Watch the 125% mortgage trap by Finance News Bulletin

Published: 18/01/07

First-time buyers taking enormous mortgages that are larger than the value of their house could wait five years before they break evenMIND THE hole: Take out a 125% mortgage and you could be waiting more than five years for it to be value your loanAnd if house prices do not continue to rise at their present rate buyers risk being trapped in their home by negative even-handedness for yearsThe warnings approach after the UK's biggest mortgage lender Halifax/Bank of Scotland launched a mortgage last week through supplementary Birmingham Midshires, giving buyers the chance to have a loan of a quarter more than the cost of their home Northern astound and Coventry BS already offer alike 125% mortgages

These mortgages are more complicated than they might first seem Homeowners actually take a 95% loan tenable on their home and a further unsecured loan equivalent to 30% of the property price This allows them to wrap up other debts and pay for all the additional costs of moving in to a first homeBut there is a limit on the dimension of the unsecured loan: Northern Rock will loan up to £30,000 on it; Coventry BS up to £25,000, but your mortgage rate will increase the more you desire to borrow

So someone paying the average first-time property cost of £138,000 could borrow £161,000 Of this £131,000 would be on the normal mortgage and £30,000 on the top-up loanBut if prices grew by a conservative 4% a day, then only at the end of the fourth year would their home be worth more than their mortgage And there are other dangers, especially if you want to remortgage to a new lender and house prices have not greater than before enough to swallow up your top-up loan

In this container the rate on the Northern Rock loan will rise to a enormous 1484% Coventry will put in 5% to whatever mortgage rate you had - charitable a minimum rate of 1079%

Mortgage experts warn that any first-time buyers banking on a do again of the soaring house price growth of recent natural life taking them out of negative even-handedness (where the value of their home loan is greater than the price of their house) could be live a dangerous gameThis is Money brings you the best news, features, advice and remark If you were interested in this article then follow these links for five more of our top new piecesDavid Hollingworth, from fee-free brokers London & Country says: 'I would expect that anyone who took out this mortgage is not relying on home price growth to help them pay off what they owe

That is always a awful idea'All the 125% loan-to-value mortgages are similar With Northern Rock and Coventry BS you don't need a put but with Birmingham Midshires you must have proof of a 5% deposit BM says it will be severe with applications and is expecting to reject not whole

Borrowers are likely to be in their early 40s or graduates/professionals with high possible for future profits growthYou can take the loan in chunks whenever you need it, and you will pay interest only on the money you have taken cost with Northern Rock are £795 for a variable rate or set rate for two, three, five or seven years at 599%

The unsecured and secured borrowing are emotional at the same rate With Coventry fees total £849 and rates begin at 579%Birmingham Midshires rates start at 5

89 % for a two, three or five-year fix and go up for trackers depending on the fees you want to payThe Leacock family would not own their own home had it not been for the Northern Rock Together mortgageserving HAND: The Leacock family would not have been able to afford their house without an oversized mortgageIn March, they had to move out of the house they had rented for 14 natural life and, because of several thousand pounds worth of credit card debts, could not find a standard mortgage Andy and Julie, who have two brood, went to fee-free brokers London & state who suggested they consolidate their debts and take out a mortgage

They paid £132,500 for the three-bedroom semi detached-house in Ipswich, Suffolk, by a £125,000 mortgage and taking out a £23,000 unsecured loanMr Leacock, 42, believes that his job as an IT contractor would have led to him being refused by many banks and building societies He says: 'There is no way we could have bought a house if this mortgage did not exist It is very hard to pay back your debts and pay for a mortgage

'We are not planning on moving for a extended time so house price growth is not important, but we are now on top of our bills'Who cares about negative equity when you can had give the keys in to your have an account or building society and let them deal with it What's the point of transport paying for your mortgage when your house value has gone down All this crap about first time buyers getting on the property marketplace

There's no need to take on more money owing as people should be saving more instead of spending When have an account and building scoiety charge senior rates of intrest with people with adverse praise why all the hoo haa If you don't want the contract don't take it nobody is forcing anybody to sign upchoose a loan term 12 months (1 year) 24 months (2 natural life 36 months (3 natural life 48 months (4 natural life 60 months (5 natural life 72 months (6 natural life 84 months (7 natural life 96 months (8 natural life 108 months (9 natural life 120 months (10 natural lifePlease select a type of insurance Life insurance Home and inside Car Breakdown services Health - medical Health - dental Travel Pet - afflict Pet

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