Debt groups attack 110% mortgage

A new mortgage which allows homebuyers to borrow up to 110% of their property's value ran into a storm of protest from consumer and debt-counselling bodies yesterday.

They warned people could be saddled with debts they were unable to repay if house prices collapsed or interest rates rose sharply.

With concern growing about Britain's debt mountain and the risks of a crash in the housing market, Bristol & West surprised many with its decision to launch the "100 Plus" mortgage now. It is aimed at first-time buyers who "need to borrow that little bit more".

The launch came on the same day that ratings agency Standard & Poor's warned that the debt burden of UK mortgage borrowers was "beginning to reach uncomfortably high levels".

Like many other deals, Bristol & West's will let buyers borrow up to 95% of the property's value - but this one also allows them to borrow an extra 15% in the form of a second charge on the property.

Other mortgages will allow them to borrow more than the property's value, but typically the additional borrowing is unsecured - the lender would have no call on the property if you were to default on that part of the borrowing. With the Bristol & West deal the whole sum is secured on the house.

Sue Edwards, social policy officer at the National Association of Citizens Advice Bureaux (Nacab), said that taking out a mortgage like this effectively amounted to a gamble that prices will keep rising. "If house prices collapse, you are going to end up owing much more than your house is worth," she said.

Debt management organisation Payplan was also alarmed. "Mortgages like this increase the vulnerability of people to the consequences of an unexpected change in circumstances," said director John Fairhurst. A sharp rise in interest rates, redundancy or a surprise pregnancy could all leave the borrower struggling to service the debt.

The Consumer Credit Counselling Service said people would have to think carefully about the terms and be sure they could repay the mortgage.

Bristol & West rejected suggestions it was being an irresponsible lender, saying the new mortgage had been "very carefully looked at" and that safeguards had been built into the system. "Each case submitted will be looked at on an individual basis and manually credit scored," said the bank.

Standard & Poor's said the increasing level of personal debt was one reason it had included the UK on a risk list of countries facing potential stress to their banking system.