Would-be homebuyers who fear a property crash could soon have the option of a 'no-negative equity' mortgage.
The latest survey on what's going to happen to house prices has, yet again, revealed the unsurprising result that no one really knows. This time it was a group of economists who had conflicting views after answering a survey by the BBC on what they think will have happened to house prices in three years' time.
Although 58% didn't think house prices would fall, with a handful even saying they'll have risen slightly, a substantial minority (42%) thought values will have dropped by then.
Such a division of opinion doesn't exactly help first-time buyers to make a decision about whether to get on the housing ladder now or later. It's not just fears of missing the boat if house prices continue to go up or of rising interest rates that could bump up their monthly mortgage payments. It's also the prospect of negative equity - last seen in the early Nineties when house prices fell to the extent that some people ended up owing more to the bank than their home was worth.
A fixed mortgage rate can help to solve the immediate issue of rate increases but mortgage brokers, Charcol, are hoping to come up with a solution to the negative equity question by offering a mortgage which guarantees that you won't suffer a shortfall if house prices drop.
They're currently in talks with a mortgage lender to offer a 'no-negative equity' loan, which they hope, will go on the market in the next few months. Although it won't be available to people with no deposit at all, it could appeal to people who can only manage a small deposit but still want to get on the housing ladder.
For example, if you bought a house with a 5% deposit and a 95% mortgage only to see house prices fall by 10%, although you'd lose your deposit the lender would make up the extra 5% shortfall if you needed to sell your home.
Naturally, in return for the peace of mind, the interest rate on such a mortgage will be higher but Charcol is hoping it'll be priced at a reasonable enough level (probably at a fixed rate) to make it a mortgage that nervous would-be homeowners will want to consider.
Bear in mind that Charcol doesn't think there's going to be a property crash which is, of course, why they're prepared to offer a 'no-negative equity' mortgage guarantee.
Find out more about Mortgages; Property Prices And The Panic Option; How To Get On The Property Ladder.
