With Melton Building Society announcing that they’re now offering 0% mortgages to customers. However, are these too good to be true? Mark Hughes, Property Finance Expert at Pure Property Finance wants to urge borrowers to look beyond the headline rate, and understand what these deals really mean in practice.
He warns that these types of products can work in the right circumstances, but they are not without the risk.
Mark Hughes discusses the pros of a 0% mortgage, and why some house-buyers might want to consider this as an option when purchasing a property:
“A genuine 0% introductory period can significantly reduce initial monthly outgoings, improving short-term cash flow. It is also extremely helpful for those that’ve been struggling for past number of years to get onto the property ladder, due to rising costs, rental bills and so on.
For investors or homeowners expecting a lump sum to come in at some point, or a bonus or refinance event, this breathing space can be valuable.
Lower early payments may also help buyers pass affordability assessments during tight lending conditions.”
However, Mark urges buyers to look at the cons of 0% mortgages too, before jumping into something before it’s too late:
“However, there are some things that sound better than they are, and if this circumstance doesn’t suit you, then this could be one of them,
Interest fees may be built into the overall cost of the loan, so while you’re not having to pay a big lump sum at the beginning, you may end up having very large monthly payments to pay off, which could work out much more in the long-run.
There is also a potential risk of payment shock. If borrowers have not planned for higher repayments later, they may face affordability strain or refinancing challenges, particularly if market rates rise, or property values take a bit of a drop.”
