Nationwide, Britain's biggest building society, is offering 125 per cent loan-to-value mortgages to existing customers in negative equity who need to move house.

Other high street lenders are also considering the launch of similar deals, according to mortgage experts.

The controversial deals are aimed at borrowers who would otherwise be trapped and unable to move because their home loan is worth more than the value of their property.

Lenders have dramatically reduced the amount they have been willing to lend in the wake of the credit crunch and Nationwide will only offer new customers loans worth up to 85 per cent of a property's value. The best rates are limited to customers who only need 60 per cent loan-to-value deals.

However, the 25 per cent drop in house prices has pushed an estimated one million households into negative equity, according to figures from the Council of Mortgage Lenders.

Halifax, Lloyds TSB and Coventry are among a small band of lenders who quietly allow these customers to switch on to the security of a new fixed-rate deal, but mortgage experts said Nationwide is the first to bring back the loans for customers who want to move.

Ray Boulger, senior technical manager at broker John Charcol, said: "A number of lenders did this in the early Nineties but Nationwide is the first to do it this time around.

"It is a very welcome move which will help customers in negative equity. Another two other lenders are considering doing something similar and by the end of the year we will have more lenders offering this facility."

Nationwide said that its existing customers in negative equity would be offered its 95 per cent loan-to-value deals, with rates of 6.73 per cent fixed for three years or 7.48 per cent fixed for five years.

The interest rates for the additional borrowing, up to another 30 per cent — rise to 7.23 per cent and 7.98 per cent respectively.

The building society, which is Britain's third biggest lender, stressed that the deals were not available to new customers or those who wanted to remortgage.

A spokeswoman for Nationwide said: "It is a very unique situation where existing borrowers in negative equity are coming to us to say they need to move house. These borrowers need to meet all our normal criteria for risk and affordability".

The FSA is considering introducing a cap on mortgage lending at 100 per cent loan-to-value or below as part of a review of the mortgage market which is expected in September. It is also said to be considering limiting income multiples.

Nationwide is also offering its cheapest two-year fix to existing customers who need to borrow up to 95 per cent of their property's value.

The mutual is cutting the cost of a number of deals for existing customers who are switching mortgage deals by up to 0.99 per cent.

Existing borrowers can take out a loan up to 95 per cent of their property's value with a rate of 3.79 per cent that is fixed for two years. The deal has a £995 fee. The interest rate on a three-year fixed-rate has fallen to 4.49 per cent with a £995.

It is also offering a two year tracker pegged at 2.49 per cent above base, a current pay rate of 2.99 per cent, capped at 3.99 per cent.

Richard Morea, of London & Country Mortgages, the broker, said: "If you are already with Nationwide then you will welcome the flexibility offered by these new deals, but other customers will be increasing frustrated."

Mortgage experts warned it could be part of a strategy to move existing customers off old deals which revert to a standard variable rate that pegged at 2 per cent above base, currently 2.5 per cent. New deals revert to a new standard variable rate which is not tied to the base rate and is currently 3.99 per cent.

New customers can only borrow up to 85 per cent loan-to-value and are charged an interest rate of 6.44 per cent for a two-year fix.