Mark Hughes is property finance expert at Pure Property Finance
Melton Building Society announced that they’re now offering 0% mortgages to customers. However, are these too good to be true? The deal is a five-year fix at 5.99 per cent with a £199 application fee, and £199 cashback upon completion.
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.
