Mortgage launches with property crash protection 

Hilary Osborne - Guardian
Wednesday June 15, 2005

A new mortgage offering borrowers protection against negative equity has gone on the market today.
The deal, which is available to first-time buyers and existing homeowners, guarantees that, subject to certain terms and conditions, a homeowner will not lose out if they are forced to sell their property for less than their outstanding mortgage.

It also features free insurance against sickness and unemployment.

The no-negative equity guarantee means that, if during the fixed-rate term the homeowner is forced to sell, any negative equity as a result of the sale will be written off by the lender, together with any early redemption penalties owed on the mortgage.


However, the guarantee is limited to mortgages where the borrower has had to make a claim on the accident, sickness and unemployment policy and to a set period around that claim.
If the mortgage has been paid wholly or in part by the insurer for at least six months the borrower is given three months in which they can tell the lender they intend to sell.

They are not committed to a sale, but if they do sell within 17 months of their initial claim on their insurance they are guaranteed not to end up owing money on their mortgage.

A fixed rate - set at 4.99% until August 31 2010 - adds a third element of security to the Triple Protector mortgage, which is being offered by Newcastle building society and sold through broker John Charcol.

Ray Boulger, senior technical manager at John Charcol, said that in an ideal world the no-negative equity guarantee would have been offered to all customers taking the mortgage, but the cost of doing this meant it could only be given to those making an insurance claim.

"It is available at the time they most need it," he said. "It would be good to offer it to everyone but even if your house falls in value, as long as you have your job and the fixed rate, you can still afford to pay the mortgage."

For those that are out of work or sick, he said, the guarantee meant that if they could no longer afford their mortgage they could at least sell up.

The mortgage is aimed at those who are considering buying a property but concerned that the market may about to crash - but this is not something that worries Mr Boulger.

"The launch of this loan might appear to indicate our view is that there will be a further downturn in the housing market, but nothing could be further from the truth," he said.

"We do not expect significant house price falls on a national basis, although there may be local soft spots. In fact we still stand by the forecast we made at the end of last year that house prices will increase by 4% in 2005."

He expects the new mortgage to be available for some months to come, although the interest rate may not remain at 4.99%.

"I think the product's sell-by date will come when people are no longer nervous about the market - how long that will take is something people have different views on."