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Credit Crunch, What Credit Crunch?

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Nationwide, Britain's biggest building society, has announced a new 125% loan-to-value (LTV) mortgage deal for customers in negative equity.  The deal means Nationwide customers can borrow up to 95% on a new property and carry over up to 25% of the loss incurred on their existing property.

The Bank of England estimates that negative equity currently affects between 700,000 and 1.1 million households in the UK.  But, some commentators have questioned whether the resurrection of 125% mortgages makes sense, particularly given the mountain of toxic debt that still looms large over the global economy.

Jonathan Davis, a Chartered Financial Planner and Managing Director of Armstrong Davis, believes the to 125% LTV lending is a "joke," which will cause Nationwide further losses if house prices fall.

"You are taking people in negative equity, pushing more money down their throats to back an asset that is still going down in value," he said.  "All the banks and building societies thought they were going to get their money back when they lent gargantuan sums in the run-up to 2007 - they were clearly wrong then and they are wrong again," he added.

David Prosser at The Independent disagrees and welcomes the move:  "Without such deals, almost everyone living in a home worth less than the outstanding mortgage debt would be stuck there.  No chance of moving to a bigger place when a child arrives and no hope of moving if a better paid job comes up elsewhere."

Meanwhile, Ray Boulger at mortgage broker John Charcol thinks Nationwide has made a "really consumer-friendly move."  He notes: "Two other lenders are considering doing something similar and by the end of the year we will have more lenders offering this facility."

Unless the FSA acts first, of course.  FSA chairman Lord Turner intends to publish a discussion paper on mortgage market regulatory reform in September.  The FSA could conceivably impose a cap on mortgage lending at 100% LTV or below, which would have wide-ranging implications for both mortgage lenders and borrowers, so watch this space...

Additional Information & Advice

You can obtain additional information about mortgages on .

Depending on your circumstances, however, you may want to speak with a solicitor who specialises in .  You can be in your area for free via solicitor matching services, which can also help you to understand the best course of action and whether you are ready to hire a solicitor.

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