property if you’re able to save a small deposit.

The government’s Mortgage Guarantee Scheme enables first-time buyers and home-movers to purchase a property with just a 5% deposit.

Meanwhile, First Homes enables local first-time buyers and key workers to purchase a home at a 30% discount to its market price, and Shared Ownership enables people to buy a share in a property and pay rent on the rest.

Housebuilder Fairview New Homes recently launched a Save to Buy initiative, under which first-time buyers move into their home and pay ‘rent’ at a fixed cost for between six months and two years, with the money set aside until it is enough to use as a deposit to qualify for a mortgage.

A total of 5,146 mortgage products are now available, the highest level since February 2022, according to financial information group Moneyfacts.

The increase in choice is across all deposit levels, with nearly 140 new products launched for people with only a 10% deposit, taking the total number to 684 and putting it on a par with availability for those with a 40% deposit.

Meanwhile, the number of different mortgages available for people with a 15% deposit has reached its highest level since Moneyfacts records began.

What's happening with mortgage rates?

Mortgage rates rose sharply and lenders withdrew large numbers of products in the wake of former Chancellor Kwasi Kwarteng’s mini-budget in September last year.

But rates have been on a steadily downward path since October, as lenders repriced their deals following falls in the rate at which they borrow money for fixed rate mortgages.

The average interest rate charged on a five-year fixed rate mortgage dropped by 0.23%, despite the Bank Rate increasing by 2% during the same period.

However, inflation remains stubbornly high, meaning interest rates are unlikely to drop much further for the rest of this year.

Average rates for different loan-to-value mortgages

Product choice for first-time buyers has increased, not just for those with a 10% deposit, but also for those with a 5% one, with the number of deals in this space rising to 204 now, up from 161 in March and just 34 two years ago.

The average interest rate charged on five-year fixed rate mortgages for people with a 5% deposit has also fallen slightly, dropping by 0.06% to 5.27%.

However, mortgage costs for buyers with a 10% deposit have seen slight increases, with two-year deals rising by 0.14% and five-year ones by 0.27% to stand at 5.64% and 5.26% respectively.

For people borrowing 60% or less of their home’s value, the cost of deals has bucked the trend in the wider mortgage market.

Two-year fixed rate products have dropped by 0.06% to average 4.95%, while five-year ones have fallen by 0.11% to 4.65%, as lenders continue to compete for business in this sector.

What should I do if I need to remortgage?

The average interest rate charged on a standard variable rate mortgage – the rate you are automatically moved to when your existing deal ends if you do not remortgage – has risen to 7.3%, the highest level since February 2008.

The cost of a two-year tracker mortgage compared with a two-year fixed rate one has narrowed during the past month, with tracker deals now averaging 5.02%.

Unlike a fixed rate mortgage, the interest rate charged on a tracker mortgage moves up and down in line with changes to the Bank Rate.

This means that if interest rates rise again, so will your monthly mortgage repayments, but if they fall, the amount you pay will go down.

Meanwhile, five-year fixed rate mortgages continue to be cheaper than two-year ones.

Mortgage rates crept up a little in April, with the average cost of a five-year deal edging ahead by 0.05% to 5.05%, while two-year fixed rate mortgages rose by 0.03% to 5.35%.

This suggests that mortgage lenders expect interest rates to remain high in the short term, but be lower again in three to five years’ time.

Best buy deals offering interest rates of below 4% are still available to homeowners with large deposits and we expect new fixed-rate mortgages to largely remain between 4% to 4.75% on average for most of 2023.

The number of mortgage searches done on behalf of first-time buyers jumped by more than a fifth during February and March.

The uplift suggests first-time buyers are taking advantage of the slowdown in activity in the housing market to step on to the property ladder.

However, following steep house price rises during the pandemic, first-time buyers are employing a range of strategies to own a home.

First-time buyers taking out longer mortgage terms

The number of first-time buyers opting for longer mortgage terms is continuing to increase, according to data from trade body UK Finance.

Nearly four out of 10 first-time buyers are taking out a mortgage over 30 to 35 years, while 17% choose a term that is even longer.

Repaying a mortgage over a longer period can significantly reduce monthly repayments, making the loan more affordable.

For example, if you borrowed £200,000 over 25 years with an interest rate of 4%, your monthly mortgage payments would be £1,056.

If the mortgage term was extended to 35 years, the monthly repayments would be £886, while with a 40-year term they would fall to £836.

However, there is a downside to this strategy, as it means you end up paying significantly more interest on your mortgage.

Interest payments on the example above would total £116,702 if the mortgage was repaid over 25 years, but would soar to £201,221 if it was repaid over 40 years.

First-time buyers look to purchase smaller homes

Another trend that has emerged in recent months is for first-time buyers to settle for smaller properties.

