New insurance scheme could chop the cost of mortgages
First-time buyers are the hardest hit
Published 20/07/2014 | 02:30
Cheaper mortgages would be on the cards if the government sees through with its plans to introduce a new scheme that's expected to breathe life back into the property market, an international insurer has said.
The scheme, known as universal mortgage insurance, allows banks to share the risk of mortgage lending with either the State or private insurers.
The insurer, Genworth, believes that such a scheme would encourage banks to lend more money, make it easier for banks to offer cheaper mortgages, and help prevent problems such as mortgages arrears. It also believes the scheme would make it easier for house hunters to get their foot on the property ladder.
Genworth believes that many first-time buyers are currently unable to get onto the property ladder because banks are unwilling to offer mortgages where house buyers borrow a large proportion of the purchase price of a home.
"In recent years, the challenges thrown up by the high levels of mortgage arrears in Ireland have overshadowed the need to promote a sustainable, prudent access to homeownership for first-time buyers," said Angel Mas, president of Mortgage Insurance Europe with Genworth.
"The Government 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. Although falling house prices have made properties more affordable, first time buyers often don't have a big enough deposit to get their foot on the property ladder."
Finance Minister, Michael Noonan, is "undertaking an economic impact analysis" of universal mortgage insurance, "which will assess the impact such a scheme would have on the Irish housing market", according to a spokesman for the department.
"The Minister will consider the next steps once this analysis has been completed," he said.
Mortgage insurance can help prevent house crises, according to Winsor Macdonell, senior vice president with Genworth Canada.
"Canada has had a universal mortgage insurance scheme in place for over fifty years," said Macdonell. "During the recent financial crisis, the benefits of this scheme were very evident as the Canadian housing market performed well. The availability of mortgage insurance helped ensure that lenders had the ability and confidence to write new mortgages, making home financing available for first-time buyers at affordable rates."
The scheme would also encourage more responsible lending, according to the economist, Jim Power.
"Under such a scheme, the insurer would have an external role in assessing the mortgage credit, thereby creating better oversight," said Power, in his new report, which was prepared for Genworth. "Lenders would not have to hold expensive prudential capital and could offer lower interest rates to borrowers."
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