Mortgage Indemnity Guarantees may return
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A form of Mortgage Indemnity Guarantee will return to the market if high loan to value remains subdued after the next election, according to the Association of Mortgage Intermediaries.
Ami has set out proposals for the return of a form of mortgage insurance as a means to support higher loan to value lending to both main political parties. Director general Chris Cummings says if the market remains in this current state after May 2010, it is almost certain that the new Government, either Labour or Conservative, will launch some sort of mortgage insurance product.
Cummings says: “It all depends on the lending market - if the high LTV market is as fragile and poorly served as it is today then I think there is a rate certainty that something will have to happen.
“Both main parties have looked at MIGs, but right now they are not going to announce any big policy issues. We hope to take our consultation forward but it is not going to happen this side of the election.”
Cummings argues MIGs would have to be reinvented and possibly even be renamed so as to distance the new products from those of the late eighties and early nineties, which drew criticism for their bias towards the provider rather than the consumer.
He says: “It would have to benefit the consumer, not the lender, and it must allow high LTV lending to take place. We have to start the conversation with politicians one step back and tell them what the new look product will look like.
“Then again, the higher LTV market might open up once again and we would not have to worry about MIGs.”
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Readers' comments (9)
Malcolm | 27 Nov 2009 11:58 am
That's brightened up a dreary Friday morning.
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Mike Hanson | 27 Nov 2009 12:00 pm
MIG's have never gone away. They still exist and are in regular use but are paid for by the lender and not charged to the borrower (though obviuosly are taken into account in overall product pricing) and so it may seem to the public that they have disappeared though intermediaries should be aware of them.
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brian lynn | 27 Nov 2009 12:11 pm
The high LTV market would not be as subsued or fragile if the lenders offered rates closer to the lower LTVs The gap although slightly improving is still too big.
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Rob Hayes | 27 Nov 2009 2:01 pm
Agree with Mike. The days when MIG was "money for old rope" dis-appeared in the early 1990's having nearly bankrupted the insurance industry in the process. Very small number of insurers would touch it now.
For those with enough capital, and if it's factored in to the overall cost of higher LTV loans as a risk premium, I would guess it could be a way to free up the lending market a little
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Mike Hanson | 27 Nov 2009 2:39 pm
Hi Rob. As always your views are interesting and well informed!
Understand your sentiment Brian but one factor in the gap is the cost of the MIG itself or the cost of self insuring for those who take the risk on internally.
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Anonymous | 27 Nov 2009 3:50 pm
It makes more sense for the Government to back this, than to offer deposits or subsidies that help fewer people, now that Lenders have adopted a more cautious approach to lending, provided people are not overstretched, this could be just what the market needs.
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Michael White CEO Emailmortgages | 27 Nov 2009 7:43 pm
Let's hope the insurers are not too short sighted on this. I believe It's actually a 'no brainer', particularly if working in conjunction with the government. Even if not, a real business opportunity potentially exists.
Over to you Mr Cummings...
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Louise Cuming | 29 Nov 2009 9:28 am
Hi Mike. I am so pleased you pointed out the fact that insurance for higher lending still exists, although on the whole the charge is not passed onto the borrower. However, doesn't it raise a concern that AMI are hitting the headlines discussing the return of something that is already there - or am I missing something?
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Dathan Steele | 30 Nov 2009 9:59 am
Sorry to state the 'bleedin' obvious' here but an insurance based policy for the Lender in high LTV cases should not be called a 'Mortgage Indemnity Guarantee', it should be called a 'Higher Lender Charge'. Maybe a bit pedantic but the issue when these products were called MIGs was that Joe Public just did not understand how some he pays extra for, with the word 'guarantee' in the title meant that if everything went pear shaped someone would still be after him for money....
There is this funny concept FSA are pushing, called 'TCF'. Anyone heard of it? :)
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