New mortgage uses rental payments to prove affordability

Posted on August 5th, 2011 | Categories - Mortgages

First time buyers in rented accommodation who want to get on the housing ladder have a potential new option thanks to an innovative new mortgage launched this week.

The “Rent to Buy”  mortgage from the Saffron Building Society is available to first time buyers who can prove a 12 month rental history through a recognised letting agency and have a 5% deposit. The rental history is used as proof that the borrower can afford a mortgage with monthly payments of the same level.

The Saffron’s sales and marketing director, John Eastgate, said: “There are many potential first-time borrowers who are capable of supporting a mortgage, as they have been paying these amounts already in rent, but are frozen out of the market by the large deposits required.

It is likely that an applicant paying £1,000 per month in rent would be able to borrow approximately £155,000 on the scheme.

No credit scoring

Although applicants will have to pass a credit check the Saffron Building Society have said that it will not use automatic credit scoring and applications will be screened manually.

John Eastgate again: “Some prospective first-time buyers also face the barrier of developing a credit history to pass the automated credit scoring processes used by some lenders. Our manual underwriting looks at each case individually to assess the affordability of the mortgage for the applicant, making it highly suitable for first-time buyers.”

The mortgage is only available on a Capital Repayment basis with a term of up to 30 years.

Interest rate

The mortgage comes with a fixed rate of 6.49% until 2015 and an arrangement fee of £195.

The rate of interest is relatively high, but reflects the additional risk taken on by the lender. Raising an additional 5% deposit would open up with market to cheaper deals, of course each bank or building society will have their own lending criteria which may be more or less onerous than that of the Saffron Building Society.

However the innovation of linking rental history with the ability to pay a mortgage is a welcome innovation, one which will hopefully be followed by other lenders.

For more details of this mortgage please contact Linda Wood of Investment Sense on 0115 933 8433 or by email at linda.wood@investmentsense.co.uk

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