A new mortgage that could see people paying less than 1% has been launched and a mortgage expert has warned that “the cheese is place in the mousetrap.”

Virgin Money has teamed up with housebuilders and Halifax for the Own New scheme which is what they are calling it a Rate Reducer.

How the scheme works is that the initial repayment mortgage is reduced as the lender invests homebuilder budgets directly into the mortgage upfront.

This will be typically up to 5% of the new home purchase price, but one expert has called this “dangerous” as buyers will get used to paying a lower amount and will then be faced with a “large increase.”

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Stephen Perkins, MD at the brokers Yellow Brick Mortgages, said, “The cheese is placed in the mousetrap with this scheme. with this scheme.

“Big headlines and posters proclaiming ‘own this home from as little as £x a month’ based on the largest deposit and discounts will no doubt generate interest and purchases from buyers who would be paying more per month for a second-hand property.

“However, this is a dangerous scheme in that buyers will get used to the lower payments and when that initial product ends they will be faced with a large increase in their payments.

“The slightly quicker reduction of the capital balance will unlikely put them in a lower loan-to-value banding to offset that increase.

“Ultimately, though, like the Help to Buy scheme that preceded it, this scheme will see developers just increasing their house prices leaving the potential buyers no better off at all, whilst also sacrificing the other incentives they would have been able to secure.

“This may be the best option for some buyers, but need to ensure they are fully aware of the risks.”

Matthew Jackson, director at mortgage advisers Mint Financial Services, said, “Why would lenders and developers sign up to such a scheme? Is it to benefit buyers or themselves?

“I suspect it is the latter, with the removal of Help to Buy lenders have a huge hole in mortgage lending and developers are struggling for sales.

“Without a doubt developers will use these affordable mortgages to increase house prices, meaning a premium will be paid for own new stock, and the payment shock at the end of the product will be enormous.

“Will the buyer be advised correctly? Doubtful. This has disaster written all over it.”