IMF calls for LTV caps
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The International Monetary Fund is calling for limits on LTV ratios and for higher LTVs to only be made available to those who purchase mortgage insurance.
In the IMF’s Global Financial Stability Report, it argues that European regulators should be handed the power to introduce LTV caps.
It says higher LTV ratios are associated with higher house price and credit growth over time, but absolute LTV limits might be blunt instruments that exclude potentially creditworthy first-time buyers and borrowers.
It says: “Rather, mortgages that do not meet the strict LTV prudential limit could, for example, still be made available to those borrowers who agree to purchase adequate mortgage insurance.
“Alternatively, bank supervisors would need to assign higher capital risk weights for non-conforming mortgages.”
The report also calls for reform of the US housing finance system to address current gaps in the regulatory, supervisory, and consumer protection frameworks.
It says it should aim for better-defined and more transparent government involvement in the housing market, showing relevant items on the government’s budget.
The IMF also recommends it reconsider the role of the housing-related government sponsored enterprises, given the need to create a more level playing field in mortgage markets.
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Readers' comments (13)
steve mcgill | 7 Apr 2011 10:27 am
An insurance vehicle that is restricted to sale only by Lenders - or could it be possible that we could get a piece of the action? - I wish
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Anonymous | 7 Apr 2011 10:53 am
Mortgage indemnity guarantees should be compulsory for anyone borrowing in excess of 75% loan to value, with tiered rates reflecting the higher level of borrowing. If lenders want to take on this risk then they should assign higher capital risk weights for non-conforming mortgages. It will not give much help to the first time buyer market and needs government support here but it does makes sound sense.
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Adele | 7 Apr 2011 11:15 am
Wasn't the old MIG insurance policies there to only protect the lenders and not the applicants when there was a shortfall situation. Wouldn't be more in line with treating customer fairly of these new policies also covered the applicants in a shortfall situation as well as the lender? Or is that treating them a little too fairly for lenders? I agree I think insurance could be a useful tool, but only if it's set up correctly and covers all parties equally.
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Anonymous | 7 Apr 2011 11:23 am
Low LTVs protect the banks, not the customer. Lower income multiples would reduce house prices in the longer term and benefit the customers
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Keith Butler, Mortgage Analyst | 7 Apr 2011 11:34 am
This is entirely sensible and reflects what used to be the legal requirement in this country in that lending over 75% LTV needed what was called MIG insurance.
What is now called the High Percentage Loan fee is what used to be the insurance premium only lenders who failed to understand risk properly decided not to take out the insurance but pocket the premium.They therefore temporarily increased their profits but left themselves hopelessly exposed to the economic downturn.
As I said entirely sensible - so no doubt the lenders will try to block it as they have every change
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AA | 7 Apr 2011 11:44 am
Couldn't agree more with insurance being made compulsary to those with higher LTV.
There are so many people whom dont have it; and then their houses are repossesed and then they turn up on Panarama.
Applicants should have the option of whole market as well.
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Prab Singh | 7 Apr 2011 11:52 am
I believe the reintroduction of MIG / IG will help clients & banks with higher LTV risk. However the insurance needs to modified regarding the insurance companies chasing clients for any outstanding debt if things go wrong, obviously this may be reflected in higher MIG premiums or modification in terms as the currect terms are unfair to clients.
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Doris | 7 Apr 2011 12:24 pm
IMF calls for genie to be put back into bottle after 10 years.
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John Walters | 7 Apr 2011 12:41 pm
NO!!! As a consumer, I have to say that this would be too much. We're already spending £1800 on averaage per annum for compulsory car and home insurance... in a time where the cost of living is increasing at a greater rate than our average income many of would struggle to cope.
I would like to see this rolled out on to all Buy to Let protucts which i think should also be capped at 50% LTV. This would hopefully drive down the over-inflated property prices and give first time buyers like my son, a chance to get on to the property ladder
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Steve Balmer | 7 Apr 2011 1:48 pm
This seems sensible but does not address the fact that many UK banks are over leveredged to less than one per cent.
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