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Last Updated: Friday, 22 February 2008, 12:17 GMT
End of the road for 125% mortgage
Housebuyers
Two lenders also pulled other 100%-plus deals on Friday
The last lender offering so called 125% mortgages has pulled them from the market, it was announced today.

Birmingham Midshires was the last lender to be offering the deal after five others pulled the plug on the controversial offers this week.

It blamed "market factors" for the decision to withdraw it from Friday.

These mortgage and loan deals, allowing people to borrow more than the value of their home, were criticised for letting people take on large debts.

A spokeswoman for Birmingham Midshires, which is owned by the Halifax, said it was withdrawn at midnight owing to "a number of market factors". Birmingham Midshires lends solely through intermediaries.

Last to leave

On 2000 GMT on Thursday, Northern Rock bank stopped offering its flagship "Together" combined mortgage and loan deal.

Four other lenders pulled the plug on similar deals which had allowed first-time buyers to get on the property ladder without a deposit, but were also criticised for letting people take on more debt.

If banks and building societies get rid of these mortgages, then they are making life much more difficult for first-time buyers
Debbie Watson, 100%-plus mortgage holder

Alliance and Leicester said on Tuesday it was removing its PlusMortgage which offered a mortgage of up to 95% along with an additional unsecured loan.

Next, Coventry Building Society announced it was to stop selling its MOREgage product on Friday.

Abbey then said it was ending a pilot scheme for 125% deals that it started in the autumn. Godiva Mortgages also said it was withdrawing a similar product.

Popular deals

Some 20,000 people have taken out these types of deals each year. The latest moves will affect those intending to enter the market and those needing to remortgage, who will face higher repayments due to a lack of similarly competitive deals.

Offers for people to borrow more than the value of their home have proved popular with first-time buyers with little or no deposit.

Monopoly board properties
The credit crunch means lenders have been tightening their belts

One such buyer was Debbie Watson, a 28-year-old business studies teacher from Coventry.

She said: "Myself and my partner bought a property last year and we could never have done it without this available.

"Our mortgage repayments are more than manageable, the alternative would not have been. If we had to rent property, pay bills and try to save for a 5% deposit, we would be waiting for years to be able to get some stability in our lives and by that time our 5% would need to be significantly higher with inflation."

She believes it will stop some first-time buyers getting on the property ladder, or put more pressure on parents to help out their children financially as they enter the property market.

The 125% mortgages have also been a hit with buyers who wanted to spend significant amounts on home improvements.

Safety first

Lenders have been drawing back significantly on offering these deals to applicants in recent months owing to the credit crunch.

Denise Harvey, mortgage analyst at Moneyfacts.co.uk, said: "It seems no one is prepared to stand out from the crowd in the current environment and accept the additional risk a 125% mortgage poses."

Only two lenders remain in the 100%-plus mortgage market after Bradford and Bingley and Mortgage Express pulled deals on Friday.

This leaves Dunfermline Building Society, which serves professionals and graduates in Scotland, and Scottish Widows.

"For first-time buyers there are limited options, with fewer providers now offering 100% mortgages," said Mrs Harvey.

"There are also shared ownership schemes and open market home buy schemes. We may also see an increase in the number of guaranteed mortgages."

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