Positive thoughts on negative equity

Despite the recovery in the housing market, nearly a million houses are still worth less than their owners paid for them. Unless you are thinking of moving soon, negative equity is only a problem in the abstract sense, and there is hope of the situation improving. If you are looking to move, the problem becomes very real. Somehow you will have to come up with the capital sum that you have lost on your home.

Patrick Bunton, manager at the Bath-based mortgage broker London & Country, says you should approach your current lender first. ''If you have a good payment record, 99 out of 100 lenders will offer something, and they may give you a nice deal,'' he says. If you have fallen in arrears at any stage, however, for any reason, regardless of whose fault it is, your application will probably be blocked.

If you decide not to go with your existing lender, there are five choices. Mortgage Express and Cheltenham & Gloucester are the specialist and general mortgage arms respectively of Lloyds TSB. The Mortgage Business and Bank of Scotland Centrebank also operate separately, but belong to the same group. The other player is Barclays. Maximum loan to value ranges from 95 per cent (the Mortgage Business) to 130 per cent (Mortgage Express).

Barclays allows customers to take advantage of favourable fixed or capped rates for the first 95 per cent. The rest of the loan is charged at the company's standard variable rate, currently 7.25 per cent.

C&G does not have the special offers, but it does keep to the company's standard variable rate. Its stated aim is to keep this 0.25 per cent below the rest of the market. Also, it does not charge for a mortgage indemnity guarantee, a fee levied by most companies lending above 75 per cent, which indemnifies the lender (not the borrower) against the effect of further negative equity. This costs around pounds 840 for a pounds 60,000 mortgage.

Bank of Scotland Centrebank is less competitive, charging 1.5 per cent over the standard rate, currently 7.74 per cent, which itself is rather high.

If you do your sums, and decide you can do better by renting out your first property instead of selling it, the Mortgage Business and Mortgage Express allow you to do this. Providing you can get the agreement from your current lender, they will loan you money for a new place.

DIDO SANDLER