Nationwide has announced that it will provide mortgages at 125% of a property’s value – although there are restrictions.
The 125% mortgage will only be provided to those who are “existing customers” of Nationwide that are in “negative equity” and want to move house. Nationwide also added that not all of their customers in negative equity would qualify, it would be restricted subject to individual circumstances.
It is also interesting to note that the FSA (Financial Services Authority) is considering future regulation to limit mortgages to 100% of a property’s value. This makes sense, otherwise the amount of mortgage in excess of the property’s value is really an “unsecured loan” and not a mortgage secured against a property.
Until the FSA mortgage regulation is implemented lenders can still provide mortgages over 100%. To some it may seem reckless of he Nationwide to provide a 125% mortgage, but is it? The Nationwide’s view seems to be that as their customer already has negative equity in their current home, they are simply allowing them to carry that negative equity to their new home, so overall they still have the same amount of mortgage risk e.g. if there was £30,000 of negative equity on the original house, then there will still be £30,000 of negative equity on the new house.
Overall a positive move by Nationwide, it helps to get some movement in the housing market and of course they charge a higher interest rate, so they are not losing out!
