Hanley Economic Building Society has introduced a new mortgage product that enables first-time buyers to enter the property market without needing a deposit. The Rent to Own mortgage allows borrowers to access up to £350,000, with a requirement of earning a minimum of £25,000 annually. The loan amount is capped at 133% of the borrower’s current monthly rent, with the average UK rent standing at £1,366 per month. This means potential borrowers could secure a mortgage with monthly payments reaching £1,817. Applicants must undergo standard credit checks for eligibility.
The mortgage comes with a fixed interest rate of 5.79% for five years, positioning it as a pricier option compared to other offerings that necessitate a deposit. For instance, Leek Building Society offers a 4.56% rate over five years with a 5% deposit, while Co-operative Bank provides a 4.5% fixed rate for two years with the same deposit percentage.
Experts caution that opting for a 100% mortgage could expose borrowers to the risk of negative equity if property prices drop. Ranald Mitchell, Director at Charwin Mortgages, emphasizes the importance of meeting rent payment obligations and maintaining a sound financial track record to qualify for such mortgages. While this type of product may come with higher interest rates and stringent payment conduct requirements, it can offer a viable path to homeownership for diligent renters struggling to save for a deposit.
In a similar move, Skipton Building Society launched its Track Record Mortgage in 2023, catering to renters with a year of punctual rent payments. This product demands a solid credit history and stipulates that the monthly mortgage payment must not exceed the average of the applicant’s last six months of rental expenses. While other no-deposit mortgage options exist, they typically necessitate a guarantor to back the borrower, who would be responsible for covering missed mortgage payments.
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