Nationwide brings back 95% mortgage

Published 17th Dec 2008

Nationwide, Britain's biggest building society, has become the first lender to re-introduce mortgages worth up to 95 per cent of a property's value.

But the new home loans, which are only available to existing customers who are moving house, come at a high price. Borrowers wanting a fixed-rate deal will have to pay 7.18 per cent — 5.18 percentage points above the Bank of England base rate. The building society offers homeowners with a 40 per cent deposit a similar deal at 5.38 per cent, a difference of £225 a month on a £150,000 interest-only loan.

However, Britain's third-biggest lender also unveiled new tracker deals yesterday. A new two-year tracker for customers with a 5 per cent equity stake costs 5.49 per cent, 3.49 percentage points above base rate. Nationwide's best tracker deal for customers with a 40 per cent deposit is 4.49 per cent, 2.49 percentage points above base. This is also almost double the rate of its previous 95 per cent loan-to-value tracker deal, which was available in August, at 1.78 above base.

Andrew Montlake, of Cobalt Capital, a broker, said: “These deals are expensive but lenders are now pricing for risk. Re-entering the 95 per cent market is a bold move and it will help Nationwide's customers who desperately need to move house but couldn't find the finance. However, it is first-time buyers who would benefit most and they have been excluded.”

Nationwide has also taken the opportunity to increase the cost of its fixed-rate deals for borrowers with a 15 per cent deposit by up to 0.3 percentage points, despite a dramatic fall in the cost of wholesale mortgage funding for new lending. Two-year swaps, which lenders use to fund fixed-rate mortgages, have fallen substantially in the past three months.

A two-year fixed-rate deal for borrowers with a 15 per cent deposit has jumped from 6.18 per cent to 6.48 per cent. Mortgage experts hope the introduction of 95 per cent loan-to-value deals by Nationwide will encourage other lenders to follow suit.

Last month Nationwide introduced a lower threshold or “collar” on new tracker deals of 1 per cent, preventing borrowers from benefiting from cuts in base rate if it drops below 1 per cent. Most of the lender's existing borrowers are on tracker deals which have a collar of 2.75 per cent. Nationwide chose not to enforce its collar when the Bank of England cut the base rate to 2 per cent last month but it said it may do so in future.

Source: ' Times '

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