It seems that some mortgage lenders are so desperate to reduce their mortgages book that they are offering to pay up to 20 percent of selected mortgages if the borrowers move their mortgage to another lender. In some cases, this offer is worth £25,000.
Mostly, these offers are aimed at those homeowners now in negative equity due to falling house prices. These deals are being offered by companies such as Advantage (part of the Morgan Stanley group), Edeus and GMAC. Mortgage Express, an arm of the old Bradford & Bingley, is simple waiving any redemption penalties that were in place.
Those currently in negative equity would normally struggle to remortgage elsewhere because the home their mortgage is secured on is worth less than the loan they need so many stay with their current lender. By writing off some of that debt, the lenders hope borrowers will be able to move lenders.
Many may not have heard of these companies but they do make up a large proportion of the UK mortgage market and most specialised in giving mortgages to the ‘riskier’ market segment, i.e. those who are subprime, self employed or seeking buy to let mortgages who might not have got a decent interest rate elsewhere.
Most of the mortgages under normal circumstances would have later been sold on for a profit but as the market collapsed the lenders are now struggling to finance their debts and hence the unprecedented offers.
For the borrowers, it means writing off their negative equity and getting a better mortgage deal elsewhere and for the lender it means reducing their risk by getting rid of some risky mortgages from its books. Not everyone qualifies for the offer and those who have kept payments up to date are likely to be offered it as they can go elsewhere. Those with a bad payment history are unlikely to be able to remortgage anyway so the lenders will be unwilling to off to wipe off some of their mortgage.