Lloyds Launch Negative Equity Mortgage

[ralphmalph]

http://www.ft.com/cms/s/2/bf72e51e-2a13-11e0-997c-00144feab49a.html?ftcamp=rss#axzz1CG3vQIiQ

I have posted my views on here before that the banks do not want falling house prices and every time the indicators say house prices are falling they very quickly announce lower rates for higher LTV's. They are not doing crazy lending again but just enough for -5% to 5% swings in the market.

Now after three months of falls, just in time to add some impetus to the spring season here we go again.

Also I think they have given up on the city centre flats market, that will be toast for a long time.

[LuckyOne]

http://www.ft.com/cms/s/2/bf72e51e-2a13-11e0-997c-00144feab49a.html?ftcamp=rss#axzz1CG3vQIiQ

I have posted my views on here before that the banks do not want falling house prices and every time the indicators say house prices are falling they very quickly announce lower rates for higher LTV's. They are not doing crazy lending again but just enough for -5% to 5% swings in the market.

Now after three months of falls, just in time to add some impetus to the spring season here we go again.

Also I think they have given up on the city centre flats market, that will be toast for a long time.

Are these actions not going to release some of the "pent up supply" onto the market?

[Lepista]

I have never understood why someone in negative equity is not allowed the opportunity to "swap" the property the mortgage is secured against to another one somewhere else. Always seemed a little unfair, if they were paying the mortgage.

[Timm]

Are these actions not going to release some of the "pent up supply" onto the market?

One would have thought so, as it allows people who want to move to sell at the market price.

[leicestersq]

I have never understood why someone in negative equity is not allowed the opportunity to "swap" the property the mortgage is secured against to another one somewhere else. Always seemed a little unfair, if they were paying the mortgage.

Could you explain how switching the property helps the negative equity situation?

[LuckyOne]

One would have thought so, as it allows people who want to move to sell at the market price.

That is how I see it too. The expected outcome should be a higher volume of sales at a lower price. The market needs to adjust to a balanced volume at a market clearing price. If anything, I see this as helping to speed up the process whereby we end up with lower prices.

[Pent Up]

Most lenders already offer them from what I understand. They are just not advertised you have to ring up and ask.

Not a bad thing really as it keeps the Market moving and allows people to sell well below their purchase price. They can't buy anywhere bigger or at least nowhere more expensive.

[Pent Up]

Could you explain how switching the property helps the negative equity situation?

It doesn't. Just allows people to move who would otherwise be stuck. From the lenders point of view it's no different.

[leicestersq]

It doesn't. Just allows people to move who would otherwise be stuck. From the lenders point of view it's no different.

I can see lots of reasons why they wouldnt do it. The costs of moving house are not inconsiderable, and would of themselves lead to higher debt.

If the borrower is solvent, you cant actually get them to put their cash into the mortgage to remove the negative equity either, and as a bank there is a risk that they might blow that dough. Of course if you force them to make good any deficit when they move, you are in a stronger position.

The only time I can think where the banks might wish to do this is if someone lost a job, but found another one which means that they have to move. They are then faced with a decision, allow the person to sell, and offer them an unsecured loan and a mortgage, with a chance of getting the money back, or just repossessing, and trying to get the unsecured assets back another way. Tricky one.

So it is normally in the financial interests of banks not to let people move their negative equity elsewhere, but there are just a few exceptions to every rule.

[Milton]

You used to have to take out a mortgage with them to qualify for a set of these:

But now, anyone who does not own property outright gets a pair for the rest of their lives.

Its the Governments new Lifetracker 'Debt Bondage' Scheme, dont ya know.

Edited January 28, 2011 by Dan1

[leicestersq]

Its their attempt at trying to get the market moving again. Problem is based on what it says here

The very small detail of most people in negative equity will be skint anyway.

I think its more a trumpet blowing (PR) exercise to make them appear all warm and fuzzy to your Mr Avg member of the herd becuase the next few years are going to be very very tough for many. Even the Govt appear worried the media tools are talking the country into a deeper hole, personally the sooner we hit bottom the better able teh country will be able to manufacturer and export as we will be competative on price and quality.

Good find. This offer is all about transferring cash which the banks cant currently get from those in negative equity, into reducing that negative equity. I can see why it is in the banks interest to do that. A good offer too, as it may well benefit some customers. Not many, but certainly some.

[W1zard]

Good find. This offer is all about transferring cash which the banks cant currently get from those in negative equity, into reducing that negative equity. I can see why it is in the banks interest to do that. A good offer too, as it may well benefit some customers. Not many, but certainly some.

Plus if its effectively a trade downwards, it should help the market get to where it needs to be to become healthy again. The sale price will be lower than whatever the original purchase price was and will prevent the 'owner' from buying anything for an even higher price would it not?

[Lepista]

Actually, after a think, I can see why this is (usually) a bad idea, if the NE is also transferred, even if the mrtgageee has been a good payer (and is likely to be in future)

If they are downtrading, then they are effectively getting into a larger NE position, they would be paying a similar mortgage, for a smaller property. The larger proportion of NE is unlikely to be palatable for a bank;

If they are uptrading, then they are borrowing a larger amount from the bank, and hence the bank is unlikely to be interested.

Thus if it's bad if they are downtrading, and bad if they are trading up, then it follows that it is also bad if they are trading across.

