Margaret Dibben: Money Matters Beware deposit-free mortgages

Property prices are too high, which is why so many young people can’t afford to buy their own homes.

Over the years, there have been numerous government-backed schemes to help renters become owners – Help to Buy, Help to Build, Rent to Buy, First Homes, Lifetime ISA and shared ownership. Some of the plans hang around longer than others; all of them are designed to help people pay the prevailing house prices.

They do nothing to make homes more affordable. The House of Lords found that the Help to Buy scheme cost about £29 billion and actually pushed up prices even further in the areas where it was needed most.

And now interest rates have shot up, making home ownership even less affordable. The cost of fixed-rate mortgage deals has doubled within 18 months.

This is calamitous for first-time buyers and it is also hitting existing borrowers, whose fixed-rate loans are coming to an end. Some 1.6 million borrowers are renegotiating their fixed-rate mortgages, according to the

Resolution Foundation think tank, and the interest payments are costing them on average an extra £2,300 a year each.

This changing market has encouraged lenders to innovate. It is almost standard for fixed-rate loans to include perks such as cashback, free valuations or paid legal fees – though not cut-price interest rates. The most talked-about scheme is Skipton Building Society’s 100-per-cent mortgage for first-time buyers because, unlike others, it does not require a friend or relative to act as guarantor.

No-deposit home loans have not been around since the financial crash of 2008 when nearly one million borrowers fell into negative equity: falling house prices meant they owed more to the lender than they could sell their home for. That risk has returned today for borrowers who put down little or no deposit when the outlook for house prices is precarious.

Among other innovations, with Barclays’ Family Springboard mortgage, a guarantor must put ten per cent of the house price as security in a savings account for five years. A few small building societies have similar schemes.

Nationwide Building Society has a zero-per-cent home-improvement loan for its existing mortgage customers who want to make their homes more energyefficient, perhaps with solar panels, electric-car charging points or double glazing. The loans can last for 40 years or until you reach 75 (though they are interest-free for only two or five years).

Older borrowers used to be written off at state pension age, but now typically lenders allow you to repay your loan until you reach 75. Some stretch the limit to 80 or even 90 and a few small building societies have no upper age limit at all.

For those with time on their side, borrowing over a longer period reduces monthly payments; Kensington Mortgages has brought out a 40-year mortgage. There is, though, one big downside: the longer you are repaying a debt, the more it will cost you overall. By stretching repayments over 40 years instead of the traditional 25, you pay almost twice as much interest.

With any debt, the best advice is to repay as much as you can as quickly as you can, however low interest rates fall.