Lenders grow positive about negative equity

Rising house prices and a short supply of houses for sale are good news for homeowners stuck with negative equity.

More than 760,000 borrowers owned properties worth less than their mortgages in the second quarter of 1996. But Rob Thomas, a building society and housing analyst for UBS, predicts that house prices will rise by 7 per cent by this December, and 10 per cent in the following 12 months. This should reduce the number of people with negative equity to 500,000 this year, falling to 90,000 by the end of 1997.

This is not much consolation for those still saddled with a shortfall. But as lenders become more confident about the state of the housing market, more are prepared to help borrowers work out a way to reduce their negative equity, or to move their debt to a new house.

Patrick Bunton, of London & Country, independent mortgage brokers in Bath, says the first step is to check if your lender offers a scheme designed to help you pay off negative equity or carry it over to another property.

He says: "Compare whatever scheme your lender offers to that provided by the Cheltenham & Gloucester. This is the benchmark scheme as far as we are concerned, offering the best terms on the market."

The Cheltenham & Gloucester negative equity mortgage allows borrowers to sell their home and transfer negative equity to the new one by borrowing up to 125 per cent of the new property's value. Interest is charged at the lender's standard variable rate (6.85 per cent) and C&G does not have an application fee, mortgage indemnity insurance premium or survey fees. The scheme is open to all borrowers, not just C&G customers. For more details about this scheme ring 0800 272131.

Abbey National's Mobility Mortgage is typical of the schemes provided by lenders for their existing customers. This enables borrowers to move house by borrowing up to 135 per cent of their new property's value. But borrowers will probably have to pay for mortgage indemnity insurance, cover that protects the lender against loss if the borrower defaults, on 25 per cent of the loan.

Again interest is charged at the bank's standard variable interest rate of 7.04 per cent to 6.94 per cent, depending on the size of the loan. Borrowers can repay chunks of the loan as and when they can afford to without penalty.

Most lenders will allow borrowers to "overpay" their mortgage, putting as little as pounds 50 extra into the loan account on a regular basis to reduce the negative equity. Do check whether your lender stipulates a minimum extra payment and when the money will be attributed to your account.