There is some interesting news on an innovative product in the mortgage market. The Coventry Building Society is offering existing customers in negative equity a mortgage escape route if they find they need to move.  

The mutual has changed its policy so existing borrowers can get a deal of up to 125% of a property’s value if they must move, such as relocating for work.  

But they will not be allowed to borrow more cash under the deal, only offset the reduction in their equity.  

Brokers have called for similar “flexibility” from other lenders.  

As we all know, the credit crunch and subsequent downturn have made it tough for many borrowers to get a good deal on a mortgage. The rapid fall in house prices also, in effect, trapped some homeowners in their properties when they needed to move owing to a change in family or employment circumstances.  

For Coventry borrowers, these falls have pushed them outside the building society’s normal lending criteria when they need to move.  

For example, an 80% LTV could become 95% LTV, simply because of the falling value of a home, but the building society would not normally lend at this level.  

The society said that as long as they had an excellent credit history, customers could carry over the lack of equity into the new deal when they moved house. Yet they would not be able to increase their cash borrowing as part of this deal.  

A spokesman for the company said that this maintained an aim of responsible lending and treating customers fairly, and only a few borrowers would be affected.  

The general feeling among analysts is that this is a sensible move. This sort of easing of mortgage criteria will help existing customers in negative equity feel less trapped in their property.  

It would be nice to see more lenders being more flexible with their customers. In many cases, it could put the bank in a better position financially. 

Negative equity means that the value of someone’s home is less than the amount they owe on their mortgage. The Nationwide introduced a similar scheme in July, describing it as a “niche offer”, meaning that it will be relevant only to a very small number of customers. 

We can only hope that pragmatic policies such as these become more of a trend in Britain’s financial institutions.

UK mortgage lending rose by 5% in October compared with the previous month, according to a lenders’ group. However, the £13.5bn of gross mortgage lending recorded by the Council of Mortgage Lenders (CML) was down 27% compared with a year ago.  

The group said that the month-on-month rise in lending was typical seasonal activity. But the type of lending has changed since the start of the year, with remortgaging at “decade-low levels”.  

Lending and house prices rose over the summer and have remained relatively stable in recent months, although they had been at very low levels as a result of the credit crunch.  

The Bank of England’s own “Trends in Lending” report, also published on Thursday, reported that more mortgages were approved by major banks in October than in September.  

However, any future rises in mortgage lending were likely to the result of seasonal factors rather than a fundamental shift in sentiment. Generally, people are less likely to buy a new home in the run-up to Christmas.  

In the coming months, the year-on-year comparison of mortgage lending is set to show less dramatic declines as lending volumes dropped sharply in the latter part of 2008 and early 2009.  

The CML did note a marked trend in the type of lending being offered. House buying activity has picked up significantly since the start of the year. In contrast, remortgaging has dropped to levels as low as any seen in the last 10 years.  

Borrowers had “little incentive” to remortgage when the current fixed-rate deal came to an end, the CML said, choosing instead to automatically pay the low standard variable rate with interest rates so low.  

Others found themselves unable or unwilling to remortgage because their equity had shrunk owing to the sharp fall in house prices at the turn of the year.  

Interest rates are expected to remain low in the coming months.  

Both the Bank of England and the CML said that the number of people falling into arrears on their mortgage repayments was lower than expected, partly as a result of consistently low interest rates.  

Last week, the CML revised its forecast for the number of homes that will be repossessed in 2009. If its prediction is accurate, this will see repossessions rising by just 8,000 compared with 2008, with 48,000 homes being repossessed.  

A belief that house prices have no further to fall has prompted some house buying activity, however, at the end of the year, the threshold for the 1% stamp duty to be paid will revert to £125,000 from the current temporary floor of £175,000 and this will undoubtedly dampen the market in the new year.