Wrestle with PESTLE: no-deposit mortgages

Reading time: 12 minutes 

This LCN Says is part of LawCareers.Net’s ‘Wrestle with PESTLE (WWP)’ series, which looks at various business case studies using the PESTLE technique. 

Prefer to listen? You can listen to our brand new Commercial Connect podcast series on Spotify, Soundcloud, Apple Podcasts or any of your favourite podcast platforms, or on the LawCareers.Net Podcast hub. 

PESTLE stands for: 

• political; 
• economic; 
• sociological; 
• technological; 
• legal; and
• environmental. 

This technique involves using these six external factors to analyse the impact on a business and/or industry. 

Case study: Skipton Building Society’s 100% mortgage 

The UK has a housing problem: the average first-time buyer deposit is £61,000; the average age of a first-time buyer is 33; and the number of first-time buyers declined by 9% between 2021 and 2022. The barriers to buying a home have become so drastic that the term ‘generation rent’ has been coined to describe adults between the ages of 18 to 40 who’ve been priced out of the housing market. That’s an entire generation of people who’ve demonstrated they can clearly fund their mortgage because they make their rental payments each month, but simply can’t afford to save for a deposit because of these rental payments. In fact, according to leading conveyancing and property service The Property Portal, rent has risen by 20% in the past three years alone, with landlords securing an additional £2,200 on average each year.  

However, more recently, in an exciting attempt to aid aspiring first-time buyers in securing their place on the property ladder, Skipton Building Society announced the UK’s first 100% mortgage since the 2008 financial crash. Skipton’s mortgage will mean that no down payment will be necessary for first-time buyers seeking to secure a mortgage. So far, the initiative has received mixed reviews, with some commentators labelling the mortgage “revolutionary”, while others warn of its potential “grave danger”. But what are the greater impacts of the scheme beyond its help for first-time renters? Keep reading for a breakdown of the scheme’s impact to expand your commercial awareness.   

Political 

With a general election looming, a national housing crisis at its peak and the government’s Renter Reform Bill being announced, housing has never been such a political issue. According to think tank Centre for Cities (CFC), “across England, the average house costs more than 10 times the average salary, vacancy rates are below 1%, and space per person for private renters has dropped substantially in recent decades”. To add to this, compared to the average European country, “Britain today has a backlog of 4.3 million homes that are missing from the national housing market”, demonstrating the severity of the UK’s housing crisis. But how does this all relate to Skipton’s 100% mortgage? 

The exact impacts of Skipton’s initiative are difficult to define at this early stage; however, with a potential shift in focus from rental properties to home ownership, Skipton is placing a magnifying glass on the housing problems plaguing Britain.  

In the past month, both the Conservative Party and Labour Party have made announcements relating to Britain’s housing problems. The Conservatives announced its Renters Reform Bill, which would afford renters greater protections from landlords and Labour Party leader Kier Starmer pledged to afford local authorities more power to build on green belt land should Labour win at the next general election. On top of this, at the Progressive Britain Conference, Starmer made a point of highlighting housing as a key issue for Labour. This was a bold move and can be understood as a deliberate dig at the Conservative Party, after its manifesto had pledged to build 300,000 new homes a year by the mid-2020s and has since failed to deliver. The Conservative Party has dropped this target, sending the party into an internal war between the NIMBYs, who don’t want to see building take place on the green belt, and red wall Tories, who want to see more affordable housing built quickly. For those not familiar with the term, ‘NIMBY’ stands for ‘not in my backyard’ and reflects the views of British homeowners who’ve long since benefitted from the UK’s land policies that prevent building new homes so as to preserve the British countryside. These policies are described as “some of the most restrictive [policies] in the world”. 

Housing is now a “key political fault line in British politics”, with former levelling up secretary and senior Conservative MP Simon Clarke, suggesting that abandoning its previous housing policy pledge is what cost the Tories valuable seats at recent local elections. Skipton’s 100% mortgage is yet another factor drawing attention to housing as a key political issue in 2023, with potential policy reforms looming as both parties assess their priorities ahead of the 2025 general election. 

Therefore, while Skipton’s initiative may play a minor role in increasing the physical demand for new homes, the no-deposit mortgage can be understood as spurring a broader, multifaceted solution to Britain’s housing problem. But, of course, comprehensive policy measures, planning reforms and an increased investment in affordable housing are all necessary combinable approaches to tackle the UK’s issue of home ownership.  

