Lender defends the launch of its new 125 per cent mortgage

The Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125 per cent of the value of the home they are buying. The lender said the loans offered a “socially responsible and prudent” solution to people in negative equity.

The “very niche” product is only available to existing Nationwide customers who need to move, but owe more on a mortgage than their property is worth.

Nationwide borrowers will be able to borrow up to 95 per cent of the value of their new home, with a five per cent deposit.

They will then be able to transfer the negative equity on their former home to the new property, as long as it does not exceed 30 per cent of the new home’s value.

Borrowers will be offered a
three-year fixed rate mortgage at
6.73 per cent or a five-year fixed rate mortgage at 7.48 per cent on the
95 per cent portion of the loan. Interest charged on the negative equity part of the loan rises to 7.23 per cent and 7.98 per cent respectively.
Mortgages that offered 125 per cent of the value of a property came in for significant criticism after the credit crunch and were blamed for the collapse of Northern Rock in September 2007. It had been thought that such mortgage products had been consigned to history but the return of the 125 per cent mortgage has arrived sooner than anticipated.

The number of mortgage products available has fallen to their lowest levels in years with a contraction in mortgage products of 90 per cent since 2007.

There were 27,962 mortgage products available to borrowers in July 2007 compared with just 2,282 mortgage products available now.

Until this changes, and more mortgages become available, house price growth is likely to remain muted at best with further falls possible, and many borrowers may struggle to get a mortgage.