The Government is looking at ways to limit its exposure to house price falls through the Help to Buy mortgage indemnity guarantee scheme by sharing the risk with private insurers.
Former Alliance & Leicester chairman and chief executive John Windeler is working with the Treasury through his firm Quantum Alpha to limit Government liabilities by making it a re-insurer of last resort.
Under Windeler’s plan, house price falls would hit private insurers before taxpayers and the public purse would only face losses if prices fell more than 50 per cent.
Windeler says: “There should be private involvement in the Help to Buy guarantee scheme. Our plan would protect home owners and share the risk between the Government and the private sector. Lenders have been very receptive and we are optimistic some of our suggestions will be adopted by the Government.”
Under the MIG scheme, set to launch in 2014 and run for three years, the Government will offer a guarantee of up to 15 per cent of the purchase price with the borrower putting down a deposit of between 5 and 15 per cent.
If homes are repossessed and lenders lose more than the borrower’s deposit, they can call on Government guarantees.
The Treasury select committee has criticised the Government’s exposure to “large losses” if house prices fall while Bank of England governor Sir Mervyn King has warned the scheme could cause a US-style housing bubble.
The Treasury says it is discussing the scheme with industry and will publish further details in due course.
TSC member and Labour MP Andy Love says: “If he can realise a scheme that is viable, then the Treasury would be very interested.”
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “There would be questions around whether the extra insurance would increase mortgage rates and if it would be bought as a separate product.”