Money Insider: Zero per cent mortgage rate: where's the catch? 


When the press release detailing the latest mortgage products from Leeds Building Society landed in my inbox this week, it grabbed my attention when I saw that the home loans were being offered with an initial 0 per cent interest rate.

Although 0 per cent borrowing is now commonplace when it comes to credit cards, it is not a feature that you expect to see associated with  a mortgage.

I was immediately suspicious and thinking this was just another gimmick that would end up hitting the customer in the pocket. However I’m happy to confess that my initial suspicions were unfounded.

So what’s the 0 per cent interest  all about?

You can apply for a new “Welcome” mortgage with Leeds Building Society for either a three or five-year term, with the option of an interest-free period for the first three or six months.

This means that during the initial three or six months your monthly repayments are much lower – thus giving you some extra breathing space in your budget at a time when it could come in very handy.

Maybe you need to replace a couple of carpets or carry out some minor DIY projects to put your mark on your new home. From my own experience, when you move house it always seems to result in a fair amount of additional expense, often for things you hadn’t budgeted for.

I’m sure you’re thinking the same about the 0 per cent offer as I was originally, that there’s bound to be a sting in the tail, but having read through the details of this deal at least three times I can assure you there isn’t.

Currently Leeds Building Society offers standard fixed rate mortgages at 80 per cent, 85 per cent and  90 per cent loan to value (LTV), but even if you opt for the 0 per cent interest option, the amount you repay in interest is virtually the same as it is with the standard mortgage.

So in practical terms, how exactly does it work?

Well, if you took out a standard, three-year, fixed-rate mortgage of £150,000 at 80 per cent LTV, the interest rate would be 3.45 per cent, your monthly repayments £746.27, and the total interest payable over the three-year term is £10,327.

If you took the new “Welcome” version of the same mortgage, your repayments for the first three months whilst interest free would be £500 (£246 less) and for the remaining 33 months they would be £770.73 (£24 more) per month, but the total interest payable is just £1 more  at £10,328.

While some people will stick to a standard mortgage product, I’m sure others will see the attraction of making lower repayments over the first three or six months. It’s not going to cost them any more by doing so, plus it gives them a bit more cash in their bank account and some flexibility to help cover some of the additional expenses you always face when moving into a new home.

The interest rates on these Leeds Building Society mortgages are not top of the best buy tables, so you could seek out a slightly cheaper deal over three or five years, but they’re not too far off.

These mortgages are available for purchase only (not remortgages), they allow 10 per cent capital repayments each year without penalty, and come with a free standard valuation up to £335. There is an application fee payable of £199.

It is refreshing to still see innovation in the mortgage market and a loan which is designed to offer flexibility to borrowers without any hidden catches or additional costs.

The Welcome mortgage won’t appeal to everybody, but there is definitely a place for this product which offers something a bit different from the vast majority of home loans.

Andrew Hagger is an independent  personal finance analyst from

Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
world cup 2014
Ray Whelan was arrested earlier this week
Arts and Entertainment
In a minor key: Keira Knightley in the lightweight 'Begin Again'
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
Mick Jagger performing at Glastonbury
Life and Style
fashionJ Crew introduces triple zero size to meet the Asia market demand
Santi Cazorla, Mikel Arteta and Mathieu Flamini of Arsenal launch the new Puma Arsenal kits at the Puma Store on Carnaby Street
sportMassive deal worth £150m over the next five years
Arts and Entertainment
Welsh opera singer Katherine Jenkins
musicHolyrood MPs 'staggered' at lack of Scottish artists performing
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Business Analyst Consultant (Financial Services)

    £60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

    Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

    £60000 per annum: Harrington Starr: A leading provider in investment managemen...

    AVS, JVS Openlink Endur Developer

    £600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

    Technical Support Analyst (C++, Windows, Linux, Perl, Graduate)

    £30000 per annum: Harrington Starr: A global leader in trading platforms and e...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice