A 100% mortgage for tenants has been launched by Hanley Economic Building Society.
The ‘Rent to Own’ mortgage is being rolled out nationally following a successful pilot in Stoke-on-Trent last year.
The new mortgage allows borrowers to take out a zero deposit loan of up to £350,000 at an interest rate of 5.79%, fixed for five years.
To qualify, applicants must prove they have paid full rent for one year and have a minimum household income of £25,000 per year
Hanley Economic’s new mortgage joins an elite group of products for buyers with no down payment. Skipton Building Society’s Track Record Mortgage also offers a 100% loan to first-time buyers with a reliable history of rental payments. April Mortgages and Gable Mortgages also launched 100% deals last year.
Mortgage brokers have cautiously welcomed the latest addition to this market.
Ranald Mitchell, director of Charwin Mortgages of NorwichSpeaking to the Newspage agency, said: “Renters have been doing the hard work for years and paying a mortgage bill every month, only for someone else. A good zero deposit deal like Hanley’s Rent to Own could be the push that finally makes thousands of renters think: why not me?”
“In practice, it’s simple: if you can prove that you’ve paid your rent on time and your new mortgage payments match what you’re already paying, you may be able to buy without having to make a big down payment.”
Negative equity warnings
However, he also urged borrowers to be cautious before entering into such a deal.
“The downside is you’re buying without a security guarantee,” he said, “so if house prices fall you could end up with negative equity, and because it’s a specialist 100% product the rate can be higher than the very cheapest deals and you need tiny recent payment history.
“It’s not a free pass, but for disciplined tenants stuck as security deposits move away from them, it could be a real route to the ladder.”
Weigh your options
Dariusz Karpowicz, director of Doncaster-based Albion financial adviceagreed.
“Before you get excited, understand what you’re signing up for,” he advised. “You pay interest on the entire purchase price at a higher rate, making monthly payments steeper than if you made a down payment.”
He added: “Compare this carefully with shared ownership schemes, where even a small deposit could yield better rates and lower risk. This is suitable for specific situations, not for everyone, so speak to a qualified adviser first.”