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Return of the 125% Mortgage

Nationwide: Negative equity – not necessarily a barrier to moving home

Nationwide are now offering a 125% mortgage to selected customers in negative equity.  The fixed rate deal allows borrowers stuck in negative equity a lifeline by allowing them to take out a loan of up to 95% of the value of a new home whilst simultaneously bundling in up to 30% of the loss of value of their old home.  Britain’s biggest building society stress that this is ‘for people in a very specific circumstance’ and borrowers will undergo strict affordability tests to ensure that they can meet the repayments.

To any of the building society’s customers wishing to take advantage of this offer, the deals will not come cheaply.  Fixed deals for three years will be charged at 6.73% interest with the five year deals charged at 7.48%.  However, the catch is that those rates are for the 95% loan-to-value sum that the customer is borrowing to buy the new home.  The additional borrowing of up to 30% to cover the negative equity of the current property will be charged at 7.48% or 7.98% - depending on the duration of the loan.  Although borrowers will be locked into these rates for three to five years, facing early repayment penalties, they will be permitted to overpay by up to £500 per month.

The 125% loan is in stark contrast to recent, ultra-cautious, market policy, where borrowers have been demanding deposits of at least 25% to secure the most competitive deals.  The building society says that the offer is designed to help their customers who need to move home but find themselves in negative equity.  Homeowners who took out a Nationwide loan in 2006 or 2007 with a deposit of 10% or less, are the most likely to find themselves in this category, following a tumble of around 16% in house prices since the October 2007 peak.

Halifax Say House Prices Still Falling

In its latest figures for June, the Halifax don’t seem to be subscribing to the ‘green shoots’ theory.  It shows a decline in the average house price of 0.5% to a figure of £157,713 – the same value that it was exactly five years ago (June 2004).  The building society had cited an increase of 2.6% for the previous month, but that was a rare blip in a consistently downward trend.  The report that came with these figures was something of a mixed bag; on one hand it confidently says that the quarterly figures indicate that house price decline is easing and on the other it states that the future of the UK economy is uncertain with employment ‘set to continue rising for sometime.’

The Halifax says that the easing of house price decline is down to a tighter demand/supply balance.  Demand is increasing because there are less properties coming on the market with the latest Royal Institute of Chartered Surveyors (RICS) survey indicating that the ratio of house sales to unsold stock on surveyors’ books rose for the fifth consecutive month in May.  The building society also said that the lower interest rates boosting affordability was having a significant effect on the easing of market conditions.  Monthly repayments accounted for 21.6% of average gross household income in June 2009, compared to the peak of 26.9% in October 2008.