Hanley Economic Building Society has introduced a new mortgage product that allows first-time buyers to purchase a home without a deposit. This Rent to Own mortgage permits borrowers to apply for loans up to £350,000, requiring a minimum annual income of £25,000. The loan amount is limited to 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 of up to £1,817, subject to standard credit evaluations.
The interest rate for this product is fixed at 5.79% for five years, which is higher compared to other mortgage options in the market that necessitate a deposit. 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.
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, explains that while this type of mortgage offers an opportunity for renters to enter the property market without a substantial deposit, it also comes with higher interest rates and requires impeccable payment conduct.
Skipton Building Society recently launched its Track Record Mortgage, which demands no deposit but necessitates renters to demonstrate 12 months of timely rent payments and a positive credit history. The monthly mortgage payment should not surpass the average of the applicant’s last six months of rental costs.
While there are other no-deposit mortgage options available, they typically require a guarantor to support the borrower. A guarantor, usually a family member or friend who owns a property, is included in the mortgage agreement and is responsible for covering missed mortgage payments.