Wednesday, July 16 10:30:42
The Irish Government should introduce a universal scheme of mortgage insurance in Ireland for high loan to value mortgages, according to a report by Economist Jim Power today.
The report concludes that, if such a scheme had been in place during the property boom, then lenders would have been forced in to a much more prudent lending regime.
It finds ample international precedents supporting such a measure in an Irish context and supports the view expressed by the IMF that the State should not provide the mortgage insurance guarantee as regulated private insurers are in a position to do so.
The Report "The Potential for Mortgage Insurance in the Irish Market" was launched today at a Genworth Financial breakfast briefing.
It reviews the performance of the housing market in Ireland and the potential outlook as the economy recovers, focuses on the positive role that mortgage insurance can play in aiding sustainable lending, particularly for the first time buyer in the high LTV segment.
The Report concludes that some first time buyers are unable to get on the housing ladder, even though they could afford to service a loan, but lack a sufficient deposit to buy a house. These borrowers need to use sustainable high LTV mortgages to access home ownership, it said.
Banks are less inclined to grant high LTV loans as they are more expensive from the banks perspective because the banks must hold more capital to cover the risk.
The introduction of universal mortgage insurance in Ireland would oblige all lenders offering a high LTV mortgage to have mortgage insurance in place. This would mean that the financial institution would not have to hold expensive capital against such loans.
The involvement of insurers in assessing mortgage credit would create additional oversight and aid higher lending standards. Additionally the solvency of the financial system would be helped through greater risk diversification, it concludes.
"Most importantly first-time buyers in particular would be helped on to the housing ladder, which is important from a social cohesion perspective."
"In Construction 2020 the Government committed to reviewing the possible role of mortgage insurance in Ireland as an aid to regenerating the construction sector. I believe that the introduction of a universal scheme of mortgage insurance targeted at the high loan to value market segment traditionally comprising first time buyers would be a prudent, sustainable and progressive measure. It would reduce credit risk, facilitate home ownership and bring lending practices in Ireland for the high LTV segment into line with best international practice. However I agree with the IMF that the State should not provide the mortgage insurance guarantee - this should be left to regulated private insurers in the first instance," Jim Power said.
Angel Mas, President and CEO, Mortgage Insurance Europe, Genworth said the Government now needs to tackle the lack of access to mortgage finance for first-time buyers with good credit histories and the ultimate ambition to own their own home.
"Despite the improved affordability as a result of declining house prices, first time buyers often don't have a big enough deposit to get their foot on the property ladder."
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