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Unlocking lending

American insurer Genworth has called on lenders to make use of mortgage insurance to help them increase lending.

The company, which provides insurance guarantees to four UK lenders including Skipton, says its service could be the key to unlocking lending for first-time buyers and others struggling for access to mortgages.

The insurer offers guarantees to the lenders on a case-by-case basis that it will pay out if the mortgage defaults. It says the only way to free up mortgage lending is to cover high loan-to-value mortgages, offsetting the risk and cost of guarantee in the price of the mortgage.

“We offer lenders the capacity to lend more,” says Genworth managing director Tammy Richardson. “We can be a second pair of eyes on the industry, reining in risk.”

In Canada, mortgage indemnity is compulsory for riskier home loans, while in Holland, the government offer a scheme that is not mandatory but is a well established method of mitigating risk on high-LTV mortgages.

Association of Mortgage Intermediaries director Robert Sinclair says: “We need to reinvent mortgage indemnity guarantees. This would allow lenders to increase their capacity to lend and extend the availability of mortgages to a wider range of consumers such as first-time buyers.”

Checkmate Mortgages commercial director Peter Stimson says: “The Government would bear the risk but would be receiving significant premiums up front. Ultimately, even if lenders make these loans without insurance, the Government is effectively underwriting the risk anyway.”

Stimson and Checkmate chairman Stephen Knight have long argued that the Government already underwrites the top, risky slice in its HomeBuy Direct shared-equity scheme – which comprises a 30 per cent loan from the Government and homebuilder alongside a 70 per cent LTV mortgage. It also offers unsecured loans to students.

Stimson says: “Offering lenders protection from, say, 85 per cent to 95 per cent LTV for first-time buyers is less risky than the other areas in which the Government already plays. In the current market, Government mortgage indemnity guarantees would be very welcome.”

Brentchase Financial managing director Mike Fitzgerald hopes lessons will be learnt with a new generation of Migs. “Insurers and the Government have had history lessons in what can go wrong with Migs. If they can iron out the problems, then Migs could solve the lending crisis.”

Fitzgerald says a private sector solution would be best and adds: “As long as the Migs do not have subrogation clauses, so the insurers cannot come back to the borrower for any shortfalls, which was the problem last time, this should be considered. Migs have to be on the agenda.”

He believes that Migs could bring back higher-LTV mortgages.

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