Could this facility also provide a way of restoring confidence among potential buyers in the housing market?
There are two main stumbling blocks to kick-starting the housing market. First, lenders are nervous about lending for fear of getting criteria wrong in a market that is difficult to predict.
Second, would-be buyers are hesitant to commit, fearing that property prices will fall further and push them into negative equity.
There has been a lot of debate recently about the possible return of mortgage indemnity guarantee policies which would reassure lenders offering loans of more than 75% LTV.
I don’t understand why this idea is not gaining more traction as it seems a straightforward solution to me.
And if, alongside this, there was a policy buyers could take out that indemnified them against a shortfall in the sale price of their properties, effectively filling the confidence gap, it could create market stability and get housing transactions moving again.
Of course, there would need to be a proper framework in place when constructing such a policy to ensure it not only provides the correct type of protection for customers but also gives insurers an incentive to develop it in the first place, but this should not be beyond the wit of man.
These policies been available for a while in the car finance industry, protecting against a shortfall between the eventual sale price of a vehicle and the outstanding finance facility available for buying it.
Extending that principle to the property sector isn’t such a wacky idea.
Necessity is the mother of invention and it strikes me that if ever there was a time for fresh ideas it is now.