Helping homeowners out of the mortgage trap: The Leeds has two schemes for people whose debt exceeds the value of their properties. Others may follow. Maria Scott reports

LEEDS Building Society has become the latest mortgage lender to launch a scheme to help borrowers who cannot move house because their mortgages outstrip the value of their properties.

Halifax, Britain's largest mortgage lender, hopes to launch a scheme soon. The society is working on a pilot and expects to start a fully-fledged scheme before the end of the year.

Leeds, the fifth largest building society, is offering two schemes and expects several thousand of its borrowers to qualify, although the criteria are strict. Borrowers must have a good repayment record and a 'genuine' reason for moving, such as a job move or a need to accommodate a growing family. The society will also consider people trading down to reduce outgoings.

With the first scheme, Mover's Loan, the total new debt must not exceed 125 per cent of the value of the new property. The extra borrowing will have to be repaid over a maximum of 15 years. A borrower who wants to raise more than the existing debt will be expected to put in a cash stake equivalent to 5 per cent of the extra borrowing.

Someone selling a house for pounds 40,000 to redeem a pounds 46,000 mortgage would need a pounds 56,000 loan to buy a pounds 50,000 house. The difference between the old and new loan would be pounds 10,000, so the borrowers would have to put in pounds 500 of their own money.

There would also be a premium, payable in a cash lump sum, of pounds 876 for a mortgage indemnity policy to cover Leeds against losses if the property was repossessed and sold at a loss.

The second scheme, Family Loan, requires a parent or other relative to take out a mortgage to cover the debt.

Nationwide and Woolwich building societies already offer negative equity schemes and between them have helped about 100 people.

Lenders have not found it easy to organise negative equity schemes despite the huge potential benefit for the housing market. Borrowers may have to persevere with their lenders if they want help.

Some lenders, including the country's second largest, Abbey National, have nothing on offer.

Their borrowers may be tempted by a new service launched last week called Masterlink. This involves well- off property owners giving money to people further down a housebuying chain so that they can clear negative equity and put down deposits.

The scheme was developed by an estate agent, Martin Jutsum, who sold the idea to SPS (Specialist Property Sales), a company that manages repossessed properties for banks and building societies. SPS runs the scheme through a subsidiary called Nationwide House Purchase Protection Corporation.

Simon Garbett, former managing director of the estate agent Mann & Co, is acting as a consultant to Masterlink and he explained how the system works.

'Two people at the top of a property chain, with one intending to sell to the other, might pledge, say, pounds 5,000 each,' he said.

'Half of this could be paid to someone down the chain who has negative equity and half could go to a first-time buyer.'

Giving money to total strangers may sound a foolhardy idea, but Masterlink operates on the principle that it is in the interests of people at the top end of a chain to do this if it means finding buyers.

Home-owners who want to participate must pay a membership fee of pounds 35.25, which lasts for a year. Masterlink takes a fee of 5 per cent of the total amount pledged by sellers.

The system is new and largely untested, although two sets of homeowners have used it successfully in pilot schemes. The London solicitors Penningtons advised on drawing up the legal documents. One of the main concerns is ensuring that money passes down the chain smoothly.

'Participants have to enter into a pledge deed,' Mr Garbett explained.

He said that about 1,000 people had already enquired about the service and Masterlink's managers were now talking to lenders and estate agents to encourage them to co-operate.

Masterlink is available on 0372 471145.

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