Consumer body Which? says borrowers should avoid BM Solutions’ Mortgage Plus product as it will put them in negative equity.
The product was launched in November to rival Northern Rock’s similar Together product, combines a secured and unsecured loan that can add up to 125 per cent of the property value.
But brokers have criticised Which?’s stance, saying BM’s product is a good deal for suitable customers.
It is only available through intermediaries to borrowers with a good credit history and BM says half of the applications for the loan are likely to be declined.
Which? says: “Mortgage Plus could help with home-buying costs but borrowing more than 100 per cent of a property’s value immediately puts you in negative equity. It is better to save for a deposit as it could be a long time before the value of the property is enough to pay off the mortgage.”
London & Country mortgage specialist James Cotton says: “It is idealistic to think people should get a deposit, as not everyone can. BM is providing choice. There are risks involved but it is a good product for the right person.”
BM managing director Tim Hague says: “BM has brought competition, choice and value to this niche part of the market, which was previously dominated by one single mortgage lender. Regulated mortgage intermediaries are able to talk consumers through all the options available before they decide on the most appropriate product for them.”