Banks have been urged to ease restrictions on homeowners who are in negative equity which is affecting thousands of hard-working people who are unable to move to a new home.
New mortgage application rules are to be announced next week by the Financial Services Authority which will give banks the go ahead to approve loans for trapped homeowners.
The new rules will apply to those whose loans amount to a very high proportion of their homes value and will even help those who are in negative equity.
An example of this would help a homeowner if they had taken out a 100% loan to buy a house for £100,000 only to see its value fall to £90,000 leaving them in negative equity.
With the current housing market at a standstill if homeowners sold their home for £90,000 they would still owe £10,000 which given the current financial situation many people wouldn’t have that kind of money.
The new guideline would allow them to buy a property for £90,000 and sell theirs for £90,000 meaning there is nothing owed and no negative equity to pay and would then be allowed to remortgage to buy a new property.
This would mean they are taking their negative equity with them, but is only available to homeowners who have had a no problems paying back their mortgage.
If there has been difficulty paying back the mortgage it may be harder for them to be allowed the new rules with more assessment needed to be carried out.
The Financial Service Authority cannot force banks to lend but will give a strong impression that they want banks to start lending to homeowners who have been unable to move.
After a two year enquiry the new rules are hoping to stop a repeat of the excessive lending that led to the banking crisis, there is also set to be a ban on self-certificated loans and a stop put to interest only deals.
Figures from the Council of Mortgage Leaders showed that one in twelve homeowners which is around 827,000 are in negative equity where their value of their home is less than the mortgage they owe.
If the new rules are put into place many current homeowners who are in negative equity will be able to buy their new property with the help from the Finance Service Authority.
© Copyright Autonet Insurance
By Amanda Bainbridge