UK Lender Offers 125% Mortgage for Negative-Equity Clients

UK building society Nationwide is offering 125 percent mortgages to its existing customers that have fallen into negative equity and need to move home.

The mortgage lender insists the move does not signal a return to the risky bank lending which caused the subprime crisis, even though the new loans would be worth far more than the value of the homes they use as collateral.

“Nationwide is a responsible lender and our negative equity policy is an appropriate and prudent response to market conditions and demonstrates our continued commitment to supporting our customers,” Andy McQueen, director of mortgages at Nationwide, said.

The underwater customers would be able to carry over their negative-equity loan when they move home, but only customers that meet Nationwide’s “strict lending criteria” and have a good credit record will be accepted, the lender said in a statement.

Nationwide, which has not advertised widely its offer, said it does not anticipate high levels of demand for the service and hasn’t seen much pickup since the product’s launch in June.

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AP

Under the new scheme, customers will be able to replace their existing mortgage with a new loan of up to 95 percent of the property. But an additional 25 percent of the loss incurred from their existing property would also be tacked on, pushing the loan over the 100-percent mark.

Borrowers would need to stump up a 5 percent deposit to secure the new mortgage.

The interest rates available on the main loan match those available to customers whose mortgages are not under water and who are moving home with a 95 percent loan-to-value ration, Nationwide said.

Both the main loan and the associated negative equity top-up are restricted to three and five year fixed rate products, Nationwide said. Rates for the top-up loan covering 100-125 percent loan-to-value are 7.23 percent for the three-year fixed rate products, and 7.89 percent for the five-year products.

The deal could offer a lifeline to homeowners who could find themselves stuck in their current property because they are unable to sell it without incurring a huge loss, but it is unclear whether other mortgage lenders will following Nationwide’s suit.