Brokers have welcomed a scheme from Lloyds Banking Group that helps borrowers in negative equity move home.
The scheme, which is available to existing mortgage customers, allows those in negative equity to borrow up to 120 per cent loan to value to move.
If a borrower wants to move to a property worth more than their current home, they still have to raise an additional deposit but do not have to increase their mortgage.
For example, a borrower who has a mortgage of £130,000 but has seen their property value fall to £110,000 – making the LTV 118 per cent – would be able to move to a property worth £120,000 with an additional £10,000 deposit, cutting the LTV to 108 per cent.
If the value of the existing property is the same as the new one, borrowers can port their existing mortgage rate as the LTV would be the same.
First Action Finance head of communications Jonathan Cornell says borrowers in negative equity become “prisoners”, unable to get another mortgage on a new property.
He says: “Unless lenders offer the kind of product Lloyds is offering then people cannot move up or down and they just cannot move home. Letting people move home and port a negative-equity mortgage is crucial.”
London & Country head of communications David Hollingworth says: “This kind of product is useful in terms of helping second-steppers move.”
Coreco director Andrew Montlake adds: “Products such as this are essential if the market is to start to move.”