New no-interest mortgage launches – but what's the catch?

A new mortgage service has launched aimed at people who are finding it hard to raise a home-funding loan, including first-time buyers and people with distressed properties.

They pay 0% interest, with all monthly payments, bar a monthly admin fee of around £80, going directly to reducing the capital.

The scheme is available from a public body called the Community Clearing House Agency.

Essentially, the borrowers find their own property, make an offer and negotiate a cash purchase. The Community Clearing House then acquires the property, passing it to the buyer.

The new service applies only to single-family dwellings, and with distressed properties the home owner must have first reduced down their debt and the lender agreed to call off repossession.

Under the scheme, mortgages can have 30-year terms but the borrowers can repay their loans within 12 years to get free and clear ownership, and the Community Clearing House can require additional payments to be made.

Dale Vega, director of the Community Clearing House Agency, said: “As people make additional payments, more funds become available for mortgages. The programme will help stimulate the economy by buying and selling single family homes.”

Mortgages are based on ability to pay, not necessarily an individual credit score, and buyers must provide a “reasonable” down payment.

Vega said: “It’s like rent to own, only everything you pay above taxes and insurance goes directly to principal, not interest.”

So, what’s the catch?

The scheme is not available in the UK.

It has been launched in America, funded with federal grants. It will be available nationwide but has started in Pennysylvania. The Community Clearing House is a charity for abused women that is now expanding into mortgage services.

Could it happen here?

Well, who’d have thought that an independent consumer body, Which?, a body that has always refused to sell advertising for fear of compromising its status, would go into selling mortgages!

And anyway, remember that what happens in the States often happens here 18 months down the line.