David Prosser: Why this 125% mortgage is welcome

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Outlook Good for Nationwide Building Society, both for having the nous to see that there is a part of the housing market that could benefit from being offered 125 per cent loan-to-value deals, and for having the nerve to market such products, which could see the mutual end up on the wrong end of some critical headlines.

This is not a return to the bad old days of throwing money at borrowers struggling to get on to the housing ladder. Rather, this is a product aimed at the 1 million people now stuck in negative equity.

Without such deals, almost everyone living in a home worth less than the outstanding mortgage debt would be stuck there. No chance of moving to a bigger place when a child arrives, say, and no hope of moving if a better paid job comes up elsewhere.

Anyway, there is nothing intrinsically wrong with high loan-to-values. Even the infamous Together mortgage marketed by Northern Rock, which also offered a 125 per cent loan, was an attempt to tackle a genuine problem – in that case, the fact borrowers were having to pay so much to get on to the housing ladder they had nothing left over for legal costs, furniture and so on.

What is dangerous is when lenders start forgetting the basics, failing to think properly about whether borrowers will be able to repay. For example, many Together customers used some of the extra cash advanced to pay off other debts, which should have rung alarm bells.

The challenge for Nationwide – and there is no reason to think it can't meet it, given its decent record on bad debts – is to pick and choose customers carefully. Meanwhile, thank heavens for a sign that some flexibility and inventiveness is returning to the home loan sector.