Team, the affinity group of estate agents, is lobbying for a Government-backed mortgage indemnity guarantee scheme, which it says could transform the housing market.
Phil Irving, finance director of Team and managing director of its HIPs and conveyancing arm, is leading the campaign. It is being backed by Team agents throughout the country, who are to bend the ears of their local newspapers and MPs.
In an open letter to the Chancellor, Irving put the case by saying: “One of the biggest problems facing the housing market at the moment is the chronic unwillingness of lenders to offer the kind of high loan-to-value mortgages that most first-time buyers need.
“With prices falling and repossessions rising, lenders have become acutely risk-averse – for the simple reason that they’re worried they may be left with a huge shortfall if borrowers default, and the properties concerned have to be force-sold. A form of mortgage indemnity guarantee would solve that problem at a stroke, and help bring back the first-time buyers that the market desperately needs.”
Irving said that mortgage indemnity guarantees used to be standard practice, but fell out of favour during the last property crash, when insurers got cold feet as repossessions rose and claims went through the roof.
He added: “Today, when it is arguably most needed, that safety net no longer exists. Yet it could easily be reinstated, with Government help.
“The Government has shown itself prepared to underwrite the banking sector to the tune of billions. The same commitment to lenders, through a mortgage indemnity guarantee scheme where the Government acted as insurer of last resort, could utterly transform the prospects for the housing market.”
The full text of Irving’s letter to Alistair Darling is as follows:
Dear Chancellor
Mortgage Insurance Guarantees
As Finance Director of one of the country’s largest groups of independent estate agents and Managing Director of its HIPs and conveyancing business, I am writing to urge you to use your good offices to encourage the reintroduction of mortgage indemnity guarantees.
As you will recall, mortgage indemnity guarantees, or MIGs, were standard practice in the housing market for many years. When a first time buyer – or generally anyone lacking a deposit of at least 25% – wished to take out a high loan-to-value mortgage, the lender would require the borrower to purchase an appropriate level of MIG cover. This was typically based on a single premium payment, the amount being added to the mortgage loan itself.
Crucially, MIGs were designed to protect the lender. So, if a borrower defaulted, and the property had to be force-sold for less than the outstanding mortgage debt, the lender could claim for the shortfall.
The requirement to have such a policy in place was a product of the Building Societies Association’s desire to protect their depositors from risky lending. However, demutualisation and fallout from the last property recession in the early 90s led to MIGs falling into disuse, and they are now rarely if ever used.
Today, with house prices falling, and with no such safety net in place, lenders have become hugely risk-averse. While this may be entirely understandable in the context of the unprecedented challenges they are facing elsewhere, the effect on the housing market has been to make the high loan-to-value mortgages on which most first-time buyers rely, virtually unattainable. Today, only thirteen mortgage products are available to those with no more than a 10% deposit, whereas only a year ago such buyers would have had more than twelve hundred mortgage products to choose from.
We applaud the various initiatives that the Government has already put in place to assist first-time borrowers. Nevertheless, none of these measures specifically addresses the issue of risk-aversion among lenders.
In line with a great many in our profession, we in Team Association, which represents hundreds of traditional high-street estate agents throughout the country, are firmly of the opinion that an updated version of the MIG system could successfully tackle this very issue, thereby making a significant contribution to the restoration of desperately-needed stability to the UK housing market.
Although the MIG was not universally loved, with many borrowers and their legal advisors regarding them as a necessary evil, they were an acknowledged solution to the problem of spreading risk on relatively high loan-to-value mortgages. Moreover, the faults with the original MIG policies could be easily addressed, particularly in view of the Government’s absolute determination to stand behind other parts of the financial system – a determination that has been so dramatically demonstrated in recent days.
In short, Chancellor, we would urge you to give serious consideration to the introduction of a form of mortgage indemnity guarantee, in which Her Majesty’s Government stands as the insurer of last resort.
By giving lenders the confidence to once again begin offering the high loan-to-value mortgages that are needed, if first-time buyers are to be enabled to return in the numbers that are required, we believe this intrinsically cost-effective initiative would do more to revitalise the housing market than any other single measure. We commend it to you.
I have taken the liberty of forwarding a copy of this letter to Margaret Beckett MP, The Housing Minister.
Yours sincerely
Phil Irving FNAEA
Finance Director, Team Association
Managing Director, Team Conveyancing
Team calls on Government to guarantee mortgages
13 February 2009
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Comments
I asked Meagan if she could get home :->
Is the whole of team going to use this forum to throw their teddys about?
Brightmove- do you always feel the need to post even when you have nothing but stupidity to add? Go play with your rubbish site.
Suggesting that the govenment provides a parachute is the same as suggesting that banks provide umbrellas in a hail storm!
Now would be great timing for the re-introduction of MIG's and I dont believe it would/should be nec for HMG to get involved anyway.
Facts is prices have already dropped most if not all of what they needed to so any new purchaser is therfore highly unlikely to generate a claim - meaning insurers would make bundles on this.
To be frank i'm bemused that they haven't already re-introduced them themselves!!??
Phil, you/we might be better served sending this suggestion directly to the insurance companies. They'll spot that it's a no brainer and will be falling over themselves to take a piece of the action!
Have been looking at this opportunity for some months now, unfortunately there is a flaw, there is absolutely no recourse/control for the taxpayer if the mortgage goes into default. However if you could use it as an investment product that invests the top 30% and pays a higher interest rate to the investor whilst having an equity stake in the property we might have a mummy and daddy deposit scheme that the government could work on.
Honourable intentions and it makes sense if the MIG's were provided through private insurance policies, but the very fact insurance companies won't risk doing them, is the very reason why taxpayers should'nt. Even if this is passed its difficult to see house prices going up with unemployment rocketing.
Well done Phil and well done TEAM. I think this idea is a breath of fresh air compared to what else has been put forward. I'm an IFA who arranges mortgages. I have clients out there looking to purchase properties but who can't get a mortgage because the loan to values are just too high and there are virtually no lenders willing to lend at these levels. This scheme would actually bring back the first time buyers onto the property ladder. lets not forget it is the first time buyers who actually drive the property market. And the property market helps to drive the economy. I think the likes of Jim, MonkeyTennis and Rebel are missing the point here. It's not about a estate agents trying to line their pockets or a bailout, the idea is to try and get the lenders lending money to the majority of people who need it i.e those with small deposits, which will then help ignite the market to start moving again. Properties are now affordable again to first time buyers, they can afford the mortgage payments, they just can't get the mortgages. The borrowers use the money they would have spent on Stamp Duty and use it to purchase a MIG policy. This will generate huge revenues which can then be used to offset the payouts on the policies that occur in the future, which in time, if prices rise again, reduces the risk on the policy. If we can get the bottom end of the market moving again then this breads confidence, soemthing that is very much lacking at the moment, and the whole eceonomy can start moving.
From the comments, it sounds like there are some who have never heard of MIGs....but soeaking as one that remembers well, sure we whinged a bit at the time but, indemnifying the lender for the top 10/15/20% of the mortgage by single premium indemnity paid for by the borrower made every sense. First time buyers with the necessary income plus 5/10% deposit could become home owners whereas we now have several years supply of would-be first time buyers on hold while they try to save more deposit and pay rent at the same time. Nobody is talking about mortgages being granted beyond people's reasonable ability to make the monthly payments.
The truth is that the return of MIGs is a damn good idea.
Jim,
You have answered your own questions. When are you closing your doors?
I'm with Jim on this one. The reason that the economy is in dire stratis is because bankers have created trillions of pounds that don't exist.Going ahead with this scheme would mean printing more money (becos weve run out) