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The number of homebuyers taking out 100 per cent mortgages has doubled in a year, a top broker said last night.

Many are borrowing up to 125%, giving them cash for furnishing and decorating but leaving them facing instant negative equity.

Banks and building societies are now rushing to offer such mortgages, which help people get on the property ladder even if they have no savings.

Brokers London & Country said the number taking out 100% mortgages had ‘more than doubled’ in the last year. For mortgages over 100% there had been a 95% rise.

Another broker, Mortgage Advice Bureau, said 50% more people had taken out 100%-plus loans.

There are now a record 155 such mortgages on offer, according to the research firm Moneyfacts.

Last week Alliance & Leicester said it plans to launch a ‘Plus Mortgage’, of up to 125%. Other lenders include Birmingham Midshires, owned by the Halifax, Northern Rock and Coventry Building Society.

The massive mortgages are popular not only with first-time buyers but also with divorcees who have left the family home and have no savings to buy a new one.

They let people escape the cycle of trying to save while paying for rented accommodation. But if prices began to fall, they would face disaster.

The high mortgages usually have an interest rate at least one percentage point higher than other loans, while some lenders add an extra charge of £2,000 or £3,000. But experts said such mortgages should become cheaper as more lenders offer them.

The Council of Mortgage Lenders said about 22,000 people took out a mortgage of 100 per cent or more last year, around two per cent of all home loans.

House prices jumped by more than £2,500 in January despite the shock bank rate rise.

The latest house price report, released last week by Halifax, revealed a 1.3% increase in the cost of a home last month to £188,623.

compared to a year ago, the average house is now 9.9% more expensive.

But despite the strong increase, Halifax said that signs had emerged that the property market was slowing, including reports from the Bank of England of a fall in the number of mortgage approvals and the Royal Institution reporting that new buyer enquiries declined from November to December.

Halifax added that the 1.3% rise in January followed a 1% drop in December, which supported evidence that rampant house price growth could wane.

Martin Ellis, chief economist at Halifax, said: “The mixed pattern of monthly price rises and falls in December and January is consistent with a slowing market.

Negative real average earnings growth for only the second time in over ten years, combined with higher interest rates and slower economic growth will squeeze householders’ finances, causing potential homebuyers to be more cautious and constraining housing demand.”

It has been said by some industry commentators that the strong house price growth seen over the past year could grind to a halt over the coming months, as affordability pressures bite first-time buyers and homemovers.

Howard Archer, chief economist at analysts Global Insight, said: ‘Even before January’s shock interest rate hike, first time buyers were finding it ever more difficult and costly to break into the housing market, while a growing number of people were missing mortgage payments. There were also signs that many people were finding it harder to move up the property ladder.

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Charles Smailes, the president of the National Association of Estate Agents (NAEA) has predicted that the housing market will be “very steady” this year, with no “horrendous price increases”.

Mr Smailes said that the market would be stable throughout the year, although areas with pronounced housing shortages could see a rise in property prices.

He said that price rises would be more prevalent in London and the south-east, where available housing is in short supply.

Mr Smailes added: “If you take the country as a whole, I think it will be a small level of possibly five per cent or less across the board, unless of course there are unknown economic factors which may come into play.”

However, he stressed that the NAEA is “certainly not expecting a crash market”.

Fionnuala Earley, economist at Nationwide, said that steady interest rates, a buoyant economy and lack of available housing will maintain house price momentum in the first few months of 2007.

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