Indemnity Guarantee Insurance (IGI) is taken out by lenders when mortgage applicants require a high loan to value mortgage – usually around 85% - to insure the risk of the mortgage holder not being able to make repayments. In the event of repossession, any shortfall from a forced sale is made up through the IGI. Currently this cover is offered by independent Insurance Guarantee Insurers, many of whom are not able to provide the cover because of the problems of assessing high risk in the current market.
“The proposal to change the system is very straightforward and makes excellent common sense,” commented Ian McGrail of First Mortgage. “If the Government provides a National Guarantee Insurance scheme for high loan to value loans up to 100%, then there would be no cost to the tax payer involving huge cash injections to lenders. With lenders being protected on the top 15% by way of a government guarantee to meet any shortfalls it would allow for the re-introduction of loans up to 100% of the property value. As only 2% of properties are under threat of repossession at any one time, the risk to the indemnity company is sufficiently low, however in the current climate commercial insurers remain nervous therefore this guarantee is essential for the re-introduction of high loan to value mortgages.
“Premiums collected by the Government should cover all or most of the claims that can be accurately anticipated from the outset. By kick starting activity in the first time buyers market the boost this would give would quickly filter up the housing chain. In addition, being Government bonded, the market and inter bank lending is assured absolute confidence, rather than the IGIs being offered by commercial organisations who themselves are at high risk of failure.”
