Go through the first-time maze

Picking a mortgage used to be simple. But now, with nearly 5,000 products on the market, first-time buyers have to tread carefully through the money maze.

Borrowing too much in relation to the value of the property could leave you haunted by the spectre of negative equity.

First-time buyers have to do their homework to root out the best loans. Lenders have backed off from marketing cheap deals specifically for first-time buyers because of objections from existing customers who resent subsidising newcomers.

Most high-street lenders shy away from offering 100% loan to value (ltv) mortgages in their standard ranges. You will generally need a deposit of at least 5% - plus cash for legal and other costs associated with house purchase.

But some lenders give 100% loans through subsidiaries. Mortgage Express, a Bradford and Bingley subsidiary, will lend up to 102%. A £65,000 mortgage at an an assumed interest rate of 7.5%, with a 0.5% discount, free valuation and free completion fee requires monthly repayments of £480.34. It is tailored so that borrowers can move home after two to three years.

The Royal Bank of Scotland also offers 100% mortgages and will add up to £1,000 for legal or survey fees to the loan. There is a 2% discount until September 2001 which reverts to the standard variable rate of 8.24%.

Halifax has nudged its range up to the 97% ltv. "This is not about increasing risk," says Halifax's Joyce Grummitt. "In reality the housing market is robust and price increases mean that first-time buyers struggle to save a deposit."

Halifax offers a 5.74% discounted rate until September 2001 on 97% or a fixed rate of 6.99% until September 2003. There is also 1% cashback and a free valuation. A cashback deal on 97% is 3% with a rate of 7.75% and this is also available to existing customers.

Nationwide has reduced its rates on its fixed, capped and discounted mortgages. It offers a 6.15% two-year fixed rate or a two-year discounted mortgage at 5.75% to first-time buyers.

Alliance and Leicester has also launched its new fixed-rate two-year mortgage at 6.19% for 90% ltv and 6.29% for a loan of up to 95%. A quarter of their new customers take up the 321 stepped discount mortgage which gives decreasing discounts over the first three years. First-time buyers have their valuation fee refunded and a £250 cashback, plus discounts on home decorating products, van rental and even beds.

Not all mortgage deals are flagged up as specifically for first-timers but they are tailored to offer advantages. It could also be worth looking for a loan from a trade, professional association, or affinity group.