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Nationwide defends its 125pc loan

BRITAIN&rsquo;S largest mutual Nationwide yesterday defended its decision to launch a mortgage allowing customers to borrow up to 125 per cent of the value of their property.<br /><br />The product is aimed at homeowners in negative equity who want to move to a house worth more than their own. But critics warned yesterday that the mortgage would increase the debt burden on customers.<br /><br />Jonathan Davis, of financial planners Armstrong Davis, said: &ldquo;We&rsquo;re in a residential property market where the trend is still down despite the annual spring bounce, yet they&rsquo;re encouraging people to take on more debt, backed by an asset which is still falling in value.&rdquo;<br /><br />&ldquo;There&rsquo;s no risk to the bank at all because if the borrower doesn&rsquo;t pay it back, the debt will fall on their inheritors,&rdquo; he said.<br /><br />But Nationwide said the offer &ndash; which lets customers in negative equity borrow 95 per cent of a new property at a fixed rate, plus a sum equivalent to the negative equity on their current home &ndash; was only aimed at a &ldquo;niche group&rdquo; of customers.<br /><br />Andrew Hagger of moneynet.co.uk said the product was not risky because &ldquo;the borrowers in question will already have a solid track record...and proved over a period of time that they can afford the monthly repayments.&rdquo;