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Mig will not aid FTBs unless FSA relaxes rules on capital

The Building Societies Association says mortgage indemnity insurance guarantees will not encourage lenders to lend at higher loan to value ratios unless the capital requirements for this type of lending are relaxed.

Insurance provider Genworth Financial said this week it has agreed to provide mortgage indemnity insurance for the building society collective Mutual One, whose members include Hanley Economic and Skipton building societies.

The announcement follows a meeting called by housing minister Grant Shapps with leading industry figures last week, where they debated whether Mig has a role in helping first-time buyers.

BSA head of mortgage policy Paul Broadhead says it is the capital requirements for high-LTV lending rather than the risk of default that discourages lenders.

He says: “Until the FSA gives concessions over capital where a lender has a Mig in place, there will not be the benefits to lenders that often get talked about because it does not make it any less expensive for them.”

Precise Mortgages managing director Alan Cleary says: “The more risky the loan, the more cap- ital you have to put down. The return on capital for a lender is significantly less at 95 per cent than it is at 50 per cent LTV. The insurance makes no difference, the issue is the return on capital.”

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