A new mortgage product has been introduced by a building society to assist first-time buyers in entering the property market without the need for a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, enabling borrowers to access up to £350,000. To qualify, individuals must have an annual income of at least £25,000, with the loan capped at 133% of their current monthly rent.
With the average UK rent set at £1,366 per month, potential borrowers could secure a mortgage with monthly payments reaching £1,817. However, applicants will still undergo standard credit assessments. The fixed interest rate for this product is 5.79% for a five-year term, making it relatively more costly compared to other options in the market that necessitate a deposit.
For instance, Leek Building Society offers a 4.56% rate for five years with a 5% deposit, while Co-operative Bank provides a 4.5% rate fixed for two years with a 5% deposit. Mortgage experts caution that opting for a 100% mortgage may expose borrowers to 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 ensuring that the new mortgage is financially viable. While a 100% mortgage lacks a safety buffer, it could be a viable option for renters struggling to save a substantial deposit.
In a similar move, Skipton Building Society launched the Track Record Mortgage in 2023, which requires no deposit but necessitates 12 months of on-time rent payments and a favorable credit history. Monthly mortgage payments should not exceed the average of the applicant’s last six months of rental expenses.
While other no-deposit mortgage options exist, they typically involve having a guarantor, such as a family member or friend who owns a property, to back the borrower. This individual would be responsible for covering any missed mortgage payments.