From the UK

The_Conductor

Nationwide- the UK's largest mortgage lender are proposing to offer 125% loan to equity loans to home owners in negative equity who wish to move house.

Story here

Friday July 10 2009

Nationwide Building Society, the UK's largest customer-owned lender, is offering 125pc loan-to-value mortgages to customers in "negative equity", if they want to change house.

Existing customers of Nationwide whose borrowings exceed the value of their home may borrow up to 95pc of the value of a property, along with 25pc of the loss on an existing home, spokeswoman Rachel Jensen said. Ms Jensen said customers would still need a 5pc deposit.

"We are not relaxing our lending criteria in any way," Ms Jensen said. "We still do the normal checks to make sure they can repay the loan.

"What Nationwide is doing is a totally different situation to where we were before," said Ray Boulger, senior technical manager at Charcol Ltd, Britain's biggest online mortgage broker. "This is not reckless lending; it is providing a useful social function."

Politicians have criticised banks and building societies for offering mortgages that are worth more than a home's value at the peak of the property market.

About 15pc of UK mortgages are currently in negative equity and this may climb to 34pc should house prices fall in line with expectations, according to ratings agency Fitch. (Bloomberg)

London Irish

http://www.guardian.co.uk/business/2009/jul/10/nils-pratley-monetary-policy-committee

"A cautious 125%

How many times is it possible to insert the words "prudent", "responsible" and "cautious" into one announcement?

Nationwide had a crack yesterday as defended its move to grant mortgages worth up to 125% of a property's value. Its paranoia stems in part from the fact that memories of Northern Rock's infamous "Together" product are fresh.

Nationwide should have seen the bad headlines coming, but the building society is right about the basic point that the two products are chalk and cheese.

Nationwide's offer is available only to existing customers with good credit records who need to move house. They are allowed to carry over the negative equity on their old house only if they, in effect, pay off part of it by finding a 5% deposit for the new purchase.

The net effect for Nationwide is that its security should improve slightly. In the case of somebody with £20,000 of negative equity moving from a £200,000 house to a £250,000 property, the value of the new home would have to fall a further 5% before the lender's exposure was greater. Such a fall is possible – actually, probable – but the value of the old house will not be stable either.

It will still be financial madness for most people to take on a bigger mortgage when they are already in negative equity. But there will be legitimate exceptions – somebody gaining promotion to a job in a more expensive part of Britain, for example. Nationwide says it "does not anticipate, and has not seen, a great demand for service". Good. And at the rates it's offering, that's easy to believe.

The day when mortgage lenders wave stupid mortgages offers under the noses of naive buyers will probably return eventually, but this is not it."