Britain’s Biggest Mortgage Lender Offers 125% Mortgages

Britain’s biggest mortgage lender, HBOS, has launched a new home mortgage loan package for recent graduates and young professionals which will allow them to borrow up to 125% of the value of their property.

Comprised of a 95% home mortgage loan and 30% unsecured personal loan, the Mortgage Plus deal is being offered to graduates and young professionals through HBOS’s specialist lending arm, Birmingham Midshires. The mortgage lender hopes that this new deal will help elevate them to the top spot of the UK’s niche mortgage market of lending to young professionals and recent graduates – a market which is estimated to be worth £10 billion.

While borrower’s will still be required to put down a deposit of 5% of the property’s value, hence the 95% home mortgage loan, the 30% unsecured loan, which cannot be for more than £30,000, can be used as surplus cash to pay for all of the usual outgoings normally associated with buying a property in the UK; such as stamp duty, furniture and home decorations. Practically, this should make it much easier for young professionals and graduates in the UK to come with the 5% down payment needed to qualify for the package.

Although HBOS’s latest package may seem radical, this is not the first time we have been down this road. Those who recall the dark days of negative equity in the UK housing market in the late 1980s and early 1990s will also be able to recall that a large amount of this negative equity resulted from homeowners who had be granted 125% home mortgage loans by their mortgage lenders.

With the Bank of England’s recent announced rise in base rate, record numbers of UK home repossessions, and a large increase in the number of homeowners in arrears of their mortgage repayments in the last six months, many industry watchers are now extremely concerned that the 125% mortgage offer from HBOS, as well as similar deals being offered by Northern Rock, Coventry Building Society and Bradford and Bingley, is going to place an unnecessary financial burden on young professionals and graduates, looking to future earning to repay current debts, who have yet to fully adjust to a life of financial discipline outside on university and who may otherwise have wished to be a little reckless with their pay-check.

While the temptation to get on the UK housing market sooner rather than later may be extremely tempting, any young professional considering a 125% home mortgage loan only needs to look back a few years to see the dangers that can be tied up with this kind of home property loan borrowing.