According to a report from Wayhome, which surveyed around 1,119 first-time buyers, around 26 per cent would consider a 100 per cent LTV mortgage, requiring no deposit.
This is compared to 74 per cent of those surveyed who said they would not.
When asked if first-time buyers would be prepared to pay a higher monthly repayment to secure a 100 per cent LTV mortgage, around 21 per cent said yes whereas 79 per cent said no.
Only 28 per cent said they were aware of how much more a 100 per cent LTV mortgage could cost each month, with the majority, 72 per cent, saying they were not aware.
Figures from Octane Capital show that, based on the current first-time buyer house price of £238,742 in Britain, Skipton’s product would cost around £1,465 per month, or £1,092 for an interest-only payment. This is based on the cited product rate of 5.49 per cent.
This compares to a loan of £202,931 at 85 per cent LTV with an average rate of 4.22 per cent, which would cost around £1,096 per month, or £714 for an interest-only payment.
Therefore, first-time buyers would pay around £4,425 more over the space of the year for Skipton’s no deposit product.
The report added that around 36 per cent said they were aware of the danger of negative equity with a 100 per cent LTV mortgage, which occurs when the value of the property becomes worth less than the remaining value of your mortgage.
Most first-time buyers, 64 per cent, said they were not aware of the risk of negative equity with such a product.
When first-time buyers were asked what the most significant obstacle they faced was and the top factor was finding an affordable home in an area they wanted to live in.
This was followed by the cost of a deposit, ongoing monthly cost of a mortgage, current income not being sufficient for a mortgage and inadequate credit score for a mortgage.
First-time buyers need to be ‘fully aware’ before ‘taking the plunge’
It comes after Skipton Building Society launched its track record mortgage product, which is up to 100 per cent LTV. The deal is on a five-year fixed rate deal starting at 5.49 per cent over a maximum term of 35 years.
Brokers broadly welcomed the move, noting that it could help Generation Rent get onto the property ladder. However, some warned of the dangers of negative equity, as house prices are expected to fall in the near term.
Wayhome’s co-founder and CEO Nigel Purves said: “With interest rates climbing and house prices remaining at record highs, the nation’s beleaguered first-time buyers will no doubt be jumping for joy at the prospect of a 100 per cent LTV mortgage.
“However, the devil is very much in the details and those considering one should be fully aware of just what they are signing up for before taking the plunge.”
He said that it was “unlikely” that some first-time buyers would qualify for a mortgage on the house they wanted due to “income limitations and lending caps”, and those that did faced higher monthly repayment costs.
“With the market also showing signs of cooling in recent months, there’s a very real chance you could find yourself falling into negative equity at the slightest sign of a house price downturn.
“Yes, it’s a monumental task to get that first foot on the ladder, but as our research shows, those to have accomplished it over the last year would, for the large part, steer clear of a 100 per cent LTV mortgage if they were to do it again,” Purves added.
