With Aldermore the most recent lender beginning to market a ‘100% LTV’ deal, Genworth has warned that it would be wrong to assume that these mortgages are readily available to first-time buyers; in fact, the borrowers who may benefit from such deals are typically those with the ability to offer collateral deposits or guarantor support in exchange of the higher loan to value funding.
In addition, without a clear, sustainable framework, the system remains exposed to the same prudency flaws that contributed to the credit quality issues in recent years, according to the insurer.
Angel Mas, president of mortgage insurance, Europe, at Genworth, commented: “We disagree with the concept of a true 100% LTV mortgage on a number of grounds and warn lenders and first-time buyers about the development of such products.
“There is currently a real threat that the re-emergence of extremely high loan-to-value mortgages across Europe could lead to a new wave of high risk, low quality residential mortgages or even the emergence of US-styled strategic defaulters, due to relaxed lending criteria by banks and default becoming a cheaper and easier option. Without a proper framework, people can bet on the housing market without fear of the potential consequences.
“Whilst we support credit-worthy first-time buyers being given access to high loan-to-value housing finance, we believe there should be a requirement for this group to prove they have the discipline to save for a minimum deposit, and demonstrate they take a long-term view on their personal financial security. Implementing mortgage insurance would provide the certainty to the market stakeholders that adequate prudent origination standards are upheld.
“High LTV mortgages are highly reliant on accurate valuations of properties, and this is never an exact science. As a result, lending the full value of the property introduces an operational risk for lenders from the word go. It means that if the valuation of the property is found to be too high, or the market goes down, the buyer is left in negative equity and the lender has an increased risk of default, plus a very serious exposure should that default occur. Adequate checks are required to minimize those exposures.
"In addition, the credit quality of high LTV loans are particularly reactive to economic downturns, and that is why banks should be encouraged to acquire the additional protection that mortgage insurance offers.”
