Leeds Building Society is offering a one-of-a-kind mortgage that offers zero interest for up to six months.
The “Welcome Mortgage”, available as a three- or five-year fixed-rate deal between 80% and 90% LTV, gives customers the choice of paying no interest for the first three or six months and taking a higher subsequent rate to catch up.
Described by the society as “a completely unique product”, the Welcome mortgage is designed to cut the initial payments to grant new homeowners the extra cash they might need for improvements or furniture after moving into their new property.
The society said the total interest paid by a borrower over the term of the mortgage was roughly the same as that paid by someone who took out a standard fixed-rate loan.
On a three-year fix, at 90% LTV, a three-month interest-free period would be followed by a rate of 4.71% until September 2016, while a six-month interest-free period would be followed by a rate of 5.22%.
On a five-year fix at the same loan-to-value, the three-month interest-free period would be followed by a rate of 5.08%, while the six-month deal is followed by a rate of 5.40%.
Leeds BS says its 'Welcome Mortgage' is different from 'deferred interest' mortgages of the 1980s.
Even accounting for the initial interest-free perk, these subsequent costs are reasonably competitive when compared to standard fixed-rate deals in the sector.
The society’s standard variable rate of 5.69% is higher than a number of larger competitors, though, which will ramp up the costs for borrowers following the expiry of the fixed term.
But while lenders have moved to recoup lower rates through higher arrangement fees – even if many have been sympathetic to first-time buyers – Leeds’ booking fee of £199 across the Welcome mortgage range remains affordable and highly competitive.
Flexible and Transparent
Leeds Building Society’s marketing director, Kim Rebecchi, said that the products were designed to offer flexibility.
"These products offer excellent value and support borrowers in the early months in their new home," she said.
"Depending on the size of the mortgage and the 0% period chosen, borrowers can initially reduce their outgoings by thousands of pounds, allowing them the flexibility to improve their property and manage their cashflow.
"Furthermore, their monthly payment after the 0% period does not increase significantly compared to a standard fixed-rate product, avoiding a payment shock."
David Hollingworth of London & County Mortgages welcomed the innovative and transparent nature of the new products.
"It gives borrowers a short period with a lower mortgage payment; people can see exactly what their payment is going to rise to.
"But actually I think a lot of people will use it as a way to try and keep on the paying the same amount to try and reduce the mortgage more quickly," he said.
Keith McDonald
Which4U Editor
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