A new mortgage has been launched to help people trapped paying sky-high rents and struggling to save a deposit.

The home loan, offered by Dutch lender April mortgages, is a 100 per cent mortgage. These loans, which mean you don’t have to have a deposit, have largely disappeared from the market since the financial crisis of 2008.

Borrowers will have to fix their interest rate — starting at 5.99 per cent — for 10 or 6.43 per cent for 15 years. First-time buyers and house movers with a household income of at least £24,000 will be eligible to apply. There is also a fee of £195 upfront, which is non-refundable, plus £995 on completion.

The most recent data from Halifax, the nation’s largest lender, shows the number of first-time buyer mortgage completions in the UK has fallen to 287,060, the lowest level in a decade. In 2021, this figure was 405,250.

The size of deposit now required – on average £60,000, but £100,000 in London – is one reason why this number has gone down. Rents is another, which are now at record highs. This has decreased the ability for people to save while paying high living costs.

Here we look at the pros and cons of this loan and everything else you need to know.

Who will benefit from this mortgage?

According to David Hollingworth, spokesperson at L&C mortgage brokers, it will be “people who on the face of it are in a good position – in that they are earning a decent salary and so can afford the high interest rate – but are battling to save a deposit”. It will also help people not receiving help from the Bank of Mum and Dad.

What are the pros of this mortgage?

It could help a person buy a home years sooner than a standard loan. By removing the need for a deposit, one of the biggest barriers to home ownership disappears. However the number of people who can benefit will be reduced by the high interest rate, of 5.99 per cent for a 10-year mortgage and 6.43 per cent for a 15-year mortgage. This will mean that only people on relatively high wages will pass the affordability checks.

What are the cons?

The main one is the high rate. The average is now 5.18 per cent according to Moneyfacts and 5.42 per cent for people with a 10 per cent deposit. The cheapest two-year fix is currently 3.87 per cent for people with a 40 per cent deposit. This is with a £999 fee and is offered by Barclays and Halifax.

The difference between the no-deposit mortgage and the cheapest two-year fix is £246 a month, or £2,952 a year. This assumes a loan size of £200,000 over 25 years.

Am I tied into the rate for 10 years?

This is the other issue and the answer is yes with a few exceptions. If you move house you can stop the mortgage without being hit by penalty (known as a early repayment charge, or ERC). This will leave you to remortgage in the same way you would normally. But if you stay in your property for 10 years, you will be stuck on it no matter how far the Bank of England reduces interest rates this year.

The lender is able to offer this loan deposit free as fixing for this long reduces the risk of negative equity being a problem. This happens when the value of a property falls to less than the loan taken out against it.

However you are allowed to overpay it without penalty (if you win the lottery or get a bonus, and often lenders will charge you to do this). And there are small, automatic rate reductions over time as you pay more of the loan off. So for the 100 per cent mortgage you start off paying 5.99 per cent, but if in time you own more of your home changing the loan-to-value ration to 85 per cent, the rate will go down to 5.65 per cent.

What if I want to borrow more money?

April Mortgages, a UK subsidiary of the Dutch asset manager DMFCO, made headlines last month when it announced that it would lend higher earners up to seven times their salary. However those borrowing for this mortgage with no deposit are limited to 4.49 times, which is usual.

After lending rules were made far stricter after the financial crash, the Treasury is now encouraging lenders to relax them a little in a bid to stimulate the economy. This has also meant that almost all high street lenders have reduced their stress-testing rates, which allows people to borrow more.

Mortgages that did not require a deposit were commonplace before the financial crisis, and left some people in a very difficult position when the housing market crashed. Some people were forced to sell at a loss or tied into ruinously expensive home loans as they couldn’t meet the affordability thresholds of standard home loans.