Row as bank offers 130% mortgage

MORTGAGE giant Bradford & Bingley has sparked a huge row after announcing plans to entice first-time buyers with 130% mortgages. The bank has launched the new deal through its Mortgage Express subsidiary and allows first-time buyers or existing homeowners who have racked up credit card debts to borrow amounts up to 30% more than the value of their homes.

However, fears that such mortgage deals would immediately plunge housebuyers, especially first-timers, into heavy negative equity have been expressed by MPs and consumer groups.

Nigel Beard, a Labour member of the Commons Treasury Select Committee, has called for a probe into such financial packages.

'I would like to the see the committee investigate such high value loans before they become a trend,' he said.

Leading consumer groups also attacked the deal. Ciaran Barr, the chief UK economist at Deutsche Bank, said: 'House prices are expensive and they are unlikely to continue rising. Borrowers should definitely not be taking out any mortgage which is bigger than the value of their home. The risk is substantial.'

Simon Tyler, of Chase de Vere Mortgage Management, warned: 'What is concerning is if the borrower has to move before the property has appreciated sufficiently to take it out of negative equity.

'If that happens they could have to pay as much as £30,000 to escape the debt - or end up effectively trapped in their home.'

Bradford & Bingley said: 'We ran a two-year pilot on this product and found that there was a market. We always act as a responsible lender.'

The loan's interest rate is 6.49% over three years.