Hanley Economic Building Society has introduced a new 100% mortgage option tailored for first-time homebuyers aiming to step onto the property ladder without a deposit. Termed as Rent to Own mortgage, this offering enables borrowers to secure loans up to £350,000. To qualify, individuals must have a minimum annual income of £25,000, and the loan amount is capped at 133% of their existing monthly rent.
With the average UK rent standing at £1,366 per month, potential borrowers could potentially access a mortgage with monthly payments reaching up to £1,817. Applicants will still undergo standard credit evaluations. The interest rate is fixed at 5.79% for a five-year term, positioning it as a pricier alternative compared to other products in the market that necessitate a deposit.
For instance, Leek Building Society presents a 4.56% rate for five years with a 5% deposit, while Co-operative Bank offers a 4.5% fixed rate for two years with a 5% deposit. Mortgage experts caution that opting for a 100% mortgage could heighten the risk of falling into negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, explains that demonstrating consistent rent payments and ensuring the affordability of the new mortgage compared to rental expenses can facilitate home purchase without a substantial deposit. However, he highlights the absence of a financial safety net and the potential for higher interest rates with such specialized products.
Recently, Skipton Building Society launched its Track Record Mortgage, requiring no deposit and targeting renters with a year of punctual rent payments and a positive credit history. The monthly mortgage payment for each applicant should not exceed the average of their last six months’ rental costs. While various no-deposit mortgage options are available, they typically necessitate a guarantor to support the borrower, with the guarantor expected to cover missed mortgage payments.