[fluffy666]

Could you explain how switching the property helps the negative equity situation?

Two scenarios..

(a) you move to a cheaper house, so you go from a £250k mortgage on a £240k house to a £150k mortgage on a £140k house. Although as a percentage the NE is worse, obviously you stand more chance long term of paying the mortgage off.

( You are moving to an area with better job prospects (or you have a job offer on higher wages); in this case you can creditably say that the NE will be paid back faster.

[W1zard]

Actually, after a think, I can see why this is (usually) a bad idea, if the NE is also transferred, even if the mrtgageee has been a good payer (and is likely to be in future)

If they are downtrading, then they are effectively getting into a larger NE position, they would be paying a similar mortgage, for a smaller property. The larger proportion of NE is unlikely to be palatable for a bank;

If they are uptrading, then they are borrowing a larger amount from the bank, and hence the bank is unlikely to be interested.

Thus if it's bad if they are downtrading, and bad if they are trading up, then it follows that it is also bad if they are trading across.

But better for the greater good of the market? Lower priced sales going through rather than people sitting in homes and not moving.

[long time lurking]

They are just saying look Dave we are doing our bit to help the housing market ,it`s all flag waving

[interestrateripoff]

Could you explain how switching the property helps the negative equity situation?

Maybe they are moving to where they have a job?

Can't move, no job, mortgage doesn't get paid.

[Georgia O'Keeffe]

Maybe they are moving to where they have a job?

could also help Lloyds corner the mortgage market in Delhi by stealth

[PbroAgent]

I think it is necessary to help the HPC. If prices continue to fall, more people will be caught in NE. Available stock will decrease as it becomes pointless to sell which could cause prices to level off or even rise.

The more prices fall the more we need policies like these.

[Nationalist]

Negative equity mortgages also happened in the 1989-1992 crash. They are a "good thing" because they let house prices fall instead of just locking up the market with no one able to sell because they can't clear the mortgage.

[jonb]

http://www.ft.com/cm...s#axzz1CG3vQIiQ

I have posted my views on here before that the banks do not want falling house prices and every time the indicators say house prices are falling they very quickly announce lower rates for higher LTV's. They are not doing crazy lending again but just enough for -5% to 5% swings in the market.

Now after three months of falls, just in time to add some impetus to the spring season here we go again.

Also I think they have given up on the city centre flats market, that will be toast for a long time.

Only for house movers who have an existing Lloyds mortgage and introduce more equity. It is on the basis that it is an improvement on the existing situation.

[Guest_FaFa!_*]

Its their attempt at trying to get the market moving again. Problem is based on what it says here

Someone wanting to move from a £110,000 house with a mortgage of £130,000, would currently be in negative equity with a 118 per cent loan-to-value. Under Lloyds’ scheme, the homeowner could move to a new property worth £120,000, providing they paid an additional deposit of £10,000, reducing their loan-to-value to 108 per cent.

This isn't a problem. What the bank is doing is saying people cannot increase the overall level of debt. If they want to move then they can, the debt simply moves with them. This prevents them from having the problem of flogging the house but being expected to pony up the shortfall instantly, leading to bankruptcy. Unsurprisingly, creditors don't want debtors to do this, they want the debtor to pay back the debt in full. This idea has the benefit of getting the market moving, lowering house prices whilst at the same time reducing the level of bankruptcies and hence helping the banking system remain solvent.

[jonb]

Actually, after a think, I can see why this is (usually) a bad idea, if the NE is also transferred, even if the mrtgageee has been a good payer (and is likely to be in future)

If they are downtrading, then they are effectively getting into a larger NE position, they would be paying a similar mortgage, for a smaller property. The larger proportion of NE is unlikely to be palatable for a bank;

If they are uptrading, then they are borrowing a larger amount from the bank, and hence the bank is unlikely to be interested.

Thus if it's bad if they are downtrading, and bad if they are trading up, then it follows that it is also bad if they are trading across.

If they are uptrading, they aren't allowed to borrow any more. They have to pay in cash for the difference in price, which improves the situation for the bank.

If they trade down, some of the loan will be repaid, which is good for the bank, and the borrower will find it easier to service the remaining loan, which is also good for the bank.

[Timm]

Someone wanting to move from a £110,000 house with a mortgage of £130,000, would currently be in negative equity with a 118 per cent loan-to-value. Under Lloyds' scheme, the homeowner could move to a new property worth £120,000, providing they paid an additional deposit of £10,000, reducing their loan-to-value to 108 per cent.

OK, thats if they want to move up. What if they want to move sideways?

Presumably:

Someone wanting to move from a £110,000 house with a mortgage of £130,000, would currently be in negative equity with a 118 per cent loan-to-value. Under Lloyds' scheme, the homeowner could move to a new property worth £110,000, providing they paid an additional deposit of £0, leaving their loan-to-value at 118 per cent.

So it looks like they don't have to reduce the neg equity, just pony up any increase in price.

Edited January 28, 2011 by Timm

[ingermany]

Hang on:

It says you can move the mortgage, but can't increase the size of the loan, and in order to take advantage of the deal the borrower has to swap from the SVR of 2.5% to a 3 year fix at 5.69%.

Surely, you'd be better off just setting fire to your current home and claiming the insurance.