The lettings agent said a typical first-time buyer property in London costs £471,687. A borrower using a 100% mortgage would need to finance the full purchase price, resulting in estimated monthly repayments of £3,331.
By comparison, a buyer putting down a 15% deposit of £70,753 would require a mortgage of £400,934, reducing monthly repayments to £2,226.
Over the first five years of the mortgage, a buyer using a no-deposit product would pay an estimated £158,104 in interest, compared with £84,834 for a buyer purchasing with a 15% deposit.
This equated to an additional £73,270 in interest costs during the initial five-year fixed period.
Marc von Grundherr, director of Benham and Reeves, commented: “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.
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“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, because the difference in monthly repayments and the amount of interest paid over the first few years is substantial.”
The research also found that buyers using a no-deposit mortgage build equity more slowly. After five years, they would still owe an estimated £429,945 on their mortgage, compared with £352,193 for a buyer who entered the market with a 15% deposit.
Von Grundherr added: “That certainly doesn’t mean these products are a bad idea. For many buyers, they’ll provide the only realistic opportunity to purchase a home, and building some equity on your own home is certainly better than nothing.
“That said, where circumstances allow, taking a little longer to build a deposit can still make a significant financial difference over the life of the mortgage, reducing monthly repayments, lowering interest costs and helping buyers build equity at a much faster rate.”
