At a time when all mortgage lenders have shown us they do not have an appetite to lend money, along comes the Nationwide with a pioneering new niche mortgage product for their existing borrowers. Last month they introduced their ground-breaking negative equity mortgage to their clients. This will allow their borrowers to borrow up to 125% of the value of their property if they want to move homes.
Existing borrowers that are in negative equity can now move home with a 95% loan-to-value (LTV) mortgage with an interest rate of 6.73% fixed for 3 years or a 5 year fixed rate mortgage for 7.48%. They are then able to borrow up to an additional 30% with increased rates of 7.23% and 7.98%. The Nationwide believes that it can offer this product to their existing borrowers as they already have a relationship with them and know their payment history. Expect normal criteria checks to be carried out.
Whilst the Nationwide should be applauded for this new niche product their spokesperson has said, there has not been a lot of demand for this new negative equity mortgage. It should be remembered that the Northern Rock offered this kind of mortgage prior to the credit crunch and their demise. It will be interesting to see how this fits in with Alistair Darlings recent revelations that the Financial Services Authority would be introducing new measures to ensure that banks do not lend beyond their means.
I did think we were in an age of responsible lending and caution until this new 125% mortgage was announced. Now I suppose we might see other new and initiative products surfacing. Surely if we are to get the mortgage market moving we need to be encouraging first-time-buyers onto the housing market. They still face an uphill struggle with having to find a deposit of around 25% of the value of the property they wish to buy. To compound the problem the average income multiplier of a first-time-buyer is 2.97 times their income as reported by the Council of Mortgage Lenders for May 2009. It seems that 80% of first-time-buyers are being helped by the bank of Mum & Dad.
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