Hanley Economic Building Society has introduced a new mortgage product that enables first-time buyers to enter the property market without a deposit. The Rent to Own mortgage allows borrowers to secure up to £350,000, provided they earn a minimum of £25,000 annually, with the loan capped at 133% of their current monthly rent.
With the average UK rent standing at £1,366 per month, individuals could potentially access a mortgage with monthly payments reaching £1,817. However, applicants must undergo standard credit checks before approval. The fixed interest rate for this product is 5.79% for a five-year term, making it pricier than other deposit-requiring options 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 fixed 4.5% rate 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, emphasized that renters with a history of timely rent payments and a feasible mortgage payment compared to their current rent might qualify for a deposit-free purchase. However, he also highlighted the potential downsides, such as higher interest rates and the need for impeccable payment conduct.
Skipton Building Society recently launched its Track Record Mortgage, requiring no deposit for renters with a year of punctual rent payments and a favorable credit record. The monthly mortgage payment should not exceed the average of the applicant’s last six months’ rental expenses. While other no-deposit mortgage options exist, they typically necessitate a guarantor, like a family member or friend who owns a property and agrees to cover missed mortgage payments.