125pc home loans offered to 'cash-poor' professionals

ben_derby

Reading the telegraph last night I became slightly confused

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/11/14/nloans14.xml

The article referred to a new plan to offer 125% mortgages based on 95% secured and 25% unsecured.

I was slightly confused as how this adds up to 125% and not 120% but let’s not go there!!

My confusion lies in why the lender has opted to put the extra in as an unsecured loan rather than a secured? Surely the lender would prefer to put in the full 125% as a secured on the basis that if it defaults and there is the need to repossess then it would be able to claim the additional growth that is likely to happen to the property.

Any ideas?

_Andy_

Not exactly a new concept, Northern Rock have been offering the 'Together' option for ages.
As for the unsecured %age, you can't take security over equity that doesn't exist

tomstickland

95% + 5% deposit + 25% loan to make the 125%.

I find all this "oh but I'm going to earn more money in the future" argument a bit worrying. What if someone doesn't earn more in the future. Why not lend what's affordable now?

ManAtHome

By "professionals" I assume they mean people who couldn't afford (from an employment perspective) to go bankrupt. Good deal for the bank - not as many remortgaging/switching avenues open when LTV is over 100%...

ben_derby

thanks for your thoughts so far.

I can see the logic in the answer from "_ANDY_" in that you cant secure on what doesn't exist. However if this case when we see adverts from people like picture loans (http://www.picturetheloan.co.uk/7_terms.asp) who also offer 125% are they offering it on the same basis or are they placing a charge over that of the value of the property.

thanks

Xbigman

If you have a 125% secured loan you effectively cannot move without the lenders permission because the house sale would not clear the charge. And getting the lenders permission could involve fees, being tied into another mortgage with them or even converting the shortfall into an expensive unsecured loan.
Splitting the loan between secured and unsecured leave's the buyer more flexibility and is a sign of a more responsible lender (although check the terms and conditions for any nasty surprises like redemption penalties, conversion fees or tie ins).
Regards



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