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125% mania

Nationwide revealed it is offering existing clients the chance to port negative equity onto a new property’s mortgage this week, in affect offering a 125 per cent mortgage.

This, rather unsurprisingly, received a huge amount of consumer press, most of which also mentioned Northern Rock’s infamous 125 per cent Together loan. But brokers have welcomed the product.

The premise is simple: Nationwide allows reliable borrowers who are in negative equity to move to a more expensive home and ‘port’ the negative equity with them, as long as they have 5 per cent of the property’s worth.

Because of the increased security in the new property the borrower could move out of negative equity.

Speaking to advisers and lenders alike, this product has been warmly received – Brentchase Financial managing director Mike Fitzgerald told me this is exactly what he has been waiting to see: sensible innovation within the rules.

John Charcol senior technical manager Ray Boulger says he has talked to two more lenders who are considering offering a similar deal.

One major lender told me it would love to offer a similar product but for its risk managers never allowing it to leave the drawing board.

Some advisers will probably looked unfavourably on the uncompetitive rates – for the three-year mortgage the rate is 6.73 per cent on the first 95 per cent of the loan, and 7.23 per cent on the negative equity carried over from the previous property, and for the five-year mortgage the rate is 7.48 per cent on the first 95 per cent, and 7.98 per cent on the negative equity.

So has Nationwide been given a bad rap? It has repeatedly said this deal is only for the chosen few – London & Country mortgage broker David Hollingworth says a borrower will have to be able to walk on water if they are to have any hope of securing this deal. This isn’t a new idea – Halifax was offering similar loans in the 1990s.

Also, it very different to Northern Rock’s loan – admittedly the Nationwide deal splits the loan between 95 per cent and 30 per cent loans like the Together mortgage, but Nationwide’s deal is fully secured, unlike Northern Rock’s.

What do you think – would you advise your clients to go for Nationwide’s 125 per cent mortgage? Are you hoping more lenders offer similar deals? Or is this just another example of reckless lending that will ultimately hurt the borrower?

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Michael Abbott 10th July 2009 at 6:02 pm

    125% Mania
    I think this is good innovation and sorely needed in the current market. Products like this help everyone becuase they help to unlock a market stuck with a leverage squeeze. Lenders like Nationwide clearly realize unless they find a way to help people move and keep the risk managers happy the underlying collateral of all their loans continues to deteriorate. So it’s a win win for them. I agree with the criteria being super strict for these deals (as they should be for any 95% lending) but I don’t like the predatory rates being charged. I think that’s counterproductive in the end.

  2. nationwide 125% !
    If any cases go through there will be only one winner and that will be Nationwide. they will be taking existing clients off much lower rates, and porting them over on to much higher rates thus increasing their profit margins substantially. Good move for the Nationwide, not so good for the borrowers!

  3. Richard Brown, Managing Director, Moneynotion Limited 10th July 2009 at 6:32 pm

    125% mortgages
    Lenders should be made to compensate borrowers who get into difficulties with this silly kind of deal.

    We aren’t yet out of a recession brought about by the cras stupidity of lenders and it’s starting again!

    If someone had ample income I suppose, in rare circumstances, I might recommend this product, but not normally.

  4. Wrong diagnosis
    The scheme is only open to existing Nationwide borrowers caught in the negative equity trap. If you check the information correctly the scheme does not mirror anything like the Northern Rock together, I think this article needed more investigation before being released.

  5. Money Marketing 13th July 2009 at 9:40 am

    Reply to Derek

    Derek,

    The article makes clear right from the first line that the offer is only available to existing clients and one of the points the article makes is that the offer is very different to Northern Rock’s Together loan.

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