125% mortgage providers withdraw from market

Mortgage borrowers that have 125% loans could face huge increases in monthly repayments when they come to remortgage, because most of the lenders offering this type of loan have withdrawn from the market this week.

Currently Northern Rock as the only High Street lender offering the 125% mortgage, which has been especially popular with first-time buyers.

The mortgages offer up to 95% of the value of a home plus another 30% as an unsecured personal loan, capped at £25,000 or £30,000.

Borrowers coming to the end of their 125% fixed-term deals will only be able to renegotiate the “mortgage” portion of the loan with their current lender or a competitor.

In addition, they could be penalised on best rates because they will have a large unsecured loan.

Melanie Bien, of mortgage broker, Savills Private Finance, said: “In the current climate, lenders are really looking at affordability, so having a big unsecured loan with another lender may scupper borrowers’ chances of getting a new competitive deal elsewhere.”

A typical borrower with a £125,000 mortgage with Northern Rock could see repayments rise by nearly £200 a month.

Alliance & Leicester, Plus-Mortgage home loans, Abbey, Coventry Building Society and Godiva Mortgages will all stop selling 125% mortgages this week and Birmingham Mid-shires has reported that it is reviewing its product range.

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