UK Banks Treat Borrowers in Negative Equity Better

The latest study revealed that UK banks, owned by the Government, offer much better deals to customers in negative equity than to new borrowers with large deposits. For instance, such banks as Halifax, which is owned by Lloyds and 40% taxpayers-backed, and NatWest, which is owned by the Royal Bank of Scotland and 70% taxpayer-backed, offer their customers in negative equity deals that are approximately 1.5% lower than normal.
It was previously believed that buyers with larger deposits get the best deals. However, the latest news suggests that the things aren’t what they seem. A customer, who owns, for example, 120% of the property, can take advantage of a mortgage deal offered at 5.64% and a £1,249 fee, which compares to 7.09% or 5.91% for buyers with 10% and 15% deposits accordingly.
Mortgage experts believe that the banks’ move to provide borrowers in negative equity with cheap mortgages signals their desperation to control repossessions and arrears. For instance, the number of Halifax borrowers three or more months in arrears has increased by 60% in 2008 to around 50,000, which compared to 31,156 in 2007. The ex-executive of the Halifax Bank of Scotland confessed that almost 80% of mortgages were previously lent by the bank without any documents that prove the borrower’s income.
Mortgage brokers are determined that good borrowers are now paying for the bad lending of the past. They add that the cheap mortgage deals offered to struggling borrowers can never be found in Best Buy Tables or on web-sites. One of the ways to secure a cheap deal is to use the services of a mortgage broker. Last week several lenders, including Cheltenham & Gloucester, Woolwich and Northern Rock offered their best 2- and 5-year fixed deals to customers who use a broker. Those borrowers were able to secure a mortgage deal at as low as 4.99%. Some brokers frankly tell their customers whether the best buy deal is available directly or through brokerage firms.