In a clear sign that lenders are expecting house prices to continue to drift downwards for the foreseeable future, the Lloyds Banking Group will be offering negative equity mortgages for home-movers from this February.
According to the Express this will allow those moving home to borrow up to 95% of the value of their new home as a mortgage and soak up the negative equity from their previous home by borrowing a further 25% in the form of a loan. That means when moving home the home owner could potentially owe, for example, £120,000 for £100,000 worth of property.
During the heady days of the property boom this was exactly the sort of deal offered by the likes of Northern Rock, whose spectacular demise was televised across the world as queues of people lined up outside branches to get their money out.
Since the credit crunch borrowers have, in certain circumstances been offered the chance to re-mortgage whilst in negative equity and Nationwide offered the same sort of deal as this back in June 2009 to their existing customers.
The problem for this though is that at the top of every property chain, however short, there is usually death, debt or divorce (or perhaps a buy to let landlord taking asset profits) and at the bottom an investor or first time buyer. The ones at the top will always be there, but without funding for those at the bottom it is hard to see how many people will be able to move house.
With the way that people also tended to borrow up to the hilt during the boom, they may not, in the current economic climate, have the credit history and finances to pass the more stringent mortgage requirements these days.
Should you be contemplating such a deal to help you move just consider that you may then be trapped in the new house for many years. A negative equity mortgage is a trap until house prices rise and the loan is once again less than the value of the house. Please arrange to talk to a mortgage adviser that deals with more than one lender prior to committing to any such deal. The mortgage market changes on a daily basis so get an expert to do the legwork for you.
For those that are in negative equity and desperate to sell but do not qualify for a negative equity mortgage there is always the use of a property lease option.
On the banking side, as long as the lender isn't following the Northern Rock route of funding long term mortgages with short term money market lending and they do due diligence on the borrower then it shouldn't be too much of a problem for Lloyds, which also covers lenders like Halifax and Cheltenham & Gloucester.