Northern Rock is to scrap 125 per cent loans from the end of today following fears the mortgages would expose the soon-to-be-nationalised lender to more bad debt.

The "Together" loans, which offered first-time buyers a mortgage for up to 95 per cent of their property's value and a personal loan of up to 30 per cent on top will no longer be available from the Newcastle-based bank.

Northern Rock’s decision follows four other lenders’ decision to pull deals for more than 100 per cent mortgages.

Abbey, Alliance & Leicester, Coventry Building Society and Godiva mortgages all removed their versions of the Northern Rock Together loan on Tuesday.

Northern Rock's decision will leave thousands of borrowers who had opted for the Together package facing a massive hike in repayments, effectively stranded on Northern Rock's Standard Variable rate.

Experts said existing borrowers will be unable to remortgage onto an equally low rate when they reach the end of the period because they will not be able to secure the same level of finance from either Northern Rock or other lenders.

The bank, which has 160,000 first-time buyers on its mortgage books, had come under increasing pressure to stop selling the loans following plans to nationalise the lender amid accusations the deals were an example of irresponsible lending.

John McFall, chairman of the Treasury Select Committee, specifically criticised the mortgage in a speech at the House of Commons on Tuesday.

Today’s decision is in line with the bank's strategy to withdraw from the mortgage market until its funding problems are resolved.

Loans for more than 100 per cent of a house’s value have proven popular with first-time buyers because the extra unsecured element frees up cash to cover the extra costs of buying a home, such as stamp duty.

However, these loans have been criticised because they expose homeowners to the risk of negative equity should the value of their property fall, potentially leaving them unable to pay off their debt.

Analysts predict that house prices, particularly those of one and two-bedroom new build flats that typically attract first-time buyers, could nose-dive over coming months.

Birmingham Midshires is now the only remaining lender offering deals for up to 125 per cent, but brokers expect that this too will disappear over the next few days.

David Hollingworth at London & Country, the mortgage broker, said: "Lenders are pulling the deals because of the prospect of falls in house prices.

“The result is the virtual extinction of loans worth more than 100 per cent. The consequences for existing borrowers with these deals are poor.

“I would urge all lenders to ensure they have a plan in place so that their customers do not get trapped paying as expensive Standard Variable Rate."

Alliance & Leicester borrowers with mortgages for more than 100 per cent will revert to a rate 1.99 per cent above the Bank of England base rate, giving a current rate of 7.34 per cent and will have the option of remortgaging with Alliance & Leicester.

If they take out a mortgage with another lender, they will have to pay an extra 5 per cent interest on the personal loan element of their borrowings.

Coventry Building Society said that existing borrowers will be able to choose from one of its competitive remortgage deals.

Northern Rock, which does not currently offer any competitive mortgage rates, has not yet confirmed what will happen to its existing borrowers.