Seeing that the credit crunch is starting to ease, Nationwide (Britiain’s biggest building society) introduced 125% loan-to-value mortgages for their existing customers who suffer from negative equity and are planning to move.

With 25% drop in house prices, an estimate of 1 million households resulted in negative equity, according to the Council of Mortgage Lender (CML). In order to tackle or reduce the problem of negative equity, Nationwide - the UK’s biggest building society - introduced 125% loan-to-value mortgages to individuals who are suffering from this situation. This offer can only be applied to the existing customers in negative equity who are in need to move. The introduction of providing mortgages more than the house value was last found in 2007 when housing market was at its peak.

Under the new mortgage, homeowners in negative equity are provided with 95% of the value of their new property at the fixed rate of 6.73% for three years or 7.48% for five years. They can also “carry over” their negative equity from their old house, up to 30% of the value of the new house - said the Britain’s biggest building society - with the interest rates of 7.23% for 3 years and 7.98% for five years. This would cover the maximum overall lending of 125%.

The “deal” sounds very attractive to most of the negative equity homeowners; yet, careful selection procedures are put in place to access each individual’s ability to pay. Nationwide announced that they would not lend more than what the homeowners can repay. Moreover, it also should be noted that 5% deposit is still required from the borrowers.

Nationwide stressed that the new mortgage is not provided to customers who wanted to re-mortgage. New customers can only take up mortgages of up to 85% of their properties’ values with a two-year fixed rate of 6.44%.

This new deal of up to 125% mortgages was available since early June. Criticism was established comparing the new deal of Nationwide with the offer of high LTV deal (i.e. Together Mortgage) of Northern Rock in 2007 - that “Together Mortgage” was a failure and left with high levels of repossessions and arrears. Despite the criticism of failure in the past, Nationwide introduction of 125% mortgages was highly welcomed by experts and mortgage brokers who see this as a flexible approach under the economic situation. Furthermore, rumours revealed that other major lenders are actively seeking to introduce similar approach and solutions for their existing customers.