One of the biggest UK high street lenders has unveiled plans to let customers use their savings as deposit for securing a mortgage.
The Equity Support Scheme is being launched by Lloyds Banking Group in February 2011.
The mortgage deal is aimed at homeowners who are caught in a negative equity trap but want to move property.
The new deal is open to existing borrowers with Lloyds TSB, Halifax or Cheltenham & Gloucester. In total, this is an estimated three million mortgage customers.
The Guardian describes the scheme as set "to make moving home possible for customers with low or negative equity. It allows borrowers to move to a property of the same value, buy a bigger home, or downsize without increasing their existing levels of borrowing. They can use any money they have saved as a deposit for the new property rather than having to use it to plug their negative equity gap."
The scheme would particularly suit customers who bought their first UK property a few years ago and have found their equity position affected by falls in house prices. They now want to move owing to a change in circumstances, perhaps because of a new work position or a baby on the way.
Lloyds TSB have confirmed if customers are on a portable UK mortgage deal they will keep the rate of interest they were previously being charged. If not, they have to select a new mortgage interest rate.
Lloyds also deny they are increasing the risk for themselves or borrowers.
The scheme has won the backing of several UK mortgage experts.
For example, David Hollingworth, mortgage broker at London & Country said in the Guardian: "The product enables a move, though it's important to point out it still requires a commitment of further funds by the borrower to the new purchase if trading up. It does, however, mean they will not see their savings completely swallowed up in dealing with the negative equity.
"No additional borrowing is allowed, so the LTV will be reduced overall. It will be a niche product as a result but, nonetheless, offers a new option to existing borrowers that could be invaluable where a move is a necessity. It could be preferable to trying to let the property while taking on another mortgage on the new property."
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