Nationwide Building Society has announced it will allow customers to take out loans worth 125% of the value of a home, if the customer is in negative equity and wants to move. The scheme works by allowing the borrower to take out a loan for 95% of the new property's value at a fixed rate of 6.73% for three years or 7.48% for five years. 

Borrowers would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.

The move has been largely welcomed by the industry but there are reservations about the price of the deals. Darren Cook at Moneyfacts.co.uk, said: "The new Nationwide offering is a good sign that it is attempting to manage its mortgage book and assisting a small niche of its customer base that might have no alternative but to move home during this property downturn. However, while we are aware that fixed-rate mortgages are on the rise, it would be much more encouraging for their customers if they saw these mortgages at a little more competitive rates."
 
Francis Ghiloni, commercial director at RealPriceComparison.com, said: "The innovation in lending and the help being given to struggling borrowers is to be welcomed. However, it is concerning that the interest rates are in excess of 6.7%. This fact once again emphasises that borrowers are having to pay a hefty price to get a fixed-rate deal at the moment. When the Bank of England base rate is at 0.5%, consumers will find it difficult to understand why."

Louise Cuming, head of mortgage at moneysupermarket.com added: "As Nationwide already has a relationship with these customers and visibility of their payment history they can ensure that they are extending these loans responsibly.  And the truth of the matter is if the customer is in negative equity they already have a mortgage of greater than 100% before Nationwide enables the customer to move house.
 
"Whilst we’ve been aware that some other lenders have been offering similar deals to Nationwide 'under the countet', Nationwide is the first to promote it.  Nationwide’s move may force others to follow suit and apply similar creative thinking to help un-clog the housing market."

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