Hanley Economic Building Society has introduced a novel mortgage product aimed at assisting first-time buyers in entering the property market without requiring a deposit. The Rent to Own mortgage enables home buyers to borrow up to £350,000, contingent on an annual income of at least £25,000. Notably, the loan is restricted 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 up to £1,817, subject to standard credit assessments.
The mortgage product features a fixed interest rate of 5.79% for a five-year term, although it is comparatively pricier than other market offerings that necessitate a deposit. For instance, Leek Building Society provides a 4.56% rate for five years with a 5% deposit, while Co-operative Bank presents a 4.5% fixed rate over two years with a 5% deposit.
Mortgage experts caution that opting for a 100% mortgage might expose borrowers to the risk of negative equity if house prices decline. Ranald Mitchell, Director at Charwin Mortgages, advises that while the Rent to Own mortgage eliminates the need for a substantial deposit, it lacks a financial safety net. Mitchell emphasizes the importance of maintaining a good payment record and acknowledges that the interest rate for such specialized products can be higher compared to traditional deals.
Skipton Building Society recently launched its Track Record Mortgage in 2023, targeting renters with a year of consistent on-time rent payments and a favorable credit history. The mortgage payment for each applicant must not exceed the average of their last six months’ rental expenses. While other no-deposit mortgage options exist, they typically require a guarantor, usually a homeowner family member or friend who agrees to cover missed mortgage payments.
Overall, these initiatives offer potential pathways for disciplined renters struggling to accumulate a deposit, although careful consideration of the associated risks and terms is essential before committing to such mortgage products.