A new mortgage product has been introduced by a building society to assist first-time buyers in entering the property market with no deposit required. Hanley Economic Building Society is offering the Rent to Own mortgage, allowing buyers to borrow up to £350,000. To be eligible, borrowers must have a minimum annual income of £25,000, with the loan capped at 133% of their current monthly rent.
The average monthly rent in the UK stands at £1,366, enabling individuals to potentially secure a mortgage with monthly payments reaching up to £1,817. Applicants will undergo standard credit checks as part of the process. The interest rate for this mortgage is fixed at 5.79% for the first five years, making it relatively more expensive compared to deposit-required products available in the market.
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 increase the risk of negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, noted that while the Rent to Own mortgage offers an opportunity for renters to enter the property market without a substantial deposit, it comes with risks. Mitchell emphasized the importance of maintaining a good payment record and being prepared for potential rate differences and the absence of a deposit safety net.
Recently, Skipton Building Society introduced the Track Record Mortgage, requiring no deposit for renters who can demonstrate 12 months of on-time rent payments and possess a favorable credit history. Monthly mortgage payments under this scheme must not exceed the average of the applicant’s last six months of rental costs.
While other no-deposit mortgage options exist, they typically necessitate a guarantor to back the borrower. This involves a family member or friend who owns a home being named on the mortgage and agreeing to cover missed mortgage payments if necessary.