First-time buyers have been warned they run the risk of finding themselves with negative equity if they take out a 100% mortgage to get on the property ladder.

Online mortgage company mform.co.uk claims that the number of 100% home loans on the market has increased dramatically over the last six months.

And it revealed that between January last year and August this year, an estimated 33,000 first-time buyers borrowed the full value of their property, or in some cases more than it was actually worth.

The organisation said that borrowers who took advantage of these loans are particularly vulnerable to any dips in house prices, as they have no equity to cushion them even if there is only a small drop in the value of their home.

Such a decline will leave them owing more on their mortgage than their property is worth, it added.

Francis Ghiloni, marketing and business development director at mform.co.uk, said: "Rising property prices have meant that people need to borrow even more money to get the property they want, and lenders have responded to this by dramatically increasing the number of 100% mortgages available.

"In April this year, our research showed that there were 92 different 100% mortgages to choose from, but by October 1 this had increased to 160.

"However, if house prices fall, as some commentators predict, those homeowners with these mortgages are likely to encounter negative equity."

According to the Council of Mortgage Lenders, the average first-time buyer is now putting down a deposit of more than £13,000, or 10% of their property's value.

But given the amount of money people need to save in order to have enough to put down just a 5% deposit, increasing numbers are taking out 100% loans.

And currently, there are a number of lenders who will even advance a 100% mortgage and an additional unsecured loan to help pay for legal costs, stamp duty and furniture, meaning people are effectively borrowing more than their home is worth.

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