Northern Rock traps 125% mortgage borrowers

The demise of the 100%-plus mortgage could leave thousands of Northern Rock borrowers trapped in mortgages charging high rates of interest.

Northern Rock withdrew its range of 100%-plus loans for new borrowers last week, as did Alliance & Leicester, Coventry, BM Solutions, Bradford & Bingley and Cheltenham & Gloucester.

Around 175,000 borrowers are thought to have taken out Northern Rock’s controversial 100%-plus loans over the past few years.

They are now unlikely to be able to switch to another lender but if they stay with Northern Rock their repayments could rise by as much as £2,000 a year on a typical loan of £150,000.

Many of those taking out the loans were first-time buyers, while others simply took the opportunity of borrowowing up to 125% of the value of their property.

Northern Rock already has one of the highest rates of repossessions of any lender. Its “Together” 125% loan had been criticised by MP’s and was hastily withdrawn post-nationalisation.

Ray Boulger, of mortgage broker John Charcol, comments: “The Government is in effect a negative-equity lender, while borrowers who owe more than the value of their homes are left with few options as their chance of remortgaging onto another 100% plus deal is slim.”

Meanwhile, mortgages for up to 95% of a property’s value are also fast disappearing.

Alliance & Leicester, West Bromwich, Britannia and Barnsley building societies have all recently reduced the maximum they will lend from 95% to 90%.

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