Commentary: No kick-start for property

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The Independent Online
Buyers who cannot move home because their mortgage is larger than the value of their house may be helped by yesterday's move by the Government to prise open the jaws of the negative equity trap.

But allowing building societies to advance unsecured loans of up to pounds 25,000, rather than the previous limit of pounds 10,000, is not going to provide a magic answer - even for the limited number of borrowers who are likely to get a sympathetic hearing from the societies.

Borrowers with mortgage arrears or other financial problems are completely outside the scope of this policy shift and will certainly derive no advantage. It is aimed at people with secure income who can manage their current level of debt, even though it is no longer fully backed by the value of the property.

So, for instance, someone who had the promise of a new job in another part of the country might be able to bridge the gap between the value of their current property and the mortage on it with an unsecured loan, and hence be able to move.

But there will still be mortgage indemnity insurance to pay, and probably a higher rate of interest for the unsecured part of the loan. The option of moving and carrying the old debt along to the new property might not look so attractive after all. It will only appeal to those for whom a move is imperative.

Abbey National, which converted from a building society to a bank and therefore freed itself from the restrictions on unsecured lending, has a self-imposed limit of pounds 10,000 for these sort of loans and has made just a handful.

So this move is no kick-start for the property market, although it may help a few homeowners to swap one impossibly large debt for another, just as long as they can keep on paying the monthly mortgage bill.

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