Hanley Economic Building Society has introduced a novel 100% mortgage option tailored for first-time buyers aiming to step onto the property ladder without needing a deposit. The Rent to Own mortgage scheme permits potential homeowners to borrow up to £350,000, contingent on a minimum annual income of £25,000. The loan amount is capped at 133% of their present monthly rent, with the UK’s average rent standing at £1,366 per month. This means individuals could potentially secure a mortgage with monthly payments reaching up to £1,817. Applicants will still undergo standard credit evaluations.
The interest rate for this mortgage stands at 5.79% fixed for a five-year term, positioning it as a pricier option compared to other products 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 features a 4.5% rate fixed for two years with a 5% deposit.
Industry 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, emphasized the importance of timely rent payments and ensuring that new mortgage payments align with current rental expenses. While this type of mortgage lacks a safety buffer, it may provide a viable path to homeownership for disciplined renters struggling to save up for a deposit.
In a similar move, Skipton Building Society recently launched its Track Record Mortgage in 2023, also requiring no deposit but necessitating proof of 12 months of punctual rent payments. Additionally, a favorable credit history is mandatory. The monthly mortgage payment for each applicant must not exceed the average of their last six months of rental costs.
Although various no-deposit mortgage options exist in the market, some require borrowers to have a guarantor for support. This involves enlisting a family member or friend who owns a property to be named on the mortgage, responsible for covering missed mortgage payments if they occur.
