Critics round on the 130% home loan

A new mortgage from Bradford & Bingley that allows homebuyers to borrow 30 per cent more than their property's value met with widespread criticism this week.

A new mortgage from Bradford & Bingley that allows homebuyers to borrow 30 per cent more than their property's value met with widespread criticism this week.

Launched by its specialist lending arm, Mortgage Express, the "Max 130" loan aims to help first-time buyers to grab the first rung of the property ladder while using some of the loan to buy furniture, say. It is also open to existing homeowners looking to remortgage and consolidate credit card and other debts into a single loan.

But the deal, which comes at a fixed rate of 6.49 per cent over three years, has been attacked by mortgage specialists, MPs and consumer groups, amid accusations of irresponsible lending.

"Borrowers are plunged into negative equity from the outset," warns David Hollingworth of mortgage broker London & Country. This might pay off in a rising market but has serious repercussions when property prices go down, he adds. "Given that house prices are flattening, you could be looking at trouble further down the line."

A spokesman for Mortgage Express insisted it was a responsible lender and said applicants would have to meet strict criteria.

But if you borrow 30 per cent more than the value of your home, it could be years before your property is worth more than your mortgage and rises out of negative equity, says Simon Tyler from broker Chase de Vere Mortgage Management.

Mr Hollingworth says the rate is not particularly competitive. He also warns those considering the loan for debt consolidation that this will only alleviate the problem in the short term. Consolidation lengthens the time over which a loan is repaid, making it more expensive in the long run.

Other lenders let homeowners borrow more than the value of the property. Northern Rock, for example, offers loans of up to 125 per cent, but unlike Mortgage Express, it does not secure all of the loan loan on the property.

"With Northern Rock, borrowers are only offered up to 95 per cent secured on the property, with a further 30 per cent unsecured, like a personal loan," says Mr Tyler. If borrowers run into trouble, they can concentrate on mortgage payments and can let the unsecured element go into arrears temporarily. This won't so easily lead to a repossession and makes these loans a little less risky.