First-time home buyers can now buy a Bermuda property valued at up to $1 million without having to provide a deposit.

The Bank of Bermuda said its new “Home Start Mortgage”, launched yesterday, would also allow customers to opt to make interest-only payments for the first three years to help them get started.

It is thought to be the only 100 percent mortgage offered on the Island and borrowers can take up to 30 years to pay it back. The deal applies to primary homes and investment properties alike.

A spokesperson for the Bank, which is owned by HSBC, said yesterday that the lender does not believe the new product will carry any greater risk of borrowers defaulting than other mortgages.

The move will throw down the gauntlet to other lenders on the Island, most of whom require at least a five percent deposit when financing a property purchase.

“The new mortgage is designed to provide 100 percent financing for first-time home buyers, up to $1 million dollars, making it possible to borrow an amount equal to the entire value of a property,” said the Bank of Bermuda in a statement yesterday.

“A further benefit is that both legal and bank fees can be included in the mortgage financing.

“In an effort to strengthen our commitment to meet customer needs, the Bank has developed this product for customers who until now might not have been able to afford the purchase of their first home.”

Richard Brown, head of Personal Financial Services at the Bank of Bermuda, described the new offer as “—a really unique opportunity to enter the Bermuda housing market for the first time”.

Realtors Coldwell Banker Bermuda Realty said in its end-of-year review last week that condominiums sold in 2006 averaged at around $900,000, while a family could expect to pay $1.3 million for a single family home.

Middle-income Bermudians are increasingly resorting to pooling resources in order to purchase at least a share of a property.

Bank of Bermuda chief executive officer Philip Butterfield said he aimed to make home buying more accessible to the wider public.

“A home is a lifetime investment and our customers are looking to the Bank for creative ways to help them acquire ‘a Piece of the Rock’,” Mr. Butterfield said.

“We believe by introducing more flexible and innovative mortgage products we can help people achieve the dream of home ownership.”

The heat of competition among lenders elsewhere in the world has prompted some to offer mortgages for 125 and even 130 percent of the value of the property being purchased, in order to help a buyer with related expenses such as furniture and fittings and legal expenses.

For example, the UK’s biggest mortgage lender HBOS launched a 125 percent mortgage last November.

Critics have said this type of arrangement is risky as the mortgage holder is immediately plunged into negative equity.

But the Bank of Bermuda said it did not anticipate additional incidence of defaulting on its 100 percent mortgages.

“Our experience of loan default in respect of mortgages in Bermuda is very low,” Bank of Bermuda spokesperson said. “We do not feel that our new mortgage products present any more risk of default. “Bank of Bermuda reviews every mortgage application and loan submission on a case-by-case basis.

“To be approved applicants must possess the earnings capacity to sustain the monthly payments and be able to provide good credit references.

“Bank of Bermuda is introducing a range of mortgage products that are more flexible and innovative in their approach, while our mortgage specialists will work with applicants to find the mortgage that meets their financial needs.”

The Bank has labelled the “Home Start Mortgage” the second in a series of new lending products being rolled out, following the launch of the “Flexi-Mortgage”, which allows clients to borrow up to $2 million with interest-only payments for the first five to ten years.