The deal, which is only for Nationwide customers is offered only on the basis that the deal will improve their situation rather than get them deeper into debt or worse negative equity.
It has been broadly welcomed by financial commentators who have praised it as "showing a commitment to helping its customers in difficulties while remaining responsible."
Following the news of the product, Nationwide put out a statement:
"This is not available to new customers. The maximum LTV for existing customers taking a new deal at Nationwide remains at 95 per cent.
"Nationwide remains a very prudent and cautious lender with a track record of low arrears, low possessions and has a low LTV (loan-to-value) mortgage book. As the borrower is required to put down a deposit of at least 5 per cent, under this scheme, the LTV and the risk to Nationwide will reduce as a result of the transaction.
"Nationwide introduced this option on 10 June 2009 for existing customers only in the following particular circumstances:
they are in negative equity
they need to move home
they meet our strict lending criteria and
they have a good credit record.
"The Society does not anticipate, and has not seen, a great demand for this service.
"Borrowers in these unique circumstances are simply able to transfer part of their existing negative equity with them when they need to move home – as illustrated below the actual value of the negative equity and the LTV will reduce in all circumstances.
"The maximum LTV available is 95 per cent on the new property plus the remaining negative equity amount carried forward from the current property. The customer will need to pay a 5 per cent deposit on the new property from their own funds.
Andy McQueen, director of mortgages at Nationwide said: "Nationwide is a responsible lender and our negative equity policy is an appropriate and prudent response to market conditions and demonstrates our continued commitment to supporting our customers."
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