Borrowers trapped in negative equity may still be able to move house thanks to negative equity mortgage deal revealed by Lloyds Banking Group.
Named the Equity Support Scheme, this new product will allow customers to use savings as a deposit towards a new property rather than swallowing them in negative equity.
The new scheme is set to launch in February and will become available to existing borrowers with Halifax, Lloyds TSB or C&G, a total of approximately 3 million customers.
Many of those trapped in negative equity are unable to move home. This new product will allow a borrower to move to a larger home, downsize or buy one of the same value without increasing their current borrowing level. Any money saved can be put towards the new property rather than simply being used to fill the negative equity gap that many may find themselves in.
A mortgage deal such as this could help to stimulate the property market further and will be welcomed by those who perhaps bought their property at the height of the property boom and had their equity levels hit hard by the recession. For those keen to move, perhaps due to a new baby or new job offer, this scheme will allow them to move.
A Lloyds TSB spokesperson commented that the scheme did not increase the level of risk for either the banking group or for the borrower and was in fact more like porting the mortgage. Existing borrowers with a portable deal could keep the current interest rate or otherwise, would have to choose a new interest rate deal.
As an example, if a borrower’s property is currently worth £110k but they have a mortgage of £130k, then thanks to the new scheme they would be able to purchase a property worth £120k whilst keeping the current mortgage level. With £10k of savings, they could use this as the deposit and as their new property is now worth more, the LTV (loan to value) is now 108 percent instead of 118 percent.
This new deal does require a level of commitment from the borrower of new funds but it does mean there is a new option open to existing negative equity borrowers who need to make a move. Of course there may be instances where letting the current property and taking out a new mortgage may be a better option so it is worth consulting a mortgage advisor about your own particular circumstances.