A new mortgage product aimed at first-time homebuyers has been introduced by a building society, offering a 100% loan-to-value option that eliminates the need for a deposit. The Rent to Own mortgage from Hanley Economic Building Society enables borrowers to secure up to £350,000, with a requirement of a minimum annual income of £25,000 and a borrowing limit set at 133% of the individual’s current monthly rent.
With the average monthly rent in the UK standing at £1,366, potential mortgage payments under this scheme could reach £1,817 per month. Applicants will undergo standard credit assessments as part of the process. The mortgage carries a fixed interest rate of 5.79% for a five-year term, positioning it as a slightly pricier option compared to other products that necessitate a deposit.
Notably, Leek Building Society offers a 4.56% rate for five years with a 5% deposit, while Co-operative Bank presents a 4.5% fixed rate for two years with the same deposit requirement. Experts caution that opting for a 100% mortgage could expose buyers to potential negative equity in case of a housing market downturn.
Ranald Mitchell, Director at Charwin Mortgages, emphasized the importance of financial discipline when considering such a mortgage, noting the absence of a safety net and the likelihood of higher interest rates compared to traditional deals. Despite the risks, Mitchell acknowledged that for renters struggling to save for a deposit, this could provide a viable path to homeownership.
The launch of this mortgage product follows Skipton Building Society’s introduction of the Track Record Mortgage, another no-deposit option catering to renters with a solid rental payment history. Similar offerings requiring no deposit exist in the market but typically involve the backing of a guarantor, usually a homeowner family member or friend, who commits to covering missed mortgage payments if necessary.