A new 100% mortgage product aimed at first-time buyers has been introduced by a building society to facilitate entry into the property market without requiring a deposit. Hanley Economic Building Society is offering the Rent to Own mortgage, enabling borrowers to access loans 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 rent in the UK standing at £1,366 per month, individuals could potentially secure a mortgage with monthly payments reaching £1,817. However, standard credit checks will still be applicable. The fixed interest rate for this mortgage option is 5.79% for a five-year term, which is comparatively higher than 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 provides a 4.5% rate fixed for two years with the same deposit requirement. Mortgage experts caution that opting for a 100% mortgage may expose borrowers to the risk of negative equity if house prices decline.
Ranald Mitchell, Director at Charwin Mortgages in Norwich, emphasized the importance of meeting rent payment obligations consistently as a possible pathway to purchasing a property without a substantial deposit. However, he highlighted the potential downside of lacking a financial buffer in case of a market downturn and the likelihood of higher interest rates compared to traditional mortgage options.
Skipton Building Society recently introduced its Track Record Mortgage, also requiring no deposit but necessitating proof of 12 months of on-time rent payments and a positive credit history. Additionally, other no-deposit mortgage deals are available in the market, typically requiring a guarantor to support the borrower in case of payment default.