Hanley Economic Building Society will allow home buyers to borrow up to £350,000 through its Rent to Own mortgage
A new zero deposit mortgage has launched(Image: Getty Images)
A building society has launched a new 100% mortgage product for first-time buyers to get on the property ladder without a deposit.
Hanley Economic Building Society will allow home buyers to borrow up to £350,000 through its Rent to Own mortgage. Borrowers will need to earn at least £25,000 a year to qualify and the loan will be capped at 133% of their current monthly rent.
The average UK rent is £1,366 a month, meaning someone would potentially be able to get a mortgage with monthly payments of up to £1,817 a month. Borrowers would still be subject to standard credit checks.
The interest rate is 5.79% fixed for five years, which is more expensive than other products on the market that require a deposit.
For example, Leek Building Society offers a rate of 4.56% for five years if you have a 5% deposit, or Co-operative Bank has a 4.5% rate fixed for two years for a 5% deposit.
Mortgage experts have also warned that any 100% mortgage can also make you more vulnerable to going into negative equity – where the value of the loan is more than the property – if house prices fall.
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said: “In practice it’s simple: if you can prove you have been paying rent on time and your new mortgage payment stacks up against what you already pay, you may be able to buy without saving a chunky deposit.
“The flip side is you are buying with no safety cushion, so if house prices dip you can end up in negative equity, and because it’s a specialist 100% product the rate can be higher than the very cheapest deals and you will need squeaky clean recent payment conduct.
“It’s not a free pass, but for disciplined renters who are stuck watching deposit targets run away from them, it could be a genuine route onto the ladder.”
It comes after Skipton Building Society launched its Track Record Mortgage in 2023, which requires no deposit and is for renters who can show 12 months of on-time rent payments. You will also need a good credit history.
The monthly mortgage payment for each applicant cannot not be more than the average of their last six months rental costs.
Other mortgage deals with no deposits are available on the market, but they require the borrower to be backed by a guarantor.
This is where a family member or friend who owns their own home is named on your mortgage, and they are expected to cover you if you miss a mortgage payment.