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eMoneyfacts.co.uk has revealed five lenders who continue to offer borrowers 125 per cent mortgages…

David Knight, eMoneyfacts.co.uk’s mortgage analyst:

“125 per cent loan to values may not be quite what they seem. Lenders have put such tight restrictions on them that only in very specific circumstances can a borrower will get the full 125 per cent loan.

“For example Abbey, Alliance and Leicester and Coventry will restrict the extra loan, secured or unsecured to a maximum of £25,000. Effectively this means that the property can only be worth a maximum of £100,000 to achieve a 125 per cent loan.

“This week Northern Rock placed further restrictions to some of its Together range products. On the lower rate deals, the unsecured loan is limited to a maximum of 30 per cent or £10,000.

“In these circumstances, the property would have to be worth a maximum of £33,000 in order for the borrower to get the full 125 per cent. A 30 per cent or £30,000 loan is still available but at a 0.20 per cent higher rate.

“At a time when the housing market is showing signs of a fall, or at the very least a slowdown, it is especially important that borrowers take full consideration of what borrowing more than the current value of their property could mean for them in the future.”

The personal loans market has shrunk by 10 per cent as a direct result of the financial squeeze.

Hanley Economic Building Society and Northern Rock-funded Eskimo Loans have pulled out of the loans market, joining GE Money, Leeds BS and LV= who all withdrew earlier this month.

Esther James, personal finance analyst at eMoneyfacts.co.uk:

“Such a large reduction in just the last month is worrying,” explained “With no signs of rate rises slowing, it’s a rather unsettled market. The credit crunch is showing its strength in the personal loan market.

“Anyone considering a personal loan might be advised to act sooner rather than later. With less choice, a more cautious lending strategy and the impending decision on payment protection insurance sure to shake up the market, the 2008 loan market could look very different.”

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Sweeping rule changes will force banks to stop lending huge amounts and get them to behave fairly.

A review of the Banking Code yesterday recommended that banks specifically agree to lend money responsibly. And they will also be told to let customers decide whether they want to accept an increase in their credit card limits.

In recent months banks have been accused of recklessly letting customers take on massive sums of money they would struggle to repay.

Under the new proposed rules, customers struggling with debts will also be told to pay off all their loans if they borrow money again.

And anyone signing up to a loan or savings account will get vital information about the product in an easy-to-read summary box.

This will contain details of interest rates, tax codes and bonuses for savings accounts.

And for loans, details of all charges, rates and early settlement fees will be included.

These are all great moves that could help you avoid debt. But the Banking Code could have gone further. It could have made banks and building societies announce when bonus rates on savings accounts ended.

And it should have forced banks to increase the minimum amount credit card customers have to pay each month.

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