Nationwide defends launch of 125% mortgage
Nationwide today defended the launch of its 125 per cent mortgage saying the loan offered a "socially responsible and prudent" solution to people in negative equity.
The group said the "very niche" product was only available to existing borrowers who needed to move home, but who owed more on their mortgage than their property was worth.
Under the terms of the deal, customers in this situation will be able to borrow up to 95 per cent of the value of their new home, with them still needing to put down a 5 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 one at 7.48 per cent on the 95 per cent portion of the mortgage.
Interest charged on the negative equity part of the borrowing rises to 7.23 per cent and 7.98 per cent respectively.
A Nationwide spokesman said: "You cannot borrow more than 125 per cent of the property's value.
"The risk to us cannot be greater than it was on the previous property, because the borrower has put in some money, there is no greater exposure for us.
"We are doing something socially responsible and prudent."
He added that the group had received only a handful of inquiries about the product since it was launched in June.
Mortgages that enabled people to borrow more than their home was worth have come in for heavy criticism since the housing downturn started, with Northern Rock's former Together Mortgage, which lent 125 per cent of a property's value, now infamous.
But mortgage brokers welcomed the move by Nationwide and called on other lenders to follow suit and offer solutions to people in negative equity.
Louise Cuming, head of mortgages at moneysupermarket.com, said: "At a time when overly restrictive and cautious lending practices are holding the housing market back, Nationwide's flexible approach is to be welcomed.
"As Nationwide already has a relationship with these customers and visibility of their payment history, they can ensure that they are extending these loans responsibly.
"The truth of the matter is if the customer is in negative equity they already have a mortgage of greater than 100 per cent before Nationwide enables the customer to move house."
She said that while she was aware that some lenders had been offering similar deals "under the counter", Nationwide was the first to promote it, and this may force others to follow suit.
Andrew Hagger, of Moneynet.co.uk, said: "Many people will have become negative equity victims through no fault of their own, and it is a positive move from the Nationwide, who are quite rightly focusing on affordability criteria rather than applying an inflexible and restrictive LTV policy.
"These are far from normal times in the housing market and it is a positive move from the UK's biggest mutual recognising the needs of their customers and coming up with a sensible niche solution.
"Let's see if other lenders follow up with similar tailored solutions to assist customers with a proven repayment history and in the same predicament."
The best - and worst - investments in 2013
How to start your own internet business
The death of the pension: how equity release can fund your retirement
Julian Knight: We are seeing the dying days of the golden pension
Accident claims are shaken up: Insurers expect premiums to be held down by a new ruling. Ian Gregory reports
- 1 What, let gays get married? We must be bonkers
- 2 'Something passed underneath us, quite close': Airbus A320 has close encounter with UFO
- 3 Rocky Horror star Tim Curry 'suffers major stroke'
- 4 Lord of the Sings: Sir Christopher Lee, 91, to release heavy metal album
- 5 Exclusive: Woolwich killings suspect Michael Adebolajo was inspired by cleric banned from UK after urging followers to behead enemies of Islam
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Nook is donating eReaders to volunteers at high-need schools and participating in exclusive events throughout the campaign.
Get the latest on The Evening Standard's campaign to get London's children reading.
Win anything from gadgets to five-star holidays on our competitions and offers page.
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.