A new mortgage product has been introduced by a building society to assist first-time buyers in entering the property market without a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, allowing borrowers to access up to £350,000. To qualify, applicants must have a minimum annual income of £25,000, and the loan amount is limited to 133% of their current monthly rent.
With the average UK rent at £1,366 per month, individuals could potentially secure a mortgage with monthly payments reaching £1,817. Despite undergoing standard credit checks, borrowers can take advantage of a fixed interest rate of 5.79% for five years, which is comparatively higher than deposit-required products available in the market.
For instance, Leek Building Society provides a 4.56% rate for five years with a 5% deposit, while Co-operative Bank offers a 4.5% rate fixed for two years with the same deposit percentage. Mortgage experts caution that opting for a 100% mortgage may increase the risk of negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, emphasized the importance of timely rent payments and responsible financial conduct for potential buyers considering a deposit-free mortgage. He explained that while this option eliminates the need for a substantial deposit, it also entails higher interest rates and stringent payment history requirements.
Skipton Building Society recently launched the Track Record Mortgage, requiring no deposit for renters with a year of on-time rent payments and a positive credit history. The monthly mortgage payment cannot exceed the average of the applicant’s last six months’ rental costs.
Although various no-deposit mortgage deals exist, they typically necessitate a guarantor to back the borrower. This involves a homeowner family member or friend being named on the mortgage, agreeing to cover missed payments if the borrower defaults.