Mortgage News from London Mortgage Advice Tuesday, 3rd March 2009

Northern Rock is expected to reveal that more than 170,000 of its borrowers are in negative equity when it publishes its 2008 annual results this week.

And what is more, Lloyds Banking Group conceded last week that 15% of its mortgage book before its takeover of HBOS — £17 billion of a total £113 billion — related to customers who owed more than their property’s value.

Britain’s largest mortgage lender is Lloyds after it saved HBOS from collapse in January, predicted property prices would fall by another 15% this year — taking them down around 35% from their peak.

Tumbling house prices, coupled with soaring unemployment, would cause Lloyds’ arrears and repossessions to surge this year, it said in its financial results.

Mortgage hokders with little or no equity in their home will not be helped by moves to force lenders to pump billions into the mortgage markets. They will be stuck on lenders’ standard variable rates — which banks can change at will — as they are unlikely to be eligible for any new deals.

In recent times lenders have restricted top deals to those with at least 25% equity in their home. There are no deals available for those with a deposit of less than 5%.

Returning to the lending market last week, Northern Rock is pledging £14 billion of home loans to new and existing customers in the next two years. It will write some large loans — but only up to 90% of a property’s value.

Another bank, Royal Bank of Scotland (RBS) will also lend more in return for further financial help from the government that could see up to 95% of the bank owned by the taxpayer. The government has a 68% stake now.

They pledged to lend at least £9 billion to residential customers this year, and a total of £50 billion to homeowners and small businesses in the next two years.

However, while the picture remains bleak for borrowers with little or negative equity, signs of life are returning to the market for homeowners with sizeable deposits. .

Competition for business is hotting up, and the better rates we’re seeing puts pressure on other banks to lower theirs.

Interest rates are unlikely to go up this year — and could well go down 0.5 percentage points next week.

Northern Rock will write some loans at up to 90% of the value of a property. The Treasury said that would help first-time buyers and home movers looking to upsize to take advantage of lower house prices.

But borrowers with less than 10% of equity in their home will not be helped, and will be stuck on their lenders’ standard variable rates. Northern Rock has one of the highest SVRs at 4.79%.