Hanley Economic Building Society has introduced a novel 100% mortgage plan tailored for first-time homebuyers seeking to enter the housing market without a deposit. Under the Rent to Own mortgage scheme, eligible borrowers can secure loans up to £350,000, provided they earn a minimum annual income of £25,000. The loan amount is limited to 133% of the applicant’s current monthly rent, considering that the average rent in the UK stands at £1,366 per month. This means potential mortgage payments could reach £1,817 monthly. Applicants will undergo standard credit evaluations.
The mortgage product offers a fixed interest rate of 5.79% for a five-year term, positioning it as a pricier option compared to other market offerings that necessitate a deposit. For instance, Leek Building Society presents a 4.56% rate for five years with a 5% deposit, while Co-operative Bank provides a 4.5% fixed rate for two years with a 5% deposit.
Experts in the mortgage industry caution that opting for a 100% mortgage could elevate the risk of falling into negative equity if house prices depreciate. Ranald Mitchell, Director at Charwin Mortgages in Norwich, explains that while this mortgage avenue eliminates the need for a substantial deposit, it also lacks a safety buffer. Hence, borrowers should be prepared for potential higher interest rates and stringent payment history requirements.
Skipton Building Society recently launched its Track Record Mortgage for renters in 2023, presenting another no-deposit option for individuals who can demonstrate 12 months of punctual rent payments and possess a favorable credit background. Monthly mortgage payments should not exceed the average of the applicant’s last six months of rental expenses.
Although various no-deposit mortgage deals exist, most entail having a guarantor to back the borrower. This involves a family member or friend who owns a property being named on the mortgage and agreeing to cover missed payments if necessary.
