Louise Cuming, head of mortgages at moneysupermarket.com, warned that a fall in house prices would make holders of such loans face the prospect of selling their home or even repossession.
“Getting a 125 per cent mortgage comes with health warnings,” claimed Ms Cuming. “A mortgage is a legal commitment, with the only ‘get out’ clause in times of hardship being to sell the house.”
Her comments come as Coventry Building Society announces its plans to once more enter the 100 per cent plus “lending arena”.
While Ms Cuming welcomed the competition this brought, she said that people with such loans would be hit by negative equity as soon as house prices dropped.
She urged borrowers to think about the implications price changes could have on their mortgage and how they could gain access to funds to manage the debt.