When buying a home, you usually need to pay a deposit. This is an upfront payment which is often a minimum of 10% of the property value. The rest of the funds are borrowed from a mortgage lender.

The more money you can provide as a deposit, the less you need to borrow.

 According to the Bank of Scotland, first time buyers are paying approx. £190,000 to get onto the Scottish property ladder. It can take years to save the amount required for a deposit.  For many of us, being able to save towards a deposit at all is extremely difficult, particularly in recent months as inflation and the cost of living has placed a strain on our disposable incomes.  

You may have seen in the news recently that a building society has launched a 100% mortgage into the market. This means that no deposit will be required as buyers can borrow 100% of the property value.

Who is this product aimed at?

This mortgage is only available to first-time buyers who are over 21 years old.

It is specifically designed to help those who have been stuck in the cycle of paying rent for years and so are unable to save towards a deposit.

In an era of spiralling rent prices, this may be good news for renters who are looking to get on to the property ladder.

How does the product work?

The mortgage is being offered as a five-year fixed deal. This means that you will pay the same monthly payment with the same interest rate for five years.

It is only open to those who have paid 12 consecutive months of rent out of 18 months. Applicants also need to prove that they have paid 12 months of household bills including council tax and utilities. In addition, you can’t have any missed payments registered on their credit file (check out our guide to credit files here).

With this mortgage, the amount you borrow cannot be any more than the amount you pay monthly in rent. For example, if you pay £800 a month in rent currently, the lender will calculate how much you can borrow overall so that your monthly repayments don’t exceed £800.

The Money Saving Expert website has a helpful table which shows how much you can borrow overall based on your monthly rent.

What are the advantages of this product?

At Money Advice Scotland, we believe that control and choice are central to financial wellbeing.

This mortgage could offer an alternative to renting for first-time buyers in Scotland, meaning that they have another option available to them.

It is also positive to see that mortgage lenders are recognising the difficulty that first time buyers face when trying to save for a deposit.

Strict affordability tests being used by the lender means that applicants are hopefully protected from taking on a mortgage product that overstretches their budget and places them in financial difficulty.

What are the disadvantages of this product?

According to the Times Money Mentor, one possible downside to this type of mortgage is the possibility of ending up in negative equity.

Negative equity means that the value of the loan is higher than the value of the property. This could arise if property prices were to fall.  

Another possible downside to this product is the strict eligibility criteria. If you still live at home, for example, this product won’t be available to you.

Let us know what you think! Tweet us @moneyadvicescot and share your thoughts.

Please note, this blog is for general money guidance purposes only. We are not regulated to provide advice. We would recommend seeking advice from a regulated provider if you are considering undertaking a financial commitment such as a mortgage.