James Daley: The 130 per cent mortgage offers hope to a stranded generation

Consumer groups, MPs and a slew of financial commentators were tripping over themselves to criticise Bradford & Bingley this week, after the bank unveiled details of a new first-time-buyer mortgage that offers borrowers up to 130 per cent of their property's value. "Irresponsible," cried some. "The last desperate gasp of a defunct housing boom," whined another.

Consumer groups, MPs and a slew of financial commentators were tripping over themselves to criticise Bradford & Bingley this week, after the bank unveiled details of a new first-time-buyer mortgage that offers borrowers up to 130 per cent of their property's value. "Irresponsible," cried some. "The last desperate gasp of a defunct housing boom," whined another.

But far from being opportunistic, B&B's latest idea simply promises to give a helping hand onto the housing ladder, for many who would otherwise have struggled due to their existing debts.

The 30 per cent handout, which it offers on top of the value of the property, is not about irresponsibly throwing people into negative equity just so they can take a nice holiday or buy the most expensive sofa on the market for their new home. It's about helping a small minority of first-time buyers who are currently stranded.

While high levels of unsecured debt are now all too common - much of which is accounted for by non-essential spending - there are many people who have run up debt not through frivolity, but through necessity.

For example, undertaking a postgraduate course - which is increasingly becoming a must for those looking to get into competitive professions - can cost thousands of pounds on top of the large student loans that have already been built up during their undergrad courses.

Many are left feeling frustrated that, even several years after graduating from their studies, they are still burdened with hefty monthly repayments, prohibiting them from getting a mortgage.

B&B's product promises to change that. While student loans, which are charged interest only at the rate of inflation, may be worth keeping, B&B's new product will allow borrowers to consolidate higher-interest debts under the lower rate of their mortgage.

More importantly, it will give them the power to start putting their rent into a property each month, rather than into their landlord's pocket.

It goes without saying, that a product that instantly puts you heavily into negative equity is not for everyone - in fact, not for the vast majority of people. For a start, anyone getting themselves into this sort of deal at the current point in the housing market, will have to feel very happy with the property they are buying.

Any sharp fall in house prices would propel borrowers even further into negative equity, and a worst-case scenario could see them stuck in their new home for several years. This, however, is a risk almost all first-time buyers take at the moment, except for those who are fortunate enough to have a sizeable deposit.

But these are risks that any salesmen will be forced to go to great lengths to point out - and it is comforting to see that this particular mortgage is only available through B&B's advisers.

With the mortgage-broking industry having recently come under the umbrella of the Financial Services Authority, advisers are now under greater pressure than ever to ensure they make suitable recommendations to their clients.

In the event, I doubt B&B will sell many of its new mortgages at all. But to the few people to whom they do sell, they will give the freedom of doing what many people in their twenties and thirties took for granted until the recent runaway housing boom - the chance to become their own landlord.

Investment guarantees always come at a price

Of the reams of paper to come out of the Financial Services Authority every year, its little book of worries (better, and more prosaically, known as the Financial Risk Outlook), published this week, is always my favourite, by far.

It's a monotonous, non-committal drone through a list of things that could possibly go wrong over the coming year, giving it the chance to declare "I told you so" if any of it ever comes true.

But buried among the boring and common-sensical crystal ball gazing was some advice about the under-publicised risks of "guaranteed" investments that is well worth heeding.

Investors have been all too quick in recent years to buy into anything that offers them a capital guarantee, in a bid to avoid a repeat of the losses they suffered at the hands of the equity markets between 2000 and 2003. But what they don't realise is that by investing in this new sanitised breed of products, they still stand to lose money in real terms (after the erosion of inflation has been accounted for), even if they get their original investment back.

Furthermore, such funds do not pay dividends either - a benefit that investors in any ordinary equity fund will benefit from, regardless of the performance of the underlying shares.

If you are investing for the longer term, guaranteed products are often a red herring. You'd be far better off with the real thing. And if security of your capital is so important, you're probably better off in a high-interest cash deposit account.

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