Charcol denies product indicates fears over house prices

Charcol has denied the launch of its negative equity mortgage product next month suggests the housing market is in danger of crashing.

According to senior technical manager Ray Boulger, the product is aimed at fist-time buyers wary of putting their feet on the first rung of the property ladder.

“We do not think house prices are going to fall at all. It will remain a buyers market for the time being but we think the market will pick up towards the end of the year and the insurer’s covering this product would not cover it if they believed the market was going to fall either.

“What we are saying to people is that we recognise there may be many potential first-time buyers out there that have concerns about buying a house at this time rather than we think prices are going to fall,” he says

But figures published by the Department of Constitutional Affairs yesterday will do little to ease such concerns after revealing a worrying increase in the number of repossessions so far this year.

The first quarter of 2005, has seen the number of court orders for repossessions increase by just over 35% from the first quarter of 2004., as there have been 25,869 repossession actions so far this year and a further 14,048 applications for court orders.

Boulger admits the figures are a source of concern but says none of the lenders he had spoken to have mentioned an increase in repossession activity to him.

He also claims Charcol has been planning to launch its negative equity product for a couple of years but wanted to wait until the conditions in the market were right.

“To a certain extent, the product is ideal for first-time buyers who don’t know who to believe in terms of what is going on in the housing market at the moment. While there is a little bit of confidence coming back to the market this is designed to give people a little more,” he says.

Charcol plans to launch the product in late May or early June but says the launch will depend on activity in the money markets.

The mortgage itself will offer a five-year fixed-rate deal with accident, sickness and unemployment cover included free. Boulger says the initial rate will be somewhere very close to 5%, with a loan to value of 95%.

If a borrower wants to move at a time when they are claiming on the attached ASU policy - and their property has fallen into negative equity - then the policy will also cover the shortfall.

The only requirement on the borrower will be they must have been claiming on the ASU policy for six months or more at the time they wish to move.

James Cotton, mortgage specialist at L&C, says Charcol’s product design reveals they must be confident they will get very few negative equity claims. But asked whether it would be a product he would recommend says:

“It is difficult to say without all of the details but if people are really concerned about whether they can afford to get a mortgage the best advice is still don’t get a mortgage.”

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