Insurance for new mortgages would help boost first-time buyers

Report claims first -time buyers could safely get higher loan-to-value mortgages, says Samantha McCaughren

BANKS would have saved €420m, had mortgage insurance been widely used in the Irish market up until 2008, according to a report by economist Jim Power.

If insurers had agreed to pay claims two years after the start of arrears, the savings would have been €1.5bn.

The report, which was submitted to the Central Bank in recent days, was commissioned by JLT Insurance Brokers, which is trying to establish the sale of mortgage-insurance products, which would allow banks to offer higher loan-to-value (LTV) mortgages.

Mortgage insurance pays out in the event of a fall in the value of the property.

Power said: “Mandatory mortgate insurance could be considered for first-time buyers.

“If mortgage insurance were in place, it could facilitate higher loans to first-time buyers where mortgage repayment affordability is not an issue.”

In 2015, the Central Bank introduced a range of new regulations for residential mortgage lending, including a loan-to-income limit of 3.5 times gross annual income. Non-first-time buyers have a LTV limit of 80pc. For first-time buyers, a LTV of 90pc applies for the first €220,000 and 80pc thereafter,

Power claimed that mortgage insurance helps to ensure a more “prudent, stable and liquid housing and mortgage market”.

He said that mortgage insurance should not be a substitute for prudent lending and in fact the requirement for mortgage applications to be reviewed by lenders would bolster lending practices.

Pat Howett, chief executive of JLT said such products would allow banks to lend up to 90pc.

“They would know if property prices fell to 70pc, this product would cover them.

“It enables first-time buyers to have access to 90pc loans, it give the banks the security that even if property prices fall, they are covered.

“It would also mean that if first-time buyers were able to access 90pc mortgages, builders would know that first-time buyers could buy their houses. It would overcome a lot of problems in the market at the moment.”

Howett was pessimistic about changes to the lending policies, claiming that the Central Bank policies indicated that it believed people should rent homes now, rather than buying.

Mortgage insurance had been popular in the past but was all placed with one insurer, which was the wrong structure to handle a property collapse. JLT’s product spreads the risk among a number of insurers.

Mortgage insurance is used extensively in Australia, Canada, France, Hong Kong, the Netherlands and US.

In the UK, the Budget 2013 introduced a help-to-buy scheme, whereby the government directly insures lender for the risk in the part of the mortgage between 80pc and 95pc LTV.