New research shows the financial premium attached to 100% mortgage products
London first-time buyers using no-deposit mortgage products could pay more than £73,000 extra in interest during the first five years of homeownership compared with those purchasing with a 15% deposit, according to research by lettings and estate agent Benham and Reeves.
The firm analysed the cost of buying both the average first-time buyer property and the average home across the broader London market using a 100% mortgage, set against the cost of purchasing with a conventional 15% deposit at current average market rates.
The average first-time buyer property in London is currently priced at £471,687. A borrower taking a no-deposit mortgage would need to borrow the full purchase price, producing estimated monthly repayments of £3,331. A buyer putting down a 15% deposit of £70,753 would borrow £400,934, reducing monthly repayments to £2,226 — a saving of £1,105 per month.
Over the first five years, a no-deposit borrower would pay an estimated £158,104 in interest, compared with £84,834 for a buyer with a 15% deposit — a difference of £73,270.
The no-deposit route also results in slower equity accumulation. After five years, the borrower would still owe £429,945, against £352,193 for the buyer who entered with a deposit — a gap of nearly £78,000.
The same pattern holds across the broader London market, where the average house price stands at £552,655. A 100% mortgage borrower would face monthly repayments of £3,903, compared with £2,469 for a buyer purchasing with a 15% deposit.
Over five years, the no-deposit borrower would pay an estimated £185,244 in interest, against £87,285 for the deposit buyer — a difference of nearly £98,000. The outstanding balance after five years would be £503,747 for the no-deposit borrower, compared with £408,891 for the deposit buyer.
| Metric | 100% mortgage (no deposit) |
85% mortgage (15% deposit) |
|---|---|---|
| Deposit required | £0 | £70,753 |
| Mortgage amount | £471,687 | £400,934 |
| Monthly repayment | £3,331 | £2,226 |
| Interest paid (5 years) | £158,104 | £84,834 |
| Outstanding balance (after 5 yrs) | £429,945 | £352,193 |
| Extra interest cost (no-deposit route) | £73,270 more over 5 years | |
| Metric | 100% mortgage (no deposit) |
85% mortgage (15% deposit) |
|---|---|---|
| Deposit required | £0 | £82,898 |
| Mortgage amount | £552,655 | £469,757 |
| Monthly repayment | £3,903 | £2,469 |
| Interest paid (5 years) | £185,244 | £87,285 |
| Outstanding balance (after 5 yrs) | £503,747 | £408,891 |
| Extra interest cost (no-deposit route) | £97,959 more over 5 years | |
"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," said Marc von Grundherr (pictured right), director at Benham and Reeves. "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.
"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."
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