Secured loans can save from negative equity

Robyn Hall

May 1, 2013

Research released earlier this month by e.surv claimed 1.43 million homes in England and Wales were at risk of falling into negative equity because they have less than 80 years remaining on their lease causing them to fall outside high street mortgage lending criteria

But Tristram said there are options available to borrowers which can help them protect the value of their homes.

He said: “Our research has shown that secured loan lenders will lend with shorter leases that mortgages, and most are happy to lend and assist when the purpose of the loan is to extend the term of a lease, this is just another example of when secured loan lending trumps the terms offered by the high street mortgage lenders.”

Many secured loan lenders are prepared to lend to borrowers with 50 years remaining on the lease at the end of the term of the loan with some willing to drop below this restriction if the purpose of the loan is to extend the term of the lease.

Shawbrook, MSL, Spring, Northstar, Equifinance and FES are prepared to consider dropping below the standard term of 50 years while Evolution do not specify any amount of the lease must remain at the end of the loan.

Richard Sexton, director of business development, warned in his research that the potential consequences could be “nightmarish” resulting in the homeowner becoming saddled with an unmortgageable property which is impossible to sell to anyone but a cash buyer.

Menaz Sulaman, commercial director at Evolution Money, said: “We are seeing more and more homeowners with a short term left on their lease looking for a loan. Most of which may find most of their usual borrowing options unavailable.

“Loans through Evolution Money don’t hold these restrictions. We understand that clients need to raise funds in these circumstances and that mortgage lenders and traditional secured lenders usually seek a minimum outstanding term of 50 years after the repayment of the advance.”

Evolution Money will provide the loan between one and 10 years and providing the length of the lease is greater than the requested loan term it is happy to offer the loan.

Sulaman added: “We liaise with the borrower’s solicitor which helps to provide long term security for them. We bases our decision to lend on a client’s ability to repay the loan and not solely on credit checks.”

Gareth Broome, business development manager of broker loan sourcing tool The Lending Wizard, said: “The lending reservations within the mortgage market leave owners of end-of-lease properties in an uncomfortable predicament but secured loan lenders can dramatically improve the outlook for impacted homeowners.”

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