by Mark Johnston
Approximately 3.5 million UK households can not move as they have insufficient equity in their property or they can not get a mortgage.
Research has shown that many people who bought their properties around 2007 will be in or close to negative equity and therefore unable to move even if they wished to.
When looking at all mortgages the Council of Mortgage Lenders (CML) says that 827,000 are in negative equity, although this means in reality fewer than 8% of all mortgage holders.
Even with the base rate as low as it is and house prices dropping dramatically, director general at the Council of Mortgage Lenders (CML), Paul Smee stated that negative is much less common than in the 1990’s.
With lenders in the current economic climate reluctant to lend to anyone with anything less than a clean credit record and they are also jittery about borrowers defaulting on their payments with little or no equity in their property it is no wonder so many home owners are stuck with their properties.
If a home owner is forced to sell, for example they have to move for work, and are in negative equity, speaking to their lenders may help some maybe prepared for the owner to rent out the property as long as mortgage payments are met.
There are 2,177 mortgage products currently on offer of these 28 are available with a 10% deposit, 7 for 5% deposit and only one for no deposit according to moneysupermarket.com, a product comparison site.
Those taking out a new mortgage need at least a 25% deposit to secure the cheapest deals; many have seen the equity in their current home eroded by price falls.
Some lenders such as Lloyds TSB will allow borrowers in negative equity to carry their mortgage over to their next home, but in this case will not extend the debt.
People in negative equity may find it difficult to switch mortgage companies; it can therefore be worthwhile speaking to their existing lender as some may offer other reasonable deals. The Halifax will allow their existing borrowers with loans that are worth up to 120% of their home value to re mortgage on to retention deals, one such deal is a 2 year fixed term at 4.99% with an application fee of £999.
Re mortgaging to retention loans for customers in negative equity is also allowed by Coventry building society and Lloyds TSB.
Research has shown that there is no direct relationship between negative equity and mortgage payment problems.
What typically causes difficulty for house holders is not a fall in house prices as such but an unexpected change in personal circumstances like for example a job loss.
Experts have suggested that the housing market will without doubt remain sluggish with little improvement in mortgage availability and further falls in house prices over at least the next few years.
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