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MIGs should not put taxpayers at risk

Simon Crone MS blog

As the dust continues to settle on this year’s Budget statement and more details of the Help to Buy scheme begin to emerge as key industry stakeholders give their feedback, there seems to be growing concerns about the Government initiative.

Some critics have unfavourably compared the scheme with the Fannie Mae and Freddie Mac models from the US and others have questioned whether it is the State’s responsibility to be guaranteeing mortgages and exposing the taxpayer to unnecessary liabilities.

We have long campaigned for first-time buyers to be given more assistance to realise their property ownership aspirations but feel that it will be more efficient to make use of the existing framework of the private mortgage insurance sector rather than put taxpayers’ money at risk.

We’re not alone in this belief either – commentators as influential as John Charcol’s senior technical manager Ray Boulger have publicly questioned why this logical option has been seemingly overlooked in the initial Help to Buy discussions, although there remains a hope that the State includes private insurers in the scheme before the initiative is introduced in 2014.

We have already seen a number of building societies successfully incorporate mortgage insurance into their higher LTV lending and subsequently enjoy a fillip in first-time buyer activity. So if larger lenders were to get on board with it too then a much broader base of potential homeowners would be able to get on the property ladder without creating unnecessary liability on the State.

Mortgage insurance can be effectively incorporated in the existing scheme, with FSA-regulated private insurers absorbing the losses. The Government could provide a back-stop guarantee to those insurers. This arrangement would not only insulate the taxpayers from losses but would also provide capital relief to lenders, incentivising them to lend more.

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  • Arron Bardoe 8th April 2013 at 12:55 pm

    Keith makes a good point that one must wonder the motive of a MIG (now HLC of course)insurer, but I also this is transferring a risk on to the public and that it is entirely unnecessary.

    Many do not realise the rule of subrogation, which means insurers can recover any losses suffered on HLC claims from the responsible party – ie the defaulting borrower – up to 12 years after the event.

    I worked for a building society in the early 1990s and we had a whole section set up to recover these shortfalls as was our contractual obligation to the insurer, so imagine the adverse press of when the Gvnt starts knocking on the doors of the repossessed years later when the fortunes have changed and asks for its money back.

    Also, despite the doomsayers, mortgages do exist and at reasonable LTVs. The trouble is borrowers telling us they will fund a £1,000 pm mortgage and have NOT ONE PENNY saved up.

    FTBs need to start sacrificing a few luxuries, as did their parents’ generation, and start putting money away and not expect a brand new house with brand new furniture.

    Just because someone wants it, does not mean we should use taxpayers’ money to fund it.

  • keith Hood 8th April 2013 at 8:28 am

    The borrower already pays “something towards the higher risk loan” -they pay a higher interest rate than lower LTV products.
    I’m always cynical about articles so blantantly driven by self interest, ie a MIG insurer critisising the Help to Buy scheme, wow what a shock!

  • Paul 2 7th April 2013 at 3:45 pm

    From the last paragraph:
    ‘The Government could provide a back-stop guarantee to those insurers.’
    I take this to mean The Government could provide a back-stop guarantee to those insured.

  • AJK 7th April 2013 at 3:05 pm

    It’s nothing new but the regulator needs to back off

  • G P Styles 1st April 2013 at 5:29 pm

    Totally agree. The borrower should also have to pay something towards the higher risk loan and this would be in the form of some kind of MIG payment.