The Nationwide building society is offering 125 per cent mortgage loans to existing customers. This loan-to-value offer is designed for customers that are unable to move house due to negative equity on an existing property. Other high street lenders are considering the similar measures.
The move remains controversial as lenders have massively reduced the amount they are wiling to lend in light of the credit crunch. Nationwide will lend new customers a maximum of 85 per cent, for example, raising questions about how responsible this new offer is.
A 25 per cent drop in house prices has pushed and estimated one million households into negative equity according to the CML and this is the reason Nationwide claim they are offering these loans.
Ray Boulger, senior technical manager at broker John Charcol, said: "A number of lenders did this in the early Nineties but Nationwide is the first to do it this time around. It is a very welcome move which will help customers in negative equity. Another two other lenders are considering doing something similar and by the end of the year we will have more lenders offering this facility."
The FSA is considering capping mortgage borrowing rates at 100 per cent loan-to-value this September and also putting a limit on salary multipliers. This is to prevent the re-emergence of the irresponsible lending practices that contributed to the current collapse in the market.
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