British lender Nationwide has brought back the 125 percent home loan, seen as a symbol of the reckless lending that contributed to the banking crisis, but said eligibility for the deal would be strictly limited.
Mutually-owned Nationwide, the UK's third-biggest mortgage lender, said the loan is available only to existing customers with good credit history who wish to move house, but are holding back because their mortgage exceeds the value of their current property.
Under the deal, customers can borrow 95 percent of the value of their new home at a fixed rate of 6.73 percent for three years on payment of a 5 percent deposit.
They can then add the negative equity in their existing property to the loan, capped at 30 percent of the value of the new home, at a three-year fixed rate of 7.23 percent.
Nationwide said it had introduced the loan last month in response to the "unique circumstances" of some customers.
"The society does not anticipate, and has not seen, a great demand for this service," the lender said.
NARROW APPEAL
Analysts said the deal would appeal only to a small number of people, and did not mark a return to the profligate lending practices that stored up billions of pounds in bad debts on banks' balance sheets during Britain's ten-year house price boom.
"The principle is fine, it is managing debt and existing customers of Nationwide," said Darren Cook of personal finance price comparison site Moneyfacts.co.uk.
"It's not encouraging people to overextend themselves. It is different to what the Northern Rocks were doing."
Northern Rock, Britain's first major casualty of the global credit crunch, offered first-time buyers a 125 percent mortgage known as the "Together" loan which is now cited as an example of lenders' imprudence in the run-up to the 2007 credit crisis.
At the end of last year, Northern Rock's Together loans accounted for 30 percent of its total mortgage book, but about half its lending arrears.
Northern Rock was nationalised in February 2008 after the closure of wholesale credit markets deprived it of funding, and efforts to sell the bank fell through.
Moneyfacts.co.uk's Cook said interest in Nationwide's 125 percent mortgage could also be limited by its relatively high price.
Nationwide's 6.73 percent three-year fixed rate on the main portion of the loan compares with a market average of 5.52 percent, Cook said.
