Nationwide says ‘negative equity’ mortgage will only be available in special circumstances

Mortgages allowing people to borrow up to 125% of a property’s value are making a surprise comeback after Nationwide launched a deal aimed at homeowners trapped in negative equity who are keen to move house.

Britain’s biggest building society said the new mortgage would allow homeowners to “carry over” their negative equity, and experts said it could throw a lifeline to people stuck in their homes who needed to move house. Other lenders look set to launch their own versions in the coming months.

The return of “125% mortgages” will surprise those who thought such deals were a thing of the past since the credit crunch and the clampdown on mortgage lending that followed.

Nationwide seemed keen to dampen excitement about the move. It described the new mortgage as a “very niche” offering which it was not actively promoting. The offer is only being made to existing Nationwide mortgage customers who are in negative equity but want to move home and borrow more.

Those who fit the bill will be able to take out a fixed-rate deal, borrowing 95% of the new property’s purchase price, plus all of the negative equity relating to their existing property. They will pay a higher interest rate on the negative equity amount they are borrowing and the entire loan will be secured on their new home.

Someone taking out the three-year fixed-rate, for example, would pay 6.73% up to 95%, and then 7.23% on the remainder of the loan, up to a maximum of 125%.

Ray Boulger at mortgage broker John Charcol described the case of a family who sell a house for £180,000 with a £200,000 mortgage on it to move to a property costing £250,000. Under this deal, Nationwide would lend them 95% of £250,000, £237,500, plus £20,000 of negative equity, which adds up to £257,500.

He described it as a “really consumer-friendly move” and added: “There are at least two other major lenders actively looking at introducing something similar for existing customers.”

Richard Morea at rival broker London & Country said Nationwide’s deal could be particularly useful for people who needed to move because of a new job or a baby on the way.

A Nationwide spokeswoman said the new deal had been available since early June. “It is a very niche offer. All we are doing is allowing them to carry across the negative equity they already have. It’s not about additional borrowing or additional risk. The maximum borrowing we would consider is 125% overall, but that doesn’t mean someone can automatically get that. We would go through our normal procedures, looking at income, outgoings and so on.”