RENTERS can buy their home without a deposit thanks to a new mortgage on offer – experts said it was a “genuine route onto the ladder” but also warned you are buying “with no safety cushion”.
Hanley Economic Building Society has launched a 100% “Rent to Own” mortgage nationwide after it was initially piloted last year in Stoke-on-Trent.
It is a zero deposit loan of up to £350,000 at 5.79% for five years.
Applicants need a minimum household income of £25,000 annually and loans can reach 133% of current rental payments.
Borrowers must prove they paid rent in full over the previous 12 months.
Property experts said the product could help many first-time buyers get onto the housing ladder – but they also cautioned that it is not without risk.
No safety cushion
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said: “Renters have been doing the hard bit for years, paying a mortgage-sized bill every month, just for someone else. A proper zero deposit deal like Hanley’s Rent to Own could be the nudge that makes thousands of renters finally think, why not me?
“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’s about time
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, agreed the product is needed but adviser people to put real thought into whether it is the right option for them.
He added: “Zero deposit mortgages are making a comeback, and frankly, it’s about time. With rents eating up everything you earn and wages barely keeping pace with bills, Hanley’s deal recognises what everyone already knows: saving whilst renting is practically impossible without family help.
“Before you get excited, understand what you’re signing up for. You’ll pay interest on the full purchase price at a higher rate, making monthly payments steeper than if you had a deposit. The real risk is negative equity when property prices fall, where you still owe the full amount but your home is worth less.
“Compare this carefully against Shared Ownership schemes where even a tiny deposit might secure better rates and lower risk. This suits specific situations, not everyone, so speak to a qualified adviser first.”
Will support some buy their first property
Elliott Culley, Director at Hayling Island-based Switch Mortgage Finance, said the offering will be useful to some first-time buyers get on the housing ladder.
He continued: “Hanley’s rent to own scheme is similar to the track record offering from Skipton, which has been available for mortgage borrowers for a couple of years. The amount you can borrow is capped by the amount you pay in rent, so if you are on a good deal for your rent at the moment, this will affect how much you can borrow.
“As we have seen with Skipton, the product offered is likely to evolve and fit the majority of consumers’ needs, but right now the new offering from Hanley will support some purchasers buy their first property, without opening the floodgates.”
Understand what you’re signing up for
Pete Mugleston, Managing Director at Derby-based onlinemortgageadvisor.co.uk, said Shared Ownership may be a better option for many.
He added: “The downside of a 100% mortgage isn’t just the risk of negative equity, it’s also that you’re paying interest on the full purchase price, often at a higher rate, which can make monthly payments significantly more expensive.
“It is really targeted at renters who can’t save a deposit but may already be paying a high monthly rent for a property they don’t own. A rent to own style mortgage can work out better than renting in the long term, but it should always be compared against Shared Ownership.
“If you can scrape together even a small deposit, Shared Ownership may be a cheaper and lower-risk route onto the ladder.”
