Negative equity mortgage deal unveiled by Lloyds

Published 28th Jan 2011

The Equity Support Scheme lets customers use their savings as a deposit instead of them being swallowed by negative equity

A mortgage deal aimed at homeowners who are trapped in negative equity but keen to move was launched today by the Lloyds banking group.

The Equity Support Scheme will go live next month and is open to existing borrowers with Lloyds TSB, Halifax or Cheltenham & Gloucester – about 3 million mortgage customers in total.

The scheme aims to make moving home possible for customers with low or negative equity. It allows borrowers to move to a property of the same value, buy a bigger home, or downsize without increasing their existing levels of borrowing. They can use any money they have saved as a deposit for the new property rather than having to use it to plug their negative equity gap.

The scheme could be particularly useful for people who bought their first home a few years ago and have found their equity position hit hard by house price falls but now need to move, perhaps because of a new job or a baby on the way.

A Lloyds TSB spokeswoman said that because the scheme was aimed at existing customers it was "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.

She gave the example of someone whose property was currently worth £110,000 but whose mortgage was £130,000. With the new scheme they could trade up to a £120,000 home while keeping their mortgage as it is. They would use £10,000 they had managed to save as a deposit. Because they now have a property that is worth more their loan-to-value (LTV) also improves, coming down from 118% to 108%.

"We are not increasing the risk for ourselves or the borrower," the Lloyds spokeswoman said.

David Hollingworth at mortgage broker London & Country said it was good to see an option available to those in negative equity who need to move.

"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."

Source: ' Guardian '

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