A new mortgage product targeted at first-time buyers has been introduced by a building society, enabling them to enter the property market without a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, allowing borrowers to secure up to £350,000. To qualify, applicants 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 access a mortgage with monthly payments reaching up to £1,817. Prospective borrowers will undergo standard credit assessments. The product features a fixed interest rate of 5.79% for a five-year term, which is comparatively higher than deposit-required alternatives in the market.
For instance, Leek Building Society provides a 4.56% rate over five years with a 5% deposit, while Co-operative Bank offers a fixed 4.5% rate for two years with the same deposit percentage. However, mortgage experts caution that opting for a 100% mortgage could increase vulnerability to negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, emphasized the importance of responsible financial management, stating that while the Rent to Own mortgage offers a potential pathway to homeownership for disciplined renters, it lacks a financial safety net. He highlighted the need for meticulous payment conduct and readiness for potentially higher interest rates.
Skipton Building Society recently launched the Track Record Mortgage, requiring no deposit for renters with a year of on-time rent payments and a favorable credit history. Monthly mortgage payments should not exceed the average of the previous six months’ rental expenses. While other no-deposit mortgage options exist, they typically necessitate a guarantor to back the borrower, usually a homeowner family member or friend willing to cover missed mortgage payments.