Lenders wary of portable debt to lift home sales: Vivien Goldsmith finds little enthusiasm for a new scheme to ease 'negative equity'

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The Independent Online
THE Government's move this week to ease the path for mortgage lenders who want to help borrowers caught in the debt trap is unlikely to have much impact - simply because lenders do not want to set up special schemes to encourage these home owners to move home and crystallise their losses.

As John Wriglesworth, housing analyst with UBS Phillips & Drew, put it: 'The scheme is likely to be as successful as the Government's mortgage rescue plans.'

Nationwide Building Society, which started some of the pressure to persuade the Government to give lenders greater powers to deal with negative equity, is not keen to press ahead with anything that could raise the hopes of borrowers in financial difficulties.

Any deals that do go ahead to allow a debt to be carried over to a new property will be restricted to those who have a perfect repayment record, a Nationwide spokesman said. It is reviewing its previous plan to write to its 90,000 borrowers with negative equity to propose a variety of actions.

Halifax said it was willing to consider special arrangements for individuals who might want to move to a new job, but it did not envisage any off-the-peg schemes.

Woolwich is also cool. 'It is fraught with problems. We are damned if we do, and damned if we don't,' a spokesman said.

The society is also against setting up a scheme to allow parents to use the equity in their property as collateral for a loan on homes for their offspring.

The Government is allowing building societies to lend up to pounds 25,000 rather than the previous limit of pounds 10,000 unsecured to enable them to get borowers out of trouble. It is also allowing mortgage interest relief at source to continue undisturbed after a debt is transferred from one property to another - although borrowers who move under one of these schemes will lose their right to double tax relief.

Even Abbey National, which is now a bank and therefore not subject to the pounds 10,000 limit, said it has put through no more than a handful of debt release schemes using a second loan at a higher rate.

FOR EXAMPLE . . .

JACK and Gill bought their first home for pounds 54,000 in September 1989 with a pounds 51,000 mortgage. They now have a buyer at pounds 39,000, which leaves them with a pounds 12,000 shortfall.

They have found a new house for pounds 39,000 in the town where they need to move to follow their work.

They can either:

Take out a pounds 12,000 unsecured personal loan to cover the shortfall and repay it over five or 10 years at rates that would currently be around 22 per cent.

Transfer their existing pounds 51,000 mortgage to their new home without altering any of the terms, although pounds 12,000 of the loan would, in effect, be unsecured, and they would probably pay the same normal mortgage rate on the whole loan.

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