No-deposit mortgages could leave London's average first-time buyer (FTB) paying more than £73,000 extra in interest during the first five years of homeownership compared to buying with a traditional 15% deposit, according to research from Benham and Reeves.

The study found that while 100% mortgages offer a route onto the property ladder for buyers unable to save a deposit, they come with significantly higher monthly repayments, slower equity growth and substantially higher borrowing costs.

Calculations by Benham and Reeves, one of Lodon's largest independent letting and sales agents, show that with the average London FTB property now costing £471,687, based on current rates, monthly repayments would be around £3,331, compared with £2,226 for a buyer putting down a 15% deposit of £70,753 and borrowing £400,934. That equates to an additional £1,105 per month for buyers using a no-deposit mortgage.

Over the first five years of the mortgage, a buyer with a 100% loan would pay an estimated £158,104 in interest, compared with £84,834 for someone with a 15% deposit, leaving the no-deposit borrower paying an extra £73,270 in interest alone. Despite the higher repayments, they would also build equity more slowly, still owing £429,945 after five years versus £352,193 for a buyer who purchased with a deposit - a difference of almost £78,000.

The analysis found the financial gap is even greater across the wider London housing market. Based on the average London house price of £552,655, monthly repayments on a 100% mortgage would be around £3,903 compared with £2,469 for a buyer with a 15% deposit. During the first five years, interest payments would total an estimated £185,244, almost £98,000 more than the £87,285 paid by a buyer who purchased with a deposit. After five years, the no-deposit borrower would still owe £503,747, compared with £408,891 for the buyer with a 15% deposit.

Marc von Grundherr, director of Benham and Reeves, said: "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. 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.

He added: "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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