It may sound strange today but until only 2 years ago many 'responsible' lenders were lending to people to buy houses they could not afford. Many lenders were even lending more than what these buyers were paying for the house - to pay off their credit cards and other loans.

The argument was - 'banks are in the business of lending money after all... as long as people can afford to service the borrowing' 

The problem was - initial interest rates were fixed at low levels to 'get them on the housing ladder'. But when fixed periods ended and peopl started to default, banks started to repossess their family homes. It started with some and more and then came an avalanche of repossessions.

Then it created a domino effect as banks could not pay the money back to their lenders either. So many banks got in serious financial trouble.

Many had to be bailed out by the tax payer. So banks realised their mistake and learnt a lesson!

No they didn't, as it seems.

Nationwide Building Society has announced that they are to resume the 125 per cent mortgages again. In other words, if a house is worth is 100k then they are prepared to lend 125k. According to the society, it will only be available to existing customers in negative equity who want to move house - at least for now.

"Hardly any risk"
According to this 'deal', if some wants to move but can't because they can't sell the house in the place as it is in negative equity then they will be able to carry their shortfall to the new borrowing. In other words, he can borrow 30% of th evalue of the old house he is selling to pay off the mortgage and then get an additional 95% of the value of the new house. These loans are added together to make it one mortgage.

A Nationwide spokeswoman said that the deal was "not about additional borrowing or additional risk.. all we are doing is allowing them to carry across the negative equity they already have".

Is this round one?
Yes... so it seems. According to mortgage industry insiders, at least 2 other lenders are looking at similar schemes right now.

Other rounds are to follow... watch this space.