It will only be available to existing customers in negative equity who want to move house. Negative equity is when the value of someone’s home is less than the amount they owe on their mortgage.

Nationwide said the deal was a very “niche offer” and that not everyone in negative equity would qualify. Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy.

Under Nationwide’s new product, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years or 7.48% for five years. They would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.

Louise Cuming, head of mortgage at Moneysupermarket, said: “Three cheers for Nationwide: at a time when overly restrictive and cautious lending practices are holding the housing market back, Nationwide’s flexible approach is to be welcomed.

“Its new 125% product will help its customers already in arrears but who need to move house. As Nationwide already has a relationship with these customers and visibility of their payment history they can ensure that they are extending these loans responsibly. And the truth of the matter is if the customer is in negative equity they already have a mortgage of greater than 100% before Nationwide enables the customer to move house.

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“While we’ve been aware that some other lenders have been offering similar deals to Nationwide “under the counter”, Nationwide is the first to promote it. Nationwide’s move may force others to follow suit and apply similar creative thinking to help un-clog the housing market.”