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Nationwide offers 125% mortgage Nationwide offers 125% mortgage
(about 1 hour later)
The Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying.The Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying.
It will only be available to existing customers in negative equity who want to move house.It will only be available to existing customers in negative equity who want to move house.
Negative equity means that the value of someone's home is less than the amount they owe on their mortgage.Negative equity means that the value of someone's home is less than the amount they owe on their mortgage.
Nationwide said the deal was a very "niche offer" and that not everyone in negative equity would qualify.Nationwide said the deal was a very "niche offer" and that not everyone in negative equity would qualify.
The Financial Services Authority is considering limiting mortgage loans to 100% of a property's value.The Financial Services Authority is considering limiting mortgage loans to 100% of a property's value.
'No more risk''No more risk'
Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy. The Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy.
There has been much criticism of the loans above 100% that were available at the peak of the housing boom, which immediately placed borrowers in negative equity.
NEGATIVE EQUITY: QUICK GUIDE Negative equity is when the value of someone's home is less than the amount they owe on their mortgageThe Bank of England estimates that negative equity currently affects between 700,000 and 1.1 million UK householdsNegative equity can make it harder to sell and move, or to borrow against the value of your home to pay off other debts, or to finance normal household spending during a period of unemploymentHowever, if you are not looking to move, negative equity is not necessarily a problem and can be overcome by waiting for the housing market to recover, while at the same time continuing to pay off your mortgage Struggling with your mortgage?NEGATIVE EQUITY: QUICK GUIDE Negative equity is when the value of someone's home is less than the amount they owe on their mortgageThe Bank of England estimates that negative equity currently affects between 700,000 and 1.1 million UK householdsNegative equity can make it harder to sell and move, or to borrow against the value of your home to pay off other debts, or to finance normal household spending during a period of unemploymentHowever, if you are not looking to move, negative equity is not necessarily a problem and can be overcome by waiting for the housing market to recover, while at the same time continuing to pay off your mortgage Struggling with your mortgage?
The most notorious were those offered by the now nationalised Northern Rock bank. Under its new arrangement, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years or 7.48% for five years.
Under Nationwide's new product, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years or 7.48% for five years.
They would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.They would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.
A Nationwide spokeswoman said that the deal was "not about additional borrowing or additional risk". As well as borrowers having their incomes and outgoings assessed by Nationwide, borrowers also have to pass a stress test to ensure they can still afford the mortgage repayments if interest rates have risen to 9% or 10% once the fixed-rate element of the loan has expired.
"It is a very niche offer. All we are doing is allowing them to carry across the negative equity they already have," she told the Guardian. So far none of the Nationwide's customers have taken up its offer.
"The maximum borrowing we would consider is 125% overall, but that doesn't mean someone can automatically get that. A Nationwide spokeswoman said although the deal was first made available in June, it was not being actively marketed.
"We would go through our normal procedures, looking at income, outgoings and so on." It was, she said, aimed at helping only a few existing customers who came to the society and asked for help because they found they were in negative equity but were being forced to move house.
In effect they are being allowed to take their negative equity with them to a new home, up to a maximum of 125% of the new property's value.
"The borrowers have to meet our own affordability criteria," she said.
Wrong again?Wrong again?
The deal was a "really consumer-friendly move" said Ray Boulger at mortgage broker John Charcol . There has been much criticism of the loans above 100% that were available at the peak of the housing boom, which immediately placed borrowers in negative equity.
The most notorious were those offered by the now nationalised Northern Rock bank.
The Nationwide's deal was a "really consumer-friendly move" said Ray Boulger at mortgage broker John Charcol .
He added that at least two other major lenders were looking at introducing something similar for existing customers.He added that at least two other major lenders were looking at introducing something similar for existing customers.
But financial planner Jonathan Davis, of Armstrong Davis, said the Nationwide's new policy was a "joke", and that it exposed the lender to further losses if house prices continued to fall. But financial planner Jonathan Davis, of Armstrong Davis, said the building society's new policy was a "joke", and that it exposed the lender to further losses if house prices continued to fall.
"You are taking people in negative equity, pushing more money down their throat to back an asset that is still going down in value," he said."You are taking people in negative equity, pushing more money down their throat to back an asset that is still going down in value," he said.
"All the banks and building societies thought they were going to get their money back when they lent gargantuan sums in the run-up to 2007 - they were clearly wrong then and they are wrong again," he added."All the banks and building societies thought they were going to get their money back when they lent gargantuan sums in the run-up to 2007 - they were clearly wrong then and they are wrong again," he added.
Are you in negative equity? Are you looking to move home? What do you think of the Nationwide's offer? Send us your comments using the form below:Are you in negative equity? Are you looking to move home? What do you think of the Nationwide's offer? Send us your comments using the form below:
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The BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide. Terms & ConditionsThe BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide. Terms & Conditions