by Mark Johnston
House prices are plunging across Britain and as a result thousands are unable to move or are stuck on high mortgage rates.
Interest rates are low for many people at the moment; many home owners now pay between 2% and 3.5%. However those who borrowed a lot in the period prior to the credit crunch could still be paying as much as 6.34%.
The social costs of negative equity are huge, plus there is the stress and uncertainty of being stuck with a high mortgage rate.
The Financial Service Authority (FSA) launched a review in 2009 in to negative equity after the credit crunch revealed the staggering deals that were peddled on the high street. Home owners could regularly borrow up to 125% of the property value.
Home owners trapped in negative equity have been given fresh hope recently. Banks are to be told to rescue ‘mortgage prisoners’ by loosening lending restrictions on loans worth more than 100% of a property’s value.
The financial watchdog, the Financial Service Authority (FSA) wants to loosen rules to allow banks to help people whose homes are worth less than their mortgage move.
Under the new Financial Service Authority’s (FSA) guidelines, a home owner with a property worth £90,000 but who has a mortgage of £100,000, wanting to move to another property for the same price could sell at the lower level and then re-mortgage to buy the new property. The £10,000 negative equity would move with them.
In theory this should be possible now, especially for those whose mortgages are portable. In practice however once banks reassess the mortgage; they will often turn them down due to the negative equity.
Although some lenders, such as Lloyds and Nationwide already allow their existing customers to take their mortgage debt to a new property, even if they are in negative equity.
New mortgage application rules to be announced by the Financial Service Authority (FSA) will give lenders the green light to approve loans to ‘trapped’ home owners.
Although the loosened restrictions will only be for ‘good’ customers, those who have never had any problems repaying the mortgage they took out.
While the Financial Service Authority (FSA) can not force banks to lend, it is hoped that these new guidelines will send a strong signal that it wants banks to approve mortgages for those who have been ‘locked out’ of the housing market through no fault of their own.
Almost 2 million home owners are currently effectively excluded from re-mortgaging, due to them being in negative equity. These ‘mortgage prisoners’ are creating a block in the house and job market.
Many experts believe however that not satisfied with £1.3 trillion of credit debt in the UK, the Financial Service Authority (FSA) consider it is worth lending more money, equalling more debt, to people who currently owe more than they originally borrowed.
Other experts believe this is merely a ‘scam’ to prop up the financial services and housing sector at the expense of the taxpayer yet again.
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