Since the debt crisis began a little more than two years ago, home values have been dropping which has placed many of those homeowners in a negative equity mortgage. When property values were steadily rising and lenders were willing to underwrite high loan to value (LTV) mortgages, all seemed like a dream come true.
Then the mortgage meltdown hit and homeowners saw the value of their property going down, almost by the day. The economy was in recession and fewer consumers were in a position to purchase a home. At one point even those with no credit and some with bad credit were able to qualify for mortgages but lenders tightened the reins which meant very few people were able to come up with a satisfactory down payment.
At the moment first time buyers are starting to slowly return to the housing market but those who purchased homes in the 2000’s are still faced with negative equity. These ‘second time buyers’ are now unable to move because they still owe more than their homes are valued at. Property prices are still falling but the amount they owe their lenders remains the same.
According to the head of the Building Societies Association, Paul Broadhead, initiatives like the Mortgage Rescue Scheme are no longer an option for second time buyers since government is cutting back on spending and there is nothing comparable in place to help these people stuck with high mortgages and low property values.
BSA is calling on government to find a solution for these homeowners before interest rates rise again, leaving them unable to make mortgage repayments. They are especially vulnerable as a result of a downward spiral of the housing market and BSA would like to see them afforded some amount of protection by government.
It is true that programmes are allowing first time buyers to slowly return to the housing market, but government is doing little to protect those who are still mortgaged over their heads through no fault of their own.
