While providing those with financially comfortable parents a step onto the housing ladder, mortgages like the Barclays Family Springboard launched this week exclude first-time buyers who cannot fall back on the Bank of Mum and Dad.
Patrick Bamford, business development director of Genworth, said: “Innovative products such as those recently introduced are always welcome especially in helping people purchase their first property, however the market needs 95% LTV without any bells on.”
Bamford said Bank of Mum and Dad backed mortgages will only help a limited number of buyers but if lenders took mortgage insurance out they would not need to look for security from parents’ savings or equity.
Mortgage insurance is a policy taken out by lenders to protect them in the event of repossession where a shortfall occurs when the property is sold to redeem the outstanding mortgage balance.
Ray Boulger, senior technical director at John Charcol, said lenders using mortgage insurance should be offered capital relief from the regulator making it easier to offer high LTV mortgages.
Currently, under Basel III, lenders are required to hold six times as much capital for a 90% LTV mortgage as they would for a mortgage at 70% LTV.
He said: “Unless there are concerns over the quality of the mortgage insurer in terms of its ability to pay out, if the lender is insuring the mortgage down to 75% LTV it would be logical to offer capital relief.
“But at present it is my understanding that the Financial Services Authority have no intentions to offer capital relief at all.”
Boulger said that there were only about four mortgage insurance lenders in the market so it would not be a big job to check the robustness of each company.
And he added: “In Canada it is a regulatory requirement that lenders have mortgage insurance if they are lending on high LTV mortgages therefore it will be interesting to see if Mark Carney, the current governor of the Canadian central bank and soon to be Bank of England governor, will take a more logical view on the issue.”
