New Abbey mortgage 'a lifeline' for first time buyers

20-Sep-2007

A new 125 per cent loan-to-value mortgage launched by Abbey today has been labelled a "lifeline" for first time buyers, but experts have nonetheless been at pains to point out the risks involved.

The deal shows that lenders are still looking to help buyers onto the property ladder despite the credit crunch which last week saw some lenders, including Abbey, raise rates for new borrowers by as much as 0.2 per cent on some products.

However, the latest offering, unique in that the entire 125 per cent is secured borrowing, carries with it the risk of negative equity, Moneyfacts.co.uk has said.

"The extra money these loans can provide borrowers can be a lifeline in helping borrowers get on the property ladder, providing vital cash for stamp duty, legal fees and even essential home improvements," acknowledged Moneyfacts' mortgage expert Julia Harris.

"But borrowers should remember they are starting their mortgage effectively in negative equity, requiring over 25 per cent growth in the property market before they can see any equity in their property," Ms Harris added.

Jenny Challenor of Torquil Clark, meanwhile, has said that the new mortgage is a sign that firms are still engaged in "irresponsible lending".

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