Back to Bad Old Days of High Debt

 We all know that the credit crunch was caused by excessive and irresponsible lending. Banks were able to borrow money too easily and started to lend to people without confirming whether they could definitely afford the mortgage payments, especially when fixed periods were over.

Strange it may sound, many lenders were even lending more than what people were buying the house for.... as long as people can afford to service the rent, it is OK - the argument went. After all banks were in the business of lending money.

When fixed periods did end and people did start to default, banks started to repossess their homes. It started with some, then more and then came an avalanche of repossessions.

Then it created a domino effect as banks could not pay the money back to their lenders either. So many banks got in serious financial trouble.

Many had to be bailed out by the tax payer. So banks realised their mistake and learnt a lesson!

No they didn't, as it seems.

Nationwide Building Society has announced that they are to resume the 125 per cent mortgages again. In other words, if a house is worth is 100k then they are prepared to lend 125k. According to the society, it will only be available to existing customers in negative equity who want to move house - at least for now.

'No Further Risk'
According to this 'deal', if some wants to move but can't because they can't sell the house in the place as it is in negative equity then they will be able to carry their shortfall to the new borrowing. In other words, he can borrow 30% of the value of the old house he is selling to pay off the mortgage and then get an additional 95% of the value of the new house. These loans are added together to make it one mortgage.

A Nationwide spokeswoman said that the deal was "not about additional borrowing or additional risk.. all we are doing is allowing them to carry across the negative equity they already have".

Round One?

Yes... so it seems. According to mortgage industry insiders, at least 2 other lenders are looking at similar schemes right now.

Other rounds are to follow... watch this space.