I gather that the Government is thinking of encouraging the reintroduction of something called Mortgage Indemnity Guarantees. What are they, exactly?
A mortgage indemnity guarantee (MIG) is basically a type of insurance. Back in the olden days, when a first time buyer - or indeed anyone without much of a deposit - wanted to take out a high loan-to-value mortgage (ie, anything over about 85%), the lender usually insisted that they take out MIG cover. This was typically based on a single premium paid upfront, the amount being added to the mortgage loan itself.
Not to be confused with mortgage protection insurance - which pays your mortgage if you are temporarily unable to do so through redundancy or long-term illness - MIGs protected the lender. So, if a borrower defaulted, and the property had to be “force-sold” for less than the outstanding mortgage debt, the lender could claim on this insurance for the shortfall.
For a long time, MIGs were standard practice, although they certainly attracted their fair share of controversy, since lenders appeared to gain all the benefit while the costs were borne directly by the consumer. However, they fell out of favour during the last property recession in the late 80s and early 90s. With repossession rates soaring, and claims by lenders going through the roof, insurers very quickly fell out of love with MIGs, and they virtually disappeared.
And a good job too, you might think.
Now, however, with lenders hugely risk-averse, the Government is looking again at this issue. Why? Well, because for all the problems with old-style MIGs, they did at least enable borrowers (and particularly first time buyers) to obtain the high LtoV (loan to value) mortgages they needed.
So, maybe we will soon see the introduction of a new, re-engineered MIG scheme, allowing lenders to insure the risky element of a high LtoV mortgage and actually lend to all those would-be first time buyers who do not have access to the bank of mum and dad. Obviously, with the state of the wider economy at the moment, premiums would undoubtedly need to be fairly hefty. But then, perhaps the Government could be persuaded to become the insurer of last resort…