Before the current credit crunch 125% mortgages, remortgages and
secured loans were a very ommon and popular feature of the finance
services industries.
There were secured loan lenders whose core
business was the 125% loan. This meant that if a homeowner had a
property worth two hundred thousand pounds and a mortgage balance of
one hundred and ninety thousand pounds they could theoretically borrow
up to sixty thousand pounds.
The Northern Rock Building Society
had a similar plan for mortgages and remortgages whereby a homeowner
could obtain a remortgage up to twenty five per cent more than the
value of the property.
The collapse of the Northern Rock can
partly be contributed to the 125% plan.The Northern Rock is of course
now 100% state owned.
Everyone in the mortgage industry really
thought that the 125% secured loan,remortgage and mortgage were in the
past, but surprise, surprise it has returned already.
The
Nationwide Building Society has been the first to announce it’s return
with two other major remortgage lenders expected to make a similar
announcement in the near future.
The new 125% plan is not nearly as comprehensive as the previous plans.
To
be eligible for the 125% mortgage you have to be an existing Nationwide
customer. In addition to being an existing customer you must also be in
a property which has suffered from negative equity.You are also
required to have a minimum 5% deposit to put down on the new property.
If you meet all this criteria the Nationwide will grant you a mortgage of up to 30% more than the value of the property.
It
is certainly a good way to help the many homeowners stuck in the
negative equity trap who otherwise may have to wait years for their
property to increase sufficiently in value to enable them to move
house.
Negative equity is when the value of your home is lower than your mortgage balance.
The
125% plan is going to benefit many homeowners, but is it a wise move as
along with such unwise lending practices as self certification of
income etc. the 125% mortgage and remortgage lead partly to the present
credit crunch with mountains of toxic debts.

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