A new mortgage product has been introduced by a building society aimed at first-time buyers looking to purchase a property without a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, allowing borrowers to access up to £350,000. To qualify, 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 borrowers to secure a mortgage with monthly payments of up to £1,817. Applicants will undergo standard credit checks as part of the process. The mortgage comes with a fixed interest rate of 5.79% for five years, which is higher compared to other products in the market that require a deposit.
In comparison, Leek Building Society offers a 4.56% rate for five years with a 5% deposit, while Co-operative Bank provides a 4.5% fixed rate for two years with a 5% deposit. Mortgage experts caution that opting for a 100% mortgage could expose borrowers to negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages, emphasized the importance of financial discipline for renters considering such a mortgage. He highlighted the potential risks of buying without a deposit, including the higher interest rates associated with specialist 100% products. However, for renters struggling to save for a deposit, this could offer a viable entry onto the property ladder.
Skipton Building Society recently launched its Track Record Mortgage in 2023, catering to renters with no deposit requirement but who can demonstrate 12 months of timely rent payments and possess a good credit history. The monthly mortgage payment for each applicant must not exceed the average of their last six months’ rental costs.
While other no deposit mortgage options exist, they typically necessitate a guarantor to support the borrower. A guarantor, usually a family member or friend who owns a property, is included in the mortgage agreement and is responsible for covering missed mortgage payments.