The Return of The 125% Mortgage

Hot on the heels of a warning from Barratt Developments and Redrow, that stability in the UK housing market were being undermined by banks' reluctance to provide mortgage finance to borrowers, comes a new product from Nationwide.

Nationwide are bringing back the 125% mortgage, for homeowners facing negative equity.

The product will only be available to existing customers wanting to move house, whose homes are now worth less than their mortgage.

Borrowers in negative equity can get a new mortgage worth 95% of the value of the new property. They have to fund the remaining 5% in the form of a deposit, but then they can also carry over negative equity in their original home. The negative equity carry over can be worth up to 25% of the total cost of the new property.

However, Nationwide caution:

"We're certainly not relaxing our lending criteria."

Others will now be forced to follow suit.

Negative Equity

The Council of Mortgage Lenders (CML) report that the number of people facing negative equity is coming close to 1M, at around 900,000.

Is this a bad thing?

Not necessarily:

1 In the last housing slump of 1993, the number peaked at 1.5M.

2 Many homeowners intend to "stay put", therefore the "value" of their house (unless they seek to raise capital from it) is irrelevant.

3 Approximately 66% of the 900,000 face shortfalls of less than 10%.

People need to grasp the essential truth that houses are not meant to be "pseudo investment" vehicles for raising finance for short term consumption, despite what the banks, loan companies and property porn shows would have us believe, but places to live in (ie homes).