The Nationwide has announced that they are going to grant 125% mortgages to help existing customers move house if they would otherwise not be able to due to being trapped in negative equity. Negative equity is when a property is worth less than the mortgage secured on that property.
It will certainly be helpful to say the least to those unfortunate individuals who have seen the value of their homes tumble. However the 125% loan, remortgage and mortgage was partly responsible for the financial crisis we are living in at present.
The 125% plan was a fairly common practice before the credit crisis. Some specialist secured loan lenders granted more of these loans than all the other types of loans put together. It has to be stated that the criteria apart from the equity was fairly strict.
An applicant had to be resident in general at the same address for one year, although with other lenders six month's residency at the same address was all that was required.
The 125% remortgage, secured loan and mortgage were in general not available to the self employed.
However there were lenders who quite readily granted 100% equity plans to the self employed and even allowed the self employed applicant to self declare their income without any back up proof.
Will this practice also make a comeback? I do not really think that it will.Obviously most self employed want to self declare their income instead of producing accounts because their true earnings shown on the accounts would not be sufficient to obtain the secured loan, mortgage or remortgage that they desire.
Granted there are the less than honest self employed whose accounts are not a correct reflection of their true earnings. These are individuals who are wholly or partly paid in cash such as taxi drivers, hairdressers, and trademen such as joiners and painters who mainly work in their customer's homes.
It is foolish of lenders to grant remortgages, etc. to people who realistically cannot possibly afford the repayments. How can a self employed applicant who earns £30,000, but declares he earns over £100,000 possible manage the repayments?.
This has also lead to a record number of properties being repossessed which causes the homeowners involved enormous distress. Apart from the human misery caused, it also causes house prices to fall, and with so many available properties for sale due to the massive amount of repossessions, it can halt the sale of new house building.
When there is a stopage or cutting back in new house building the carry on effect is that many people in the building trade are on shorter working hours or suffer redundancy.
Therefore although the Nationwide will help some people , it is not wise to want to see a return of so many ill advised financial products of the past return.
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