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New hope for families in negative equity trap

FOUR banks will target tens of thousands of homeowners in negative equity to kick-start the property market.

They have asked the Central Bank to allow them to give those homeowners fresh loans to buy new homes.

Those families are currently trapped because their homes are worth less than their mortgages.

Many in starter homes and apartments are desperate to trade up because of growing families and new job opportunities.

Now four major lenders will follow Bank of Ireland and Permanent TSB in offering a new type of mortgage to help them escape from their negative equity nightmare. It means there is now a concerted move across the banking sector to re-ignite the housing market.

It is a powerful signal that banks are now prepared to act to get the market moving again.

The Irish Independent has learnt that AIB, Ulster Bank, EBS and KBC Bank are in intense talks with regulators to offer the new "negative equity" mortgage.

Already Bank of Ireland and Permanent TSB allow some of their customers the option of taking a portion of what they owe on their current home on to a new mortgage.

KBC Bank said it was actively considering offering such a mortgage.

Almost half of those who have a mortgage are trapped in negative equity -- where the value of their home has now fallen below the value of the mortgage secured on it.

This means close to 400,000 homeowners are not allowed by their lenders to sell up and move to a bigger home to accommodate a growing family, or switch homes to take a job somewhere else in the country.

Now most of the lenders that are active in the market are set to offer a glimmer of hope for the bunged-up property market.

Young professional couples in particular will benefit from the move where half-a-dozen lenders offer them an escape from the negative equity trap.

Many of these homeowners have been stuck in small apartments and starter homes for years.

The mass move by banks to offer these people an exit comes a day after the Irish Independent revealed Ulster Bank customers may be able to keep their trackers if they move, with other banks expected to consider similar moves.

At the moment, the tracker transfer deal is offered only to those in positive equity.

But Ulster Bank is seeking to make its tracker transfer deal available to those in negative equity, its head of branch banking Jim Ryan said.

He revealed that the Central Bank currently only approves mortgages where homeowners would end up owing 25pc more than the new property is worth.

Ulster Bank is seeking approval for a larger proportion of negative equity to be loaded on to the new property.

Negative equity means that the property is worth less than their outstanding mortgage -- so even if people in this position sell their homes, they will still owe money to the bank.

Earnings

Many people are still earning enough that they would be able to meet payments on a new mortgage if they were allowed to transfer some of the negative equity on to a new loan.

Homeowners who qualify for the new deals would still owe money to the bank if they sold.

But they would be able to tack the balance they owe on to the new mortgage. The deals will be restricted to those with good earning capacity, and to those who are not in arrears.

The schemes will be limited to those who are considered able to meet the repayments.

And strict limits will be imposed on the amount of negative equity that can be carried on.

AIB, one of the largest lenders in the market and one of the most active lenders at the moment, is understood to have submitted proposals on negative equity loans to the Central Bank.

Bank of Ireland was cleared recently to offer negative equity loans on a limited basis, while Permanent TSB offers these loans mainly to those trading down to smaller properties.

National Irish Bank said it had no plans to offer negative equity mortgages or tracker transfers at the moment, but was keeping the situation under review.

Fear

Ulster Bank yesterday confirmed an Irish Independent story that it will allow its customers who have a tracker mortgage to keep this when they move home.

The bank said the scheme is the first of its kind to be offered in Ireland.

The deal will be made available to all of its customers seeking to move, whether upgrading to a larger family home or trading down.

Mr Ryan said some customers may have been reluctant to move until now for fear that they would lose their tracker mortgage.

He said Ulster Bank was aiming to double its mortgage lending this year, and had seen increased activity from people looking to return to the housing market.

Asked about permitting negative equity mortgages, a spokesman for the Central Bank would not comment on individual lenders, but said it was working with the industry to explore options for mortgage holders.

He said it would insist on maximum loan amounts, limited loan-to-values, and would set income limits to ensure those who take them out could afford these types of loans.

Irish Independent