Widely used in the UK a decade ago to safeguard lending at high loan to value (LTV), MIGs still exist ito a certain extent although lenders have to now make it very clear that the premium protects the bank and not the customer.
However their popularity is picking up overseas and Spain has reportedly chosen to adopt MIGs on a wider scale to protect against defaulters, particularly non-residents.
Recently, a number of Spanish banks have tightened up their non-resident lending in order to protect themselves against fraudulent applications. Many are now double and triple checking documentation, some are registering a non-resident loan granted in Spain back in the UK on the client’s credit file whilst others have opted to introduce MIGs. One such bank is Banesto, part of the Santander group. Issued at the start of the loan, the policy is usually based on a percentage of the amount borrowed, often 1 – 2 per cent, with the percentage increasing in line with the loan amount.
As of earlier this year Banesto had withdrawn all of its own non-resident lending via intermediaries and was only offering foreign applicants a self-certification loan which they are administering on behalf of GMAC, but they now offer an alternative.
This alternative includes asking clients to pay what they call ‘an insurance’ otherwise known as a MIG. Banesto is not the only one, other banks in Spain are now using MIGs - SolBank, Barclays and Bancaja included.
Even though the MIG protects and is for the benefit of the bank, not the applicant, it is the client that pays the premium. For loans for up to 80 per cent LTV, 80 per cent of the banks in the UK who apply a MIG now pick up the cost of the premium themselves and at 90 per cent LTV or above, 30 – 40 per cent of the banks pick up the cost themselves. Most brokers will avoid banks that still insist that the client pays for the MIG premium themselves.
