Is Lloyds' 'second step' mortgage a good sign for property?

Where is the problem with Lloyds' new scheme? The bank releases its charge on the cheaper property with negative equity of £x and replaces it with a charge on a more expensive property with the same £x negative equity.

And Lloyds then has the advantages of a recent survey/valuation, arrangement fee and higher mortgage interest rate. They even get cross-selling opportunities for home and life insurance!

For the economy as a whole this will help in a small way to get the slow property market moving.

Well done Lloyds for bold thinking!

While as a general rule I dont think that lending at more than 90% of MV is sensible, it realy should be taken on a case by case basis. A borrower with only an existing mortgage as debt has demonstrated an ability to live within means and perhaps is the best person to judge whether he/she can take on a larger loan. Clearly a much better bet than a borrower with significant other debt such as credit card debt - that realy would be a poor risk.

These 2nd Steppers are the same people who back in 2007 were telling me that "house prices only ever go up" and if I didn't buy I would "miss the boat". It would seem their investment decision hasn't gone quite as planned. Caveat Emptor!

Now prices can fall and allow those sensible enough not to pile in in 2007 to buy at sensible prices. It's called market forces!

Just goes to show the folly of encouraging every man and his dog to buy a house even if the timeline is 4-5 years.

The fact that lenders are having to dream up ever more clever ways to lend money just proves that house prices are too high. The same thing happended in the late 80s, when shared ownership and the like first became popular.

The difference this time, of course, is these ridiculous products and schemes are still being peddled AFTER the bubble has (partially) burst!

Of course, nothin will stop house prices getting back to, and below, their long-run average of 3.5x earnings. And when they do, Lloyds and the other spivs, along with the poor fools who fell into their traps, will look very stupid!

Is Lloyds' 'second step' mortgage a good sign for property?

There is a simple answer to that no it is sheer lunacy; it really makes me mad that the banks have learnt absolutely nothing in the last few years.

That is apart from getting greedier by taking huge bonuses they most certainly do not deserve for ruining the banking system.

Anyone who thinks Lloyds have come up with a winner needs help quickly.

The housing market has been propped up again and again and some people are so blinkered they cannot see it.

What you have is a mine, minus its pit props.

The problem is that, as prices continue to fall, by transferring the loan to a larger property, the negative equity will just get bigger, faster. Then, these people who can't afford to pay down their mortgages while rates are low, will find that they are sinking even faster, once interest rates return to normal.

Lloyds are just upping their bet on the property market, hoping that prices will bounce back before too many people get into difficulties.

Negative equity mortgages should be seen as a positive step because people do need to be able to move around for work in these dire times. Renting out the property in loss is not a good alternative - a property on which you have a high mortgage and renting in another place is very risky as the home you are renting out could suffer severe wear and tear if not criminal damage. There is also the risk that the property in loss could get a squatter (our trashy legal system still favours squatters). Remember the recent woman who let her house to take a job elsewhere, then the legitimate tenant moved out without her knowing and let his squatter friend move in. After losing a fortune fighting it in court for a couple of years the owner lost tens of thousands, the squatter trashed the house before evicted and he got a council house after. She got a big fat bill to add to her mortgage. If you need to move because you lose your job the most sensible thing the lender can do to protect their money is let you move to where there is work otherwise how are you going to pay the high mortgage on the negative equity property? Reposession and underselling the property is not the answer for people who become unemployed as it unfairly penalises people. The most likely buyer would not be a first time buyer short of money making a gain but a rich property investor adding to their portfolio.

Miranda, I entirely agree if the new property costs the same as the old, but they are talking here about 'second-steppers' who need a larger house. If someone's property has fallen by a third, we could get the following scenario (I've put the numbers before the descriptions in the hope that the columns will retain their shape a bit better that way):-

150,000 Old loan balance

-100,000 Old property value

£50,000 Negative equity

200,000 New property price

-10,000 Less deposit 5%

50,000 Add negative equity (max 25% of new price)

£240,000 Total new loan

Ironically, based on the criteria quoted in the article, the bigger the negative equity, the more they will lend on the second property! Just goes to prove that the banks are (still) being run by people who can't use a calculator...