New escape from homes equity trap: Plan can benefit 100,000 households

A NEW scheme has been launched by the country's largest building society to help property owners trapped by negative equity to move house.

Homeowners with Halifax Building Society mortgages can move as long as their payment record is acceptable. Halifax estimates that 5.5 per cent of its 1.8 million borrowers - 100,000 households - are in negative equity, whereby their homes have dropped in value to be worth less than the mortgage loan.

Those who qualify for the new scheme will be able to get a 100 per cent loan for their new property and carry forward the shortfall on their old property. The shortfall can be up to pounds 25,000.

The Halifax will insist that all negative equity movers accept personal counselling, ensuring they understand the new commitment.

The Woolwich Building Society, which was the first lender to trumpet its plan for releasing borrowers from the negative equity trap, estimates that the number of homeowners with negative equity has fallen by 24 per cent since the start of the year, from 1.8 million to 1.36 million.

The largest fall in trapped homeowners was in the South-east, down from 404,000 to 383,000. In Scotland and Northern Ireland the problem has just about disappeared. But in the West Midlands, the North and Wales, small falls in house prices have resulted in an increase in negative equity.

John Wriglesworth, housing analyst at stockbrokers UBS, estimates that the true number of trapped families is nearer to 3 million, as home-movers need to find the cost of moving and, in most cases, a 5 per cent deposit for a new home.

The Woolwich has arranged just under 200 negative equity moves since last December. Another 700 to 800 are in the pipeline.

There are two options with the Woolwich. The mobility mortgage is for those who have a job offer in another part of the country. Homeowners move to a property with the same value and take the mortgage across. The other option is Parentline, which uses the equity in a relative's property. Both schemes charge borrowers at the standard variable mortgage rate or on a fixed rate.

The Nationwide also has a negative equity scheme open to those with a good payment record.

It offers three ways out of the trap. Borrowers can either take an unsecured loan up to pounds 25,000 which can be repaid over 10 years. The typical annual percentage rate is 15 per cent; a loan of pounds 10,000 to pounds 25,000 can be secured on other property such as parents' or grandparents' homes, with payments over a maximum of 25 years. This costs about 12 per cent APR; or they can take a family mortgage where parents have a loan with the Woolwich or no mortgage at all.