by Mark Johnston
The Lloyds banking group has launched a new mortgage which is designed to help borrowers who have found themselves in negative equity as a result of the houses price decline. The support which they are calling the Equity Support Scheme will be launched next month and can be accessed by any borrowers who are with any of the Lloyds group companies. These include the Halifax, Cheltenham & Gloucester and Lloyds TSB.
The idea is to assist borrowers in negative equity by enabling them to move home. The scheme will provide them with the ability to move to a house of the same value, downsize to a cheaper property or even find a bigger home. They will be able to use savings as a deposit on the new home instead of having to cover the gap left by falling house prices.
This will come as a welcomed relief to those unlucky customers who bought their home just before prices starting to free fall. Many in this position have been forced to put their plans on hold and to stay in their current home until things improve. The real problem occurs for those that have little choice but to move. A new job in another part of the country or a new baby on the way can often mean that home owners have little choice but to move even if they are in negative equity.
A spokesperson for the Lloyds banking group confirmed that the scheme is only aimed at existing customers and said: “the mortgage is more akin to porting your mortgage. If customers are on a portable deal they will keep the rate of interest they were previously being charged. If not, they have to chose a new rate. We are not increasing the risk for ourselves or the borrower,”
Mortgage broker David Hollingworth said: “The product enables a move, though it’s important to point out it still requires a commitment of further funds by the borrower to the new purchase if trading up. It does, however, mean they will not see their savings completely swallowed up in dealing with the negative equity. No additional borrowing is allowed, so the LTV will be reduced overall. It will be a niche product as a result but, nonetheless, offers a new option to existing borrowers that could be invaluable where a move is a necessity. It could be preferable to trying to let the property while taking on another mortgage on the new property.”
At the end of last year, Lloyds TSB announced a brand new mortgage product which they claimed is the lowest ever fixed rate mortgage. The three year fixed rate home loan is 3.94% although those with a Lloyds current account can take advantage of a generous discount of 0.2% making the fixed rate mortgage just 3.74%.
The mortgage aimed at first time buyers with a reasonable deposit has a loan to value of 75%. Those looking at purchasing an average priced property (£150,000) need a deposit of around £37,500. Lloyds are charging £1495 as an arrangement fee for the mortgage.
Stephen Noakes, Lloyds commercial director of mortgages said: “For some borrowers having low up front costs is a priority, but with increasing commentary about potential interest rate rises over the coming year, many borrowers will be looking for the security of lower monthly payments for the next three years which this product provides.”
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