A new mortgage product has been introduced by a building society to assist first-time buyers in entering the property market without requiring a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, enabling home buyers to borrow up to £350,000. To be eligible, borrowers must have a minimum annual income of £25,000, and the loan amount is limited to 133% of their current monthly rent.
With the average UK rent standing at £1,366 per month, individuals could potentially secure a mortgage with monthly payments reaching up to £1,817. Applicants will undergo standard credit checks as part of the process. The interest rate for this product is fixed at 5.79% for five years, which is comparatively higher than other mortgage options that necessitate a deposit.
For instance, Leek Building Society offers a rate of 4.56% 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 in Norwich, highlighted that while 100% mortgages offer an opportunity for renters to buy without saving a substantial deposit, there are risks involved, including potential negative equity. Skipton Building Society recently launched its Track Record Mortgage, which demands no deposit but requires renters to demonstrate 12 months of timely rent payments and maintain a good credit history.
Additionally, various no-deposit mortgage deals are accessible in the market, although they typically necessitate a guarantor to support the borrower. This involves a family member or friend who owns a property being named on the mortgage and agreeing to cover missed mortgage payments if necessary.