A new mortgage product has been introduced by a building society, offering first-time buyers the opportunity to enter the property market without a deposit. Hanley Economic Building Society’s Rent to Own mortgage permits borrowers to secure loans up to £350,000, requiring a minimum annual income of £25,000 and capping the loan at 133% of the applicant’s current monthly rent.
With the average UK rent standing at £1,366 per month, potential mortgage payments could reach up to £1,817 monthly. Applicants will undergo standard credit checks, and the mortgage carries a fixed interest rate of 5.79% for five years, making it relatively more expensive compared to deposit-required alternatives on 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% fixed rate for two years with a 5% deposit. However, mortgage experts caution that 100% mortgages could expose borrowers to negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, emphasized the importance of financial discipline when considering such mortgages. He noted the potential risks of entering the market without a deposit, highlighting the need for a strong payment history and the possibility of higher interest rates.
Skipton Building Society recently launched its Track Record Mortgage in 2023, requiring no deposit for renters with a year of timely rent payments and a favorable credit history. Monthly mortgage payments must not exceed the applicant’s average rental costs over the preceding six months.
While other no-deposit mortgage deals exist, they typically necessitate a guarantor to support the borrower, usually a family member or friend who owns a property and agrees to cover missed mortgage payments.
