Moving on a minus

THE Government is right. Despite Tony Blair's call for help to allow borrowers in negative equity to move home, most lenders do in fact offer special mortgage deals to borrowers in the so-called negative equity trap to allow them to do exactly that.

It is true that the conditions for qualifying for these deals can be onerous and mortgage lenders have not made great play of marketing them. But they do exist, as the Government says.

Notwithstanding the latest cautious optimism among housing commentators for an upturn in the housing market, more than a million people still find that their mortgages are greater than the value of their properties.

Most main lenders offer some kind of negative equity scheme for existing borrowers to allow them to move home, and there are also schemes available more widely (see table).

Borrowers are offered a new mortgage that allows them to sell their old home and transfer all or part of their negative equity to the new loan. Typically, this can be no more than 125 per cent of the new property's value and the whole loan is repayable at the lender's standard variable rate. Some lenders allow customers to pay back the negative equity element of their loan over the full lifetime of the mortgage. Others, such as the Alliance & Leicester, want the negative equity element paid back within 10 years.

There is often a maximum cash amount the lender will lend, which can be as low as pounds 150,000, and several lenders, such as Woolwich and Abbey National, require a 5 per cent deposit on the new loan. There may also be an arrangement fee, usually around pounds 250, on top of a likely additional mortgage indemnity guarantee payment.

If you have negative equity but need to move you should first talk to your existing lender. Even if it has no existing negative equity scheme you may be able to come to some other arrangement. But if your lender does not operate a scheme and you are unable to come to a separate agreement do not despair.

Bank of Scotland Centrebank (a specialist lending arm of the bank), Cheltenham & Gloucester and Mortgage Express (a wholly owned subsidiary of the new Lloyds-TSB group), all offer negative equity schemes available to customers of other banks and societies who are moving, while Barclays has just extended the availability of its scheme to the bank's 10 million current account customers.

These schemes are essentially the same as those offered by lenders to their existing borrowers, although differences reflect the greater risk of offering the scheme to a new customer. For example, Bank of Scotland Centrebank will lend only up to 120 per cent of the value of the property and the interest rate on the negative equity part of the mortgage is higher. Barclays asks customers to pay off the negative equity part of the mortgage within 10 years.

Cheltenham & Gloucester's scheme appears particularly attractive as it charges no mortgage indemnity premium, no arrangement fee and no valuation fee. However, the multiples are low; you can only borrow up to 2.5 times your single or joint salary.

The take-up rate on negative equity schemes has been low, although most lenders are unwilling to give any numbers. Barclays admits to 200; Bank of Scotland Centrebank to 1,000. This has been blamed on a number of factors. Borrowers have developed a siege mentality, it is said, unwilling to move on until they have cleared their debt. The schemes have been criticised for offering few incentives to borrowers in practice; mortgage indemnity premiums are expensive and the interest on the negative equity element of the loan adds to the cost, especially if it is at a premium rate. Lenders will also require a good repayment record and may set other conditions.

Borrowers should also remember that negative equity is only a problem if you want to move. Sitting tight and waiting for property prices to rise is an alternative strategy in the long term. Making extra repayments on your mortgage will reduce the amount you owe and narrow the gap between the size of your mortgage and the value of your home. For example, by paying an extra pounds 100 a month on your outstanding capital you could cover pounds 5,000 negative equity in around four years.

If you have had a mortgage for a few years your monthly repayments should have dropped, while your salary may have risen. But find out how long it takes your lender to credit the extra payments to your mortgage account. Lenders may only do so once a year, in which case you may be better off putting the money into a savings account where it can earn interest until the year-end.

With savings rates so low it is sensible to use any "spare" money to make a lump sum capital repayment on your mortgage. Find out the minimum amount your lender accepts.

Whichever the case, the sooner you take positive steps, the quicker you will free yourself from the negative equity "trap".

Where to get them

Lender Contact Maximum loan Interest rate on negative How long to pay off Who can apply equity element of loan negative equity

Bank of Scotland Financial 120% SVR* + 1.5% Full length of mortgage Anyone

Centrebank adviser

Cheltenham & 0800 272131 125% SVR* Up to 20 years Anyone


Mortgage Express 0500 111130 130% Base rate + 1.9% - 2.5% Full length of mortgage Anyone

Barclays Mortgages Local branch 125% SVR* Up to 10 years Barclays current account holders and existing *SVR - standard variable mortgage rate borrowers

Start your day with The Independent, sign up for daily news emails
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower