125% mortgage. Just when most of us thought that we would never see figures even approaching 100% with regards to mortgages ever again, Nationwide appear to be thinking outside the box with this, distinctly against market trend, deal it’s offering to those trapped in the misery of negative equity.

It will come as a shock to most at first sight- we’ve been trained over the last year to believe that 100% mortgage equals bad, irresponsible lending and one of many reasons we’re in the property pickle we’re in today.

People were allowed, encouraged and even, when property values began to spiral out of control, felt forced to take out mortgages that they clearly couldn’t afford. The best deals lately have been restricted to those with a 40% deposit.

When someone was lent more money than their home worth, they were essentially taking a gamble (as was the lender) that the property prices were simply going to keep rising until their loan to value dropped below 100% and they could get on a better deal.

When property prices suddenly dropped, many were left with more negative equity than they even started with and others with a small deposit were plunged into negative equity and essentially trapped in their property (and with high LTV mortgages dwindling, trapped with their mortgage provider unless they could come up with an additional deposit).

So is this just an example of recovering mortgage lenders getting greedy once again and lending recklessly?

Not really, and here’s why:

This mortgage is only going to be available to current Nationwide customers, not new borrowers and NOT first time buyers.

Effectively, people who already are saddled with a 125% mortgage due to negative equity. These people have already been lent the money, so not to lend to them now would be a little like closing the door after the horse had bolted. This is a way for Nationwide customers to be able to move house even while in negative equity.

The deal does come at a price though – customers can still only borrow up to 95% of the value of the new property.

Here are the rates: On the three year deal, 6.73% interest is payable on the first 95% of the loan, and 7.23% on the negative equity carried over from the previous property.

On the five year deal, it is a hefty 7.48% on the first 95% and 7.98% on the negative equity.

So, not cheap by any means. When taken into account that the rates from which lenders make up their fixed rate deals are around the 3% mark and the fact that Nationwide’s standard variable rate is just 2.5%, it’s very clear that staying put and overpaying where possible in order to take advantage of the low interest rate is still the best bet.

However for some people who have to move due to work or with a growing family etc., this deal will come as a lifeline. Maybe now other lenders will follow suit to help out their customers who now, thanks to their low deposits being accepted back during the housing boom, find themselves stuck in an unsuitable property.

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