Huge difference in interest between no-deposit and 15% deposit

No-deposit mortgages may help struggling buyers get on the property ladder, but in London they cost the average buyer an additional £73,000 in interest over the first five years of homeownership alone, according to research from Benham and Reeves.

It found that the average first-time buyer property in London is currently £471,687, meaning that a buyer using a no-deposit mortgage and therefore borrowing the full purchase price would have estimated monthly repayments of £3,331.

That’s in contrast to a buyer purchasing with a traditional 15% deposit of £70,753 who would require a mortgage of £400,934, reducing monthly repayments to £2,226 per month – a saving of £1,105 every month.

During the first five years of the mortgage, a buyer using a no-deposit product would pay an estimated £158,104 in interest, while one with a 15% deposit would pay £84,834 – a £73,270 difference.

A slower equity build

No-deposit buyers would still owe £429,945 after five years, compared to £352,193 for someone purchasing with a traditional deposit – a difference of almost £78,000.

The story is the same for an average buyer. Based on an average London house price of £552,655, a buyer using a no-deposit mortgage would face estimated monthly repayments of £3,903, compared to £2,469 for someone purchasing with a conventional 15% deposit. The difference in interest is nearly £98,000, costing £185,244 for a buyer with no deposit, compared to £87,285 for a buyer with a 15% deposit.

Marc von Grundherr, director of Benham and Reeves, said: “For many aspiring buyers, saving a deposit remains the single biggest barrier to homeownership and products such as a 100% mortgage undoubtedly provide an important route onto the property ladder.

“However, buyers shouldn’t focus solely on the benefit of avoiding a deposit. They also need to understand the longer-term cost of borrowing the full value of a property.”