A handful of mortgage lenders, including GMAC, Advantage (part of Morgan Stanley) and Edeus are targeting borrowers in negative equity with offers to reduce their mortgage debts. Negative equity usually means that borrowers cannot remortgage and often have to settle for larger rates with their existing lender.
However, a certain number of lenders are willing to not only take a risk but offer up to 20 per cent off the outstanding debt, which could equate to up to ?25,000.
In the past, these lenders provided mortgages to riskier borrowers, such as the subprime and self-employed, as well as to buy-to-let customers. They then passed on the loans later but in today?s climate, and with the collapse of the securitisation industry, these lenders are seeking to finance these debts elsewhere.
Those eligible for the scheme will probably be contacted personally, with up-to-date mortgage payments and a good credit rating forming the main criteria to qualify. Although lenders have refused to say exactly how much debt they are prepared to write off, it is understood that in most cases customers will need at least 20 per cent equity in their home to make remortgaging worthwhile.
A spokesman for GMAC admitted the scheme was being piloted, with a ?small number? of customers. This ?win-win situation? means that customers can reduce their mortgage debt and enjoy a more competitive rate.
Other lenders are following suit with deals, with Mortgage Express, for example, the specialist lending arm of the Bradford & Bingley, waiving the penalty for early redemption if customers choose to remortgage.
