Banks and building societies rush to get out of 125 per cent mortgages

Four providers have rushed to abandon their 125 per cent mortgages as the credit crunch and faltering house prices take hold.

Alliance & Leicester, Abbey, Coventry Building Society and its subsidiary Godiva Mortgages have said that market conditions make the products unviable, leaving only the beleagured Northern Rock and BM Solutions behind in the market, with the latter conducting a review of its product.

Anyone remaining in this market was "brave", a spokesperson from Abbey said, as they would prob-ably be taking customers other providers had rejected. But she stressed that its decision was not in response to similar moves by other providers.

The bank's 100 per cent mortgage with a £25,000 personal loan was a pilot initiative begun in Sept-ember, before the credit crunch made its presence felt. It will be unavailable for new customers from Friday. Alliance & Leicester has given little detail as to why it has pulled its PlusMortgage products other than to say that it is due to current market conditions. Coventry Building Society and Godiva mortgages followed suit, pulling the MOREgage range.

Melanie Bien, director at the independent mortgage broker Savills Private Fin-ance, said: "The death knell for 125 per cent loan-to-value (LTV) mortgage products was sounded when the Government nationalised Northern Rock. How can the Government be seen to encourage borrowers to take on such high LTVs, particularly when house price growth is slowing and, indeed, house prices are falling in some areas?

"Northern Rock has virtually priced itself out of the 125 per cent LTV market, with rates on its Together product starting at 8.29 per cent for two years if you opt for the £995 product fee, or 8.89 per cent with no fee. This is far higher than we have been used to from Northern Rock, which historically was always very competitively priced.

"These products are now unpopular, but they did help plenty of people on to the housing ladder who wouldn't otherwise have been able to get on there. The real problem will be for those reaching the end of their term with these products. Where will they go?"