New rules may ease negative equity problems

New rules may ease negative equity problems

The FSA’s report into lending, due to be published next week, is expected to include proposals to help home owners in negative equity.

The Council of Mortgage Lenders estimates that one in 12 homeowners are in negative equity, with their home now worth less than the price they paid for it, making it impossible for them to move house.

This can be a serious problem for growing families or for people who need to move because they have secured a new job outside their area.

Under the FSA’s new guidelines, homeowners would be able to remortgage to buy another property without having to immediately pay off the balance they owe on their current home.

In effect, this would mean they could move their negative equity to their new mortgage.

However, it is believed that this option may only be open to homeowners who have kept up to date with their mortgage payments.

It is hoped that relaxing the rules would ease the current shortage of first-time buyer properties and help to get the housing market moving again.

The FSA’s report, which follows a two-year inquiry, is also expected to include some tougher regulations on lending, designed to stop a repeat of the lending practices that led to the credit crunch in 2007.

Before the financial crisis, it was easy for house purchasers to borrow up to 125 per cent of the price of the property; in contrast buyers now usually face a minimum mortgage deposit of 5 per cent, while deposits of up to 20 per cent are not unusual.

In related news, Datamonitor’s latest research suggests that gross annual mortgage lending will fall from an estimated £138.5 billion in 2011 to just £127 billion in 2012.

However, gross mortgage lending is expected to increase in 2015 to £182 billion.

The research also suggests that more people will consider building their own properties, with mortgage advances for self-build properties expected to increase by 141 per cent, from £790 million in 2011 to £1.9 billion by 2015.

Tags: , , , moving house, , self-build

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  1. Tracey says:

    We are expecting our third child and in desperate need of a larger house. Our current home is in negative equity (we bought in 2007 at the peak and paid a ridiculous amount of money for our two-bed property) We also had to take out a 100% mortgage as we had no deposit at the time. I really hope the FSA manage to ease negative equity problems. I have looked for every way in which we can move house but this really would be our only option…I’ve got everything crossed that this happens!!!

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