Nationwide forced to defend 'niche' 125% mortgage offer
Friday, 10 July 2009 11:41 AM
Nationwide yesterday was forced to defend the launch of its new 125 per cent mortgage.
The lender said the loans offered a "socially responsible and prudent" solution to people in negative equity.
The "very niche" product was only available to existing Nationwide customers who needed to move, but owed more on a mortgage than their property was worth, it added.
Nationwide borrowers will be able to borrow up to 95 per cent of the value of their new home, with a five 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 fixed rate mortgage at 7.48 per cent on the 95 per cent portion of the loan. Interest charged on the negative equity part of the loan rises to 7.23 per cent and 7.98 per cent respectively.
Mortgages that offered 125 per cent of the value of a property came in for significant criticism after the credit crunch and were blamed for the collapse of Northern Rock in September 2007. It had been thought that such mortgage products had been consigned to history but the return of the 125 per cent mortgage has arrived sooner than anticipated.
It is also a development that is likely to divide opinion among mortgage brokers and consumers alike.
The news of the launch came as moneysupermaket.com announced that the number of mortgage products available had fallen to their lowest levels in years with a contraction in mortgage products of 90 per cent since 2007.
According to research carried out by the price comparison site there were 27,962 mortgage products available to borrowers in July 2007 compared with just 2,282 mortgage products available now.
Louise Cuming, head of mortgages at moneysupermarket.com, said the lack of loan options for would-be homebuyers was an "ongoing problem" hindering a sustainable recovery in the housing market.
"Until this changes, and more mortgages become available, house price growth will remain muted at best with further falls possible, and many borrowers will struggle to get a mortgage," she said.
