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9 July 2009

Return of the 125% mortgage from Nationwide

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by Kay Mitchell

Return of the 125% mortgage from Nationwide

The Nationwide Building Society is offering a 125% mortgage but it is only available to existing customers in negative equity who want to move house.

The UK’s largest building society said it is a very “niche offer” and not everyone in negative equity will be eligible for the mortgage.

These types of loans have been criticised in the past and since the credit crunch, have been withdrawn from the market altogether. These types of loans were available at the height of the property boom and borrowers were immediately placed in negative equity once house prices began their descent.

The Financial Services Authority is considering restricting mortgage loans to 100% of a property’s value.

Meanwhile, under the Nationwide’s new offer, borrowers would take out a loan for 95% of the value of their new property at a fixed rate of 6.73% for three years or 7.48% for five years.

The interest rates for the additional borrowing, up to another 30%, rise to 7.23% and 7.98% respectively.

According to mortgage experts, other High Street lenders are considering re-launching similar deals but the move has been criticised by some.

Financial planner Jonathan Davis, of Armstrong Davis, described the Nationwide’s new policy as a “joke” and told the BBC: “You are taking people in negative equity, pushing more money down their throat to back an asset that is still going down in value.”

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