Abbey under attack for 125% mortgage

Permalink: Abbey under attack for 125% mortgage
by Kay Murchie

Abbey, Britain’s third biggest mortgage lender, is being blamed for adding to the national debt crisis by introducing a new home loan worth up to 125% of a property’s sale price.

The Abbey mortgage is the largest of its kind ever offered to UK homebuyers and is completely secured on the property. Consequently, this means that borrowers could lose their home for defaulting on a payment – even on the portion of the loan beyond the property’s value.

The mortgage is being offered to first-time buyers and others across the country in a pilot scheme. It is raising concerns among debt advice experts, who say taking the loan would be madness. The mortgage would mean the buyer owes more than their property is worth. Furthermore, takers of the mortgage would find themselves repossessed should there be an economic downturn.

The launch of the Abbey mortgage is bad timing, the troubles of Northern Rock have emphasised worries about irresponsible lending by banks.

A spokesperson for Credit Action, the debt advice charity, said that there are huge risks and anyone taking on this loan would have to be brave or stupid.

The Abbey loan is structured so that a homebuyer can borrow 100% of the value of the property they want to buy, plus another £25,000. For example, a first-time buyer paying £100,000 for a home would be able to borrow £125,000 - or 125% of the home’s value.