Leeds BS launches new mortgages with initial 0% interest period
A range of new mortgages have been launched with no interest payments. But in a fiercely competitive market, how do the Leeds BS mortgages compare?
Leeds Building Society has launched several new mortgages with an initial period of 0% interest for either three or six months.
The lender claims that this intial interest-free period will give homebuyers a break from interest payments to focus on other costs. And the overall cost of the mortgage is comparable to most standard deals on the market.
There is a choice of a three or five-year fixed rate period with the ‘Welcome Mortgages’, which require at least a 10% deposit.
The deal
The three-year mortgage option starts from 3.79% (if you choose the three month 0% interest break) while the five-year mortgage has an interest rate of 4.23%.
Borrowers can also choose from a loan-to-value (LTV) rate of 80%, 85% or 90%, while there is an application fee of £199 but no completion fees.
The interest rate changes depending on what option you go for. The table below shows exactly how much you’d pay depending on which mortgage you choose on the three-year rate.
|
Interest rate |
0% period |
LTV |
|
3.79% |
Three months |
80% |
|
4.20% |
Six months |
80% |
|
4.28% |
Three months |
85% |
|
4.75% |
Six months |
85% |
|
4.71% |
Three months |
90% |
|
5.22% |
Six months |
90% |
When it comes to the longer five-year fix the prices are slightly more, but still competitive when looking across the market.
|
Interest rate |
0% period |
LTV |
|
4.23% |
Three months |
80% |
|
4.50% |
Six months |
80% |
|
4.66% |
Three months |
85% |
|
4.96% |
Six months |
85% |
|
5.08% |
Three months |
90% |
|
5.40% |
Six months |
90% |
These mortgages are open to anyone – apart from those wanting to remortgage or an interest-only deal – and they will be particularly attractive to first-time buyers.
They are unique because they give new homeowners the chance to have a break from interest payments by lowering their outgoings. That way they can focus on other spending – such as buying furniture and decorating.
The alternatives
Several lenders have launched market-leading deals for first-time buyers of late, and the market has greatly picked up thanks to the Government’s Funding for Lending Scheme (FLS).
When looking at the entire cost of the mortgage Furness Building Society has a similar deal at 90% LTV for a fixed-rate of 5.2% for three years but you also need to factor in the £995 completion fee. First Direct has a cheaper deal at 3.9% for a 90% LTV for three years and a fee of £999.
In the five-year fixed-rate range for 90% LTV mortgages there are also cheaper deals. Chelsea Building Society has a deal at 4.29% with a fee of £815.97, HSBC offers 4.39% with fees of £824.41 while The Nottingham offers 4.39% and £824.41.
However, Leeds BS isn’t promoting these deals as the market-leading mortgages. Instead it’s providing a unique way to pay back the loan for buyers who may be initially short of cash.
Welcome versus standard mortgage
Another benefit of these deals is that you don't pay a massive premium for the sake of having that initial breathing space. In fact when comparing the mortgage with standard offers from the building society there isn’t much difference.
For example, a £150,000 mortgage at 80% LTV on the three-month 0% deal and a three-year fixed rate would require an initial monthly payment of £500. After the 0% period ends the monthly payment would increase to £770.73. That's £23.46 a month higher than repayments on a standard three-year fixed rate from Leeds BS.
When looking at the entire three-year period the borrower would pay £1 more with the Welcome Mortgage then with the standard deal.
Kim Rebecchi, sales and marketing director for Leeds BS, explained that depending on the size of the mortgage and the 0% period chosen, borrowers could initially reduce their outgoings by thousands of pounds, allowing them the flexibility to improve their property and manage their cash flow.
What do you think? Would you have liked a few months without interest payments when you bought your first home? Or will borrowers be in for a shock when the 0% period comes to an end? Let us know your thoughts in the comment box below.
See the latest mortgage rates and get expert advice
This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker (such as one of our brokers here at Lovemoney.com), before acting on anything contained in this article.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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Comments
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If only it were that simple. There would still be defaulters in your model and without higher rates there would be nothing 'in the pot' to pay off these defaulted loans. If the lender is not to charge higher rates based on risk, they could charge higher rates across the board and have all borrowers pick up the cost of the defaults. Then low risk customers would go elsewhere for better rates unless this is enforced across all lenders.
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@yocoxy I dont think you've really taken in my comments fully. The point is, the banks mitigation for risk borrowers is to charge them more, this does nothing to improve the risk profile of its less affluent customers. However, if they did what I suggested and reduced the risk customers loan profile by using the differential in payments to ensure their loans are paid off more quickly, their risk would effectively be ever reducing, the customer and the business benefits and if they are really serious about the risk mitigation, they would get their own house in order before they penalise their customers. This country has lost more to the banks stupidity than to its riskier customer base. Albeit that the irony of the major losses was underpinned by subprime lending, that in itself was a completely different bag of worms, they were customers given loans where clearly the background checks would have proven that they were not credit worthy in the first place. To top all of that. If the banks had written off all the sub prime loans and left the customers in the properties, there would not be dozens of ghost towns around the US and other countries which meant that effectively, not only did they lose the loan amount entirely, they also had a clean up operation and a whole different nightmare to handle. Had they simply written off the loans for the subprimes they were stupid enough to lend to, there would not have been a collapse in the market, quite the opposite. They would have had some losses, they could have restructured some of the debt and they could have contained the debacle that followed. No, the banks were stupid, they followed that with vindictive, they followed that with greed and finally capped it off with a knee jerk repossession scandal which not only could have been avoided, but would have prevented a 5 year world economy collapse. They may have IQ's of 150+ and degrees, but the only degree they deployed was a high degree of stupidity throughout. Of course, hindsight is a wonderful thing, but this was not only entirely predictable, the way the banks operate made it inevitable. Sadly, they have not learnt their lessons yet. They employ the wrong type of person currently in many of the financial posts, they need someone who can understand economics by reverse engineering the last four years and working out what 'could they have done' and apply that to the future. Their response was to stop lending. Like that was going to help the economy!
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@ Gr8it. I don't think the additional interest is used to increase profits, it's used to offset the defaulters which are higher in this group of borrowers. @ nickpike. Would a reasonable summary of all your posts over the last four or more years be: "Things will be worse in future"? House prices still haven't halved as you've predicted multiple times. Of course interest rates will rise at some point. My guess is that it's a few years away yet and won't be a dramatic spike when it does happen. If you don't want to risk a mortgage, I guess the alternative is to rent. At least then your future is guaranteed. Rents will rise in a relatively straight line and you'll be paying for the rest of your life.
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19 July 2013