Making a smart move: Anne Spackman reports on the success of schemes helping homeowners with negative equity

Jill and Duncan Blackmore are a happy couple. They are in negative equity to the tune of pounds 25,000, having seen the value of their one- bedroom flat fall 40 per cent in four years, but the good news is that they are no longer living in it.

Instead, they own a three-bedroom terraced house with a garden big enough for the baby who is due this autumn. The Blackmores were one of the first families to grab the lifeline thrown by their building society to escape from negative equity.

They have their mortgage with the Woolwich, which reckons to have moved 200 people through its negative-equity scheme. Another 700 cases are going through.

The Halifax Building Society and the Royal Bank of Scotland, which launched schemes last autumn, have helped around 2,000 more. The figures are small compared with the latest figure of 1.2 million households believed to own properties worth less than their mortgage.

But then not everyone in negative equity needs to move. Those whose circumstances haven't changed, or who have only seen a small fall in the value of their property, may be able to sit tight and wait for price rises to wipe out their debt.

For many in the south of England and East Anglia, however, where three-quarters of all negative- equity households are concentrated, the wait will be a long one. A recent survey by the Woolwich predicted that negative equity would not completely disappear until 1997.

Jill Blackmore is a classic victim. She bought a one-bedroom flat in Chelmsford, Essex, in the autumn of 1989 for pounds 65,000 on a 100 per cent mortgage. 'My dad said to me, 'Get your foot on the ladder now. It's the best way to make some money',' she recalls.

When a couple in the neighbouring set of flats sold for pounds 56,000 a year later, she was appalled at the thought of losing so much. When the Blackmores, now a married couple, eventually did sell in 1993, they got pounds 40,000 for their flat.

Jill Blackmore had approached the Woolwich as soon as it launched its scheme in November 1992. The scheme was running into problems with the Inland Revenue and she was advised to come back the next year. When she did, the company told her to sell her property first, find a new home at the same price and come back to them.

The Blackmores bought their present home 12 miles farther out of London in Braintree for pounds 43,000, funding the move and the extra pounds 3,000 out of their own pocket. They have carried over the old pounds 65,000 debt to the new property.

Jill Blackmore, 31, has no intention of moving again for a very long time. 'We have found somewhere we can both be happy in and which has room for children,' she says.

The Blackmores used the Woolwich's mobility mortgage, but the society also runs a 'parent line' scheme, by which parents can put up some of the equity in their own homes as security for their children's debt, though the child is still responsible for paying the mortgage. The scheme is a response to the fact that most of those stuck in negative equity are in their twenties and early thirties.

Ian Bell, 29, and his wife Heather, 27, were one of the first couples to take advantage of the Halifax Building Society's negative- equity scheme. They bought a modern three-bedroom house in Leicester in November 1988 as first-time buyers with a 100 per cent mortgage. It cost them pounds 53,950. By the time they moved in the value had fallen by pounds 1,000.

Last summer Ian was offered an interview for a better job as a computer back-up engineer in Newbury, so he went to see the Halifax about covering his expected shortfall. As the Bells had some savings, the Halifax foresaw no problem.

Ian got the job and put his house on the market. It eventually sold in September 1993 for pounds 45,000, nearly pounds 9,000 less than he had paid for it.

Luckily the Halifax scheme was just beginning. The Halifax offered Ian and Heather, who is a teacher, a new mortgage based on the normal multiples of their income up to 125 per cent of the value of their new house. They chose to keep well inside their limit, buying a three-bedroom terraced house for pounds 59,000. 'It all went very smoothly,' says Ian. 'There were no hitches at all.'

The Bells used pounds 2,000 of their own savings to reduce the deficit and Ian's new employers offered a relocation package which paid for most of the moving expenses. 'Without that, it would not have been possible,' Ian says.

'The only black spot is that instead of starting with a 100 per cent mortgage, we've got a 112 per cent mortgage. But I don't think house prices are going to go down any further and I'm confident of our ability to cover the costs as a couple.

'We could have borrowed pounds 15,000 or pounds 20,000 more, but we decided we wanted a bit of headroom. This time we have been very wary.'

To qualify for any negative-

equity scheme, you must have a good repayment record and a good employment history. On top of the normal moving costs (on average about pounds 5,000) you will also have to pay mortgage indemnity insurance - the lender's insurance against you failing to pay. In the Blackmores' case this cost was pounds 640.

Most negative-equity sufferers bought between 1988 and 1990 when interest rates soared to 15 per cent. They have seen their monthly mortgage payments fall dramatically, while, for those in employment, their income will have risen.

In many cases an owner who can afford the repayments on a larger, more expensive property will be allowed to trade up and carry the debt over. The Royal Bank of Scotland gave the example of a high-earning customer with a pounds 125,000 mortgage on a house now worth pounds 95,000. It would allow him to buy a house of pounds 135,000 on a pounds 165,000 mortgage, carrying over his pounds 30,000 debt to the new property.

The Royal Bank of Scotland's scheme is only available to its current mortgage customers. Unlike the building societies, it charges an extra 0.5 per cent interest over the standard rate for a negative-equity mortgage and an arrangement fee of 1 per cent up to a maximum of pounds 1,000.

Negative equity has been a curse on more than a million home-owners, turning the house that should have been their safety net into a noose. The advice for those still trapped inside it seems to be to start saving now. The lenders will want to see that you have done your bit, before they offer to do theirs.

(Photograph omitted)