Consumer advisors split on 125 percent mortgage

Groups that offer advice to consumers are split on their opinion of a new 125 percent mortgage set to be offered by Alliance & Leicester (LSE: AL). The new product, called a PlusMortgage, will combine a mortgage with an unsecured personal loan and it aimed at helping first-time home buyers.

Citizens Advice Bureau and National Debtline have both had harsh words for the new mortgage, saying that it means borrowers start out with negative equity. On the other hand, moneysupermarket.com has called the new product a good idea, saying that it will help first-time buyers become homeowners at a time when that is increasingly difficult.

Louise Cuming, head of mortgages at moneysupermarket.com, said that Alliance & Leicester was not being irresponsible in offering the new product, and that it did not encourage borrowers to take on more debt than they can handle. Ms. Cuming noted that because the mortgage must be taken out through a broker, borrowers have to go through an advice process before they can make a deal. She added that the bank was only targeting people who are likely to take on large amounts of debt anyway, and that lenders have reported that fewer people with 100 plus mortgages default, compared with those with mortgages for a lower percentage of the worth of the property being purchased.

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