Deposit Free Mortgages

A very common question First Time Buyers ask a Mortgage Adviser is, if I can afford the monthly payment in rent, then why will a bank not lend me the amount I need to buy a property?

For some renters, it feels as though their excellent record of affording their rent has no value when it comes to obtaining a mortgage and buying their first home. Saving a deposit to buy a home has also been a challenge for many as well as they have been scraping to afford their rent.

The latest report from The Money Charity, states it currently takes an average first time buyer 17 years to save a house deposit.* 

The short answer to the question is that banks and building societies, when lending money to First Time Buyers, have different attitudes to the risk they are potentially taking on than landlords. If you do not pay your rent, the landlord can evict you and yes, if you do not pay your mortgage a lender can repossess the property, this is a much more difficult, experience and time-consuming process to go through for all parties.

A lightly longer answer would also explore how lenders, when assessing how much you can afford, are not just looking at the mortgage payment on the current rate or rates they have available to you, but are also factoring in potential future rises in rates and ‘stress testing’ borrowers under a variety of ‘What If?’ situations to ensure the mortgage is not just affordable now but affordable in the future if rates, and mortgage costs, increase.

During the period of ultra-low rates, the above may have seemed like a slightly alien concept to many borrowers however, in the current cost of living crisis and battle with inflation, where we have seen the Bank of England Base Rate and mortgage rates increase regularly over the last year, maybe there is a greater understanding of why lenders have had to ‘stress test’ their borrowers in the past and continue to do so.

There was however, a glimmer of additional help for those who can demonstrate a good rental history without funds to put down for a deposit, with the launch by one lender of a Deposit Free Mortgage. Such a mortgage is not necessarily mould breaking but in the current economic situation, where the cost of living has increased and therefore renters may be finding it even more difficult to save for a deposit, we welcome the addition of this product to the market and an additional option to assist First Time Buyers vacate their rental property and get onto the property ladder.

If you would like to discuss how this mortgage product may be able to assist you then get in touch today.

Please note: Your home maybe repossessed if you do not keep up repayments on your mortgage or other loans secured on it.

100% mortgages are more expensive and come with a greater risk of negative equity. This is where the value of your mortgage becomes more than the value of your property – something that might happen if property prices were to drop significantly. You can only borrow the equivalent of, or less than, what you pay on rent each month. Terms and Conditions apply.

* Money Charity Report April 2023

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