Bring back the MIG
Commenting, Angel Mas, president of mortgage insurance Europe at Genworth Financial, said: “The notion of imposing loan-to-value caps on residential mortgages (Monetary Policy After the Fall – Bank Of England – 28 August 2010) assumes that high loan-to-value (LTV) lending equates to imprudent lending. But this should not be the case.
“We believe that LTV caps affect equally good and bad quality borrowers and there are better ways to address some of the concerns expressed by Bank of England.
“We believe that government and regulators in the UK have a historical opportunity to deliver strategic responses in the form of new, robust and sustainable frameworks for first time home buyers’ mortgages.
“Any proposal that requires borrowers to save larger deposits would widen the current barrier to homeownership; with other unintended consequences including, potentially, lower borrower protection in the form of unsecured top up loans.
“High LTV mortgages can be used responsibly by lenders to ensure that people with a good credit profile, but a small deposit of 5-10%, get on the property ladder.
“We would like to point out that there are existing tools, already recognised by international regulators, to deal with the specific risk characteristics associated with high LTV loans.
”We believe that regulators and policy makers should encourage the wide use of those instruments, such as mortgage indemnity insurance, building on well tested, successful models that have endured the ongoing global crisis, such as Canada’s.
“In Canada, borrowers, lenders and the overall system are protected by prudent standards and permanent monitoring by mortgage insurers for all LTVs of 80% or higher. As a result, arrears in that country have remained low, banks well capitalised, mortgage bond markets liquid and the flow of credit to good quality new home owners opened.
“The introduction of universal mortgage indemnity insurance for high LTV mortgages would bring market-led discipline to ensure that the interests of lenders, borrowers and the wider economy are totally aligned.
“Our proposed framework would involve safe lending criteria to make sure that only high quality high LTV loans are originated, guarantees for default risk and capital incentives for those lenders who take the prudent approach by using insurance.
“With these safeguards in place lenders could offer affordable mortgages for a greater number of younger borrowers, rather than restricting them to the privileged few.”