Alliance & Leicester's new PlusMortgage product, which offers customers up to 125 per cent loan to value ratio (LTV), combines a mortgage and personal loan to allow customers buying a home to use the unsecured borrowing element to finance home improvements.
Over a two-year loan period, customers will pay 5.64 per cent interest on both the secured and unsecured parts of the loan.
The mixed product is likely to be most popular with first-time buyers in need of a boost to help them redecorate, commented Alliance & Leicester's head of specialist mortgages Jeremy Claridge.
Once their home is spruced up, he added, borrowers can begin repayments on the personal loan immediately, with no limit on overpayments.
Remortgage customers will also be able to take out the mortgage, which is initially to be offered only through intermediaries.
But any putative borrower will need a minimum income of £18,000 to take advantage of the unsecured and secured loan package, making this a product which promotes responsible lending, according to Ray Boulger, senior technical manager at mortgage advisers John Charcol.
Price comparison site moneysupermarket.com also commended the offer, noting that first-time buyers now face average house prices of £172,865.
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