Hanley Economic Building Society has introduced a new mortgage product tailored for first-time buyers who wish to step onto the property ladder without requiring a deposit. The Rent to Own mortgage scheme allows borrowers to access up to £350,000, provided they earn a minimum of £25,000 annually. The loan amount is limited to 133% of the applicant’s current monthly rent, with the UK average rent standing at £1,366 per month. This means potential borrowers could secure a mortgage with monthly payments reaching £1,817. Applicants will undergo standard credit assessments as part of the process.
The mortgage product offers a fixed interest rate of 5.79% for five years, positioning it as a pricier option compared to similar offerings that mandate a deposit.
In contrast, Leek Building Society provides a 4.56% rate for five years with a 5% deposit, while Co-operative Bank offers a fixed 4.5% rate for two years with the same deposit requirement.
Experts caution that opting for a 100% mortgage exposes individuals to the risk of negative equity should house prices decline. Ranald Mitchell, Director at Charwin Mortgages, advises that while the absence of a deposit may seem appealing, it leaves buyers without a financial cushion. He stresses the importance of maintaining impeccable payment conduct and acknowledges the higher rates associated with such specialized mortgage products.
Skipton Building Society recently unveiled its Track Record Mortgage, which demands no deposit from renters who can demonstrate 12 months of timely rent payments and possess a favorable credit history. The monthly mortgage payment must not exceed the average of the applicant’s last six months’ rental costs.
Although other no-deposit mortgage options exist in the market, they typically necessitate a guarantor to support the borrower. In such cases, a guarantor, usually a homeowner family member or friend, is included in the mortgage agreement to cover missed payments if they occur.