At last - positive action on negative equity: Vivien Goldsmith on relief for mortgage prisoners

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NEGATIVE EQUITY loans can unlock borrowers trapped in their homes when mortgage debt overtakes the value of the property.

Norman Lamont put the final part of the scheme to encourage lenders to construct special negative equity loans in the Budget this week. Borrowers who swapped the security for a mortgage from one property to another were in danger of losing their Miras - mortgage interest (tax) relief at source. The technical change allows lenders to swap one property for another without disturbing the tax position.

Nationwide Building Society was one of the most enthusiastic proponents of negative equity mortgages. Yet nine months after it first said it was prepared to make them work for its troubled borrowers who could pass a tough vetting, it has done fewer than 100.

One success is the Williams family. Kevin and Rosalyn Williams and their four-year- old son, Martin, have just moved to Buckfastleigh, Devon although they owed pounds 60,000 on the three-bedroomed terraced house in Bracknell that they sold for pounds 53,000.

The magic ingredient in the mixture was Mr Williams' parents, who agreed that the equity in their home could be used to raise part of the money needed to make the move.

Mr Williams, a former policeman who is now a house-husband, said they had always wanted to move to Devon. His wife, a deputy supermarket manager, applied for a transfer and expected to wait two years for a vacancy in Devon. But six weeks later, she was offered a job there.

They found a four-bedroomed house for pounds 54,000, and wanted to borrow pounds 62,000 to cover the pounds 7,000 shortfall and moving expenses.

The loan is split - pounds 40,500 secured on the new home, and pounds 21,500 added to the parents' existing Nationwide mortgage. The interest rate on both loans is at the basic variable 7.99 per cent. Mr and Mrs Williams jnr will pay the total monthly mortgage costs of pounds 362.87.

The plan is that as the property value increases the balance outstanding on the parents' home will be transferred to the Williams' Devon house.

Mr Williams' only complaint is that he completed the sale on 5 March - and missed the Budget stamp duty bonanza. 'That would have saved me pounds 540.'

He added: 'Nationwide were very helpful. The local manager worked out several options. One made up the shortfall with an unsecured loan at 11.5 per cent, which would have cost a lot more each month. This was the best option. My parents were happy to help and both my sisters know about it. They are all very happy.

'My wife has always been a career woman. When Martin starts school after Easter I will start looking for work.'

Another couple who both work in the public sector and have a good payment record managed to move without help from parents.

Mrs and Mrs Blank (not their real name) bought a pounds 55,000 terraced house in Kent with a 100 per cent mortgage four years ago. They now have a young child and Mrs Blank is pregnant, so they want to move from the small, two-bedroomed house to a four- bedroomed house. They are selling the house for pounds 46,000 - a pounds 9,000 shortfall.

They plan to pay pounds 55,000 (the same as the original loan) for the new house in the same town. Nationwide is providing a 100 per cent repayment mortgage on the property at 7.99 per cent, plus a negative equity loan of pounds 9,000 to cover the shortfall. This loan at 17 per cent APR fixed over 10 years ( pounds 150 a month) will involve a second charge on the property.

Woolwich Building Society is also willing to organise negative equity mortgages. It has named its scheme to use the equity in parents' homes Parent Line, and Mobility Mortgage for other mortgages.

Woolwich managing director Peter Robinson said: 'I am very pleased that we will, at last, be able to help borrowers trapped by negative equity who want to transfer their mortgage from one property to another for employment or family reasons. Regrettably, the delay in implementing the Government's intention, expressed in October last year, has prevented lenders from providing much- needed relief sooner.'

(Photograph omitted)

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