Higher mortgage rates mean people’s buying power has fallen by 20% in the past year.

As a result, the majority of first-time buyers are now purchasing one and two-bedroom homes for the first time since 2010, according to estate agents Hamptons.

With rents increasing and competition for rental homes intensifying, many first-time buyers have decided they would rather choose to live in a smaller property that they own.

Saving less for a deposit

One of the biggest hurdles first-time buyers face is saving for a deposit, with people taking their first step on the property ladder putting down an average of £62,500, according to Halifax.

The good news is that the number of mortgages that require low deposits has increased in recent months.

There are now 204 mortgages for people with only a 5% deposit, up from just five in March 2021 and 132 in October last year, and 684 for those who have 10% to put down, compared with 295 six months ago.

The government’s Mortgage Guarantee Scheme, under which first-time buyers and home-movers can purchase a property with just a 5% deposit, has also been extended to run until the end of this year.

Government schemes for first-time buyers

There are also a raft of government schemes first-time buyers can use to help step onto the property ladder.

• Shared Ownership enables people to buy a share in a property and pay rent on the rest.

• First Homes enables local first-time buyers and key workers to purchase a home at a 30% discount to its market price.

• The Lifetime ISA enables first-time buyers to save up £4,000 a year and the government then adds a 25% bonus - up to a maximum of £1,000 annually. The money must be used to either purchase a first home or for retirement.

House builders are also offering their own schemes, such as Fairview New Homes’ Save to Buy initiative.

The scheme enables first-time buyers to move into their home and pay ‘rent’ at a fixed cost for between six months and two years.

This money is then set aside until they have a big enough deposit to qualify for a mortgage on the property.

A new bill protecting renters from unfair rent increases and ‘no fault’ evictions is set to be introduced to Parliament next week.

The Renters' Reform Bill contains a package of measures to improve the private rented sector and increase the rights of tenants.

The bill, which will be published for the first time next week is expected to set minimum standards that all rental homes will have to meet, make it easier for renters to have pets, and prevent landlords from having blanket bans on families with children or people receiving benefits.

The government has described the measures as the biggest shake up to the private rented sector for 30 years.

But it is unclear when the measures will come into force. The bill will take time to go through the legislative process, so it could be 12 to 18 months before it becomes law.

The bill comes as renters face a shortage of homes in the private rented sector, pushing rents higher at a time when renters are already struggling with the cost-of-living squeeze.

What will change?

While the exact contents of the bill are not yet known, many of the measures have been widely flagged by the government.

The key aim of the bill is to enhance renters’ rights and ensure their homes are fit to live in.

Here's what's expected to be announced:

1. Arbitrary rent review clauses will be outlawed.

2. The amount of notice renters will be given about rent increases will be doubled.

3. Renters will have stronger powers to challenge rent rises if they think they are unjustified.

4. The Decent Homes Standard will be extended to cover the private rented sector for the first time, to ensure all private rented properties are fit for occupation. If homes fall below this standard, people will have their rent repaid.

5. Section 21 ‘no fault’ evictions will be banned, meaning tenancies will only end if a renter wants them to, or the landlord has a valid reason, defined in law, to do so.

6. Going forward, all renters will be moved into a single system of ‘periodic tenancies’, enabling them to leave poor quality housing without remaining liable for the rent, and making it easier for people to move if their circumstances change.

7. Councils will be given stronger powers to tackle rogue landlords, including larger fines for serious offences.

8. A new Private Renters’ Ombudsman will also be created to settle disputes between renters and landlords quickly, at a low cost and without having to go to court.

9. Renters will be given the right to ask to have a pet in their home. Landlords must consider the request and cannot unreasonably refuse it.

10. Renters will also be able to demand information on their landlord and rate them following the introduction of a mandatory landlords’ register.

Why is this happening?

Around 4.4 million people currently rent their home in the private sector.

But one in five live in properties that are deemed to be unfit, more than half of which pose a risk to renters’ health and safety, according to the government.

Meanwhile, research shows that more than a fifth of private renters who moved in 2019 and 2020 did not do so by choice.

The government hopes the new bill will redress the balance between landlords and tenants and, by banning ‘no fault’ evictions, provide renters with more stability.

Who does it affect?

While the bill is good news for renters and provides them with additional protections, there are concerns that it could lead to some landlords leaving the private rented sector.

Research by the National Residential Landlords Association found that 76% of landlords felt their business was threatened by the bill, with 93% saying it would increase the financial risk of being a private sector landlord.

Rents have increased by 10.9% during the past year to average £1,120.

The rise has been caused by a large increase in demand combined with a shortage of available homes to rent, according to our latest research.

A combination of tax changes, increased regulation and higher interest rates have caused many buy-to-let landlords to exit the sector in recent years.

If the bill causes more landlords to sell up, it could put further upward pressure on rents.