Economic 

Outside of Skipton’s scheme, those looking to buy a home would typically have to save between 10-20% of the overall mortgage cost to make a down payment on a property, with the rest being paid over instalments. For context, if you want to purchase a property that’s worth £200,000: 

• a 10% deposit is £20,000;  
• a 15% deposit is £30,000; and 
• a 20% deposit is £40,000.  

Whether 10% or 20%, these sums of money cause a significant barrier for those looking to get on the property ladder. Skipton’s 100% mortgage seeks to tackle this and has been designed to help those who: 

• feel “trapped in rental cycles”; 
• don’t have access to family wealth; and 
• can make rental payments but are unable to save large sums of money. 

The move signifies a level of confidence from Skipton in the stability of the market and may in turn prompt other lenders to reassess their current services and offerings. There is, however, a concern about what this shift in activity could mean for first-time buyers who purchase 100% mortgage homes. 

The number of first-time buyers in the UK has maintained a steady increase since the pandemic, signifying that the increasing costs of owning a home aren’t putting aspiring buyers off the opportunity. The percentage share of first-time buyers increased by 4% in 2022, up from 48% in 2021 to 53% in 2022. This dedication to own a home could be further accelerated by Skipton offering increased accessibility to home ownership and therefore an increased demand for homes. Such a demand could lead to higher transaction volumes, increased property sales and potentially higher property prices in certain areas. If we were to consider this impact through the theory of supply and demand economics, concerns may begin to grow surrounding the risks of negative equity. 

If potential first-time buyers are no longer required to save large sum deposits, they’re likely to be more willing to purchase slightly more expensive properties than they’d initially intended. In such an instance, an issue arises when these homeowners come to sell their property and realise it isn’t valued at the price they were initially willing to pay meaning the property is now in negative equity.  

Negative equity, as explained by financial website of the year This is Money, “occurs when the outstanding mortgage owed on a home is more than the value of the property itself”. The concern surrounding Skipton’s 100% mortgage is that first-time buyers will overextend themselves and even the slightest shift in house prices (which some experts say could fall as much as 35% by 2025) would leave homeowners with properties worth significantly less than their mortgage balance.  

Rita Kohli, managing director at The Mortgage Stop, noted that while “Skipton is one of the few lenders who look to actually help people”, Skipton’s advisers will “need to make sure clients understand the risk of negative equity very clearly”. Adding that launching this scheme within the current housing market “where house prices could fall further is a concern”.  

Social  

After the grave warnings that an economic angle offered us, the social perspective offers a slightly brighter outlook on 100% mortgages.  

With the recent passing of Social Mobility Day, it’s important to reiterate that the idea behind Skipton’s initiative is to widen access to home ownership. By implementing a track record mortgage, Skipton set out to tackle “the UK’s housing affordability crisis” and has taken the lead on what it describes as “a massive social problem”.  

In a recent survey of 2,200 UK adults who’ve never owned a home, 33% of respondents said they believe they’ll never be able to own a home, with 36% stating that to own a home they’d need to rely on family wealth or financial support schemes, at least partially. A track record mortgage removes the demand for first-time buyers’ reliance on generational wealth or the ‘bank of mum and dad’ and instead assesses potential homeowners’ history of rental payments.  

Charlotte Harrison, CEO of home financing at Skipton, said: “People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society. 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 to get onto the property ladder.” 

By opening the housing market to a diverse new pool of previously ostracised potential first-time buyers, a new generation has the potential to build equity over time. If users of this scheme maintain their homes, as property values appreciate homeowners have the potential to accumulate wealth. This in turn could have inter-generational impacts with homeowners able to pass down their assets to future generations.  

Homeownership has become increasingly less accessible over the years, but initiatives such as Skipton’s, or shared ownership property schemes offer hope to ‘generation rent’. 

Technological  

Analysing commercial issues using the full PESTLE acronym isn’t always easy, and this topic is one of those few times where identifying technological factors surrounding Skipton’s 100% mortgage is incredibly difficult. Here are a few issues that sprung to mind: 

• The application process being run completely through the use of technology. 
• The use of technology to make the building of new homes faster and reduce production costs. 
• The issues that might come with using ChatGPT as a financial adviser to assess the benefits and risks of a 100% mortgage. 

Can you think of any other technological impacts of Skipton’s new mortgage?  

Legal 

In light of the recently announced Renters Reform Bill, it’s important to consider whether, with all these new protections being put in place for tenants, it’s safer to stick to renting right now. 

Despite its appeals, Skipton’s no-deposit mortgage poses risks, such as negative equity and the housing market’s current instability, so let’s explore the perks of sticking to renting for a while longer.  

The Renters Reform Bill has been described as “the biggest shake-up of the private rental market for a generation”. It poses the potential to create a fairer, more balanced system between private renters and landlords. So, what specifically will this proposed legislation change? 

If enacted, the bill will: 

• end no-fault evictions;? 
• eliminate blanket bans on pets;?? 
• set minimum standards for the quality of housing;? 
• make it illegal for landlords to place a blanket ban on renting to tenants in receipt of benefits; and 
• appoint a new ombudsman to review disputes between tenants and landlords. 

Reactions towards the bill have been overwhelmingly positive from renting campaigners, with the Evening Standard going as far as to say that “the rental health of the City depends on it”.   

At current, it’s no wonder private renters are so desperate to get on the housing ladder, with one in three spending at least half their income on rent and 43% reporting ‘bad’ or ‘very bad’ rental experiences. However, housing charity Shelter has stated that the bill has the potential to “be the beginning of a fairer system”, adding that it was working to ensure “the government delivers the life-changing reforms that are so desperately needed”.  

If the bill becomes law, freeing renters from the constant fear of eviction and granting them access to a landlord registry, renting could be an increasingly attractive alternative to Skipton’s mortgage, particularly given the housing market’s current volatility.  

Environmental 

For the final element of the PESTLE analysis, let’s venture slightly into the hypothetical to discuss the potentiality of Skipton’s initiative creating a demand for new homes to be built. Skipton’s 100% mortgage was announced only in the past month. Combined with the turbulence of the current housing market, this makes it difficult to predict exactly what the long-term impact of easily accessible mortgages will be. However, in the interests of a full PESTLE analysis, let’s jump back to the first point in this article regarding building on the green belt and NIMBYism.  

To truly tackle the UK housing crisis, approximately 345,000 new homes need to be built every year. By building on just 5.2% of the green belt, 1.4 million homes could be made available. The NIMBY argument relates to the 1947 Town and Country Planning Act, which stipulates that towns and cities should be afforded a ring of countryside in which agriculture, forestry and wildlife can flourish. The desire to preserve the British countryside is a noble one; however, as pointed out by CITY A.M. a large portion of the green belt is in fact not green. A significant 18% is classed as “neglected”, with derelict buildings, rubbish and electricity pylons across its breadth. Paul Cheshire, of the London School of Economics, describes the green belt as actually having a negative net environmental effect.  

Not only does it appear that there’s no significant environmental cost to building on parts of the green belt, but arguably the social cost of not doing so has also become too high. At current, just under 40% of private tenants live in poverty when factors such as housing costs are taken into account. In addition, children who grow up in cramped or inadequate housing are 25 times more likely to experience severe health issues and twice as likely to leave school without GCSEs.  

The announcement of Skipton’s new mortgage has refocused conversations across the UK on the current housing crisis. With the knowledge that not all of the green belt is ‘green’, many are left wondering why Rishi Sunak abandoned the government’s planning target of building 300,000 new homes a year. 

The verdict 

From Skipton's groundbreaking no-deposit mortgage to the tumultuous housing market, we've delved into a rollercoaster ride of political, economic, social, technological, legal and environmental factors shaping the housing landscape. As the chaos unfolds, renting may emerge as a safer haven amidst the housing market's wild swings. But the emergence of Skipton’s initiative does offer new hope to those who once considered stepping onto the property ladder nothing but a pipe dream. So, buckle up and stay informed with our PESTLE content because, much like the housing market, your commercial awareness knowledge should never be stagnant.  

Make sure you keep up with our Wrestle With PESTLE content by signing up to LawCareers.Net and checking out the Commercial Connect newsletter! 

Niamh Gray (they/them) is a content and engagement coordinator at LawCareers.Net