To some it may sound like a helping hand onto the property ladder, but to others it will seem like a mortgage deal that harks back to the lending madness of the 2000s.
First-time buyers looking to limit their outgoings can benefit from a unique deal, which lets them buy a home with an interest-only mortgage for three years if they put down just a 5 per cent deposit.
Newbury Building Society’s Home Starter mortgage is a 95 per cent loan-to-value deal, which starts as interest-only but then switches to a capital repayment mortgage after a fixed three-year period.
Borrowers with just a 5 per cent deposit can keep their monthly outgoings to an absolute minimum for the first three years they are in their home, but the problem is that monthly payments will then rocket.
Andrew Montlake of mortgage broker Cicero
Andrew Montlake of mortgage broker Cicero said: ‘It is good to see that innovation is alive and well in the mortgage market and this product is a throwback to the old “low start” mortgages.
‘Whilst this is likely to appeal to first-time buyers looking to minimise their outgoings in the early years there are some dangers associated with such a product that buyers need to be aware of.
‘Although affordability will be measured on the full capital repayment basis, it is easy for borrowers to forget that their monthly payments will increase dramatically after three years.
‘It could be very difficult to remortgage to another provider and the borrower could find themselves having to stay with whatever rate their existing provider puts them onto.’