A new mortgage product has been introduced by a building society, offering first-time buyers the opportunity to enter the property market without a deposit requirement. Hanley Economic Building Society has launched the Rent to Own mortgage, allowing borrowers to secure loans of up to £350,000. To be eligible, individuals must have a minimum annual income of £25,000, and the loan amount is limited to 133% of their current monthly rent.
The average monthly rent in the UK stands at £1,366, potentially enabling individuals to obtain a mortgage with monthly payments of up to £1,817. Applicants will still undergo standard credit assessments. This mortgage product offers a fixed interest rate of 5.79% for five years, which is comparatively higher than other products in the market that necessitate a deposit.
For instance, Leek Building Society provides a 4.56% rate for five years with a 5% deposit, while Co-operative Bank offers a fixed 4.5% rate for two years with a 5% deposit. Mortgage experts caution that opting for a 100% mortgage could expose individuals to the risk of negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, emphasizes that while a 100% mortgage may eliminate the need for a substantial deposit, it also comes with risks. He advises that borrowers must maintain a strong payment record, as higher rates and stringent payment conduct requirements are associated with such specialized products. However, for renters aiming to step onto the property ladder without significant savings, this could provide a viable opportunity.
Skipton Building Society recently launched its Track Record Mortgage, requiring no deposit from renters who can demonstrate 12 months of on-time rent payments and possess a favorable credit history. The monthly mortgage payment should not exceed the average of the applicant’s last six months’ rental costs. Alternative no-deposit mortgage options exist in the market but necessitate a guarantor to support the borrower, typically a family member or friend who owns property and agrees to cover missed mortgage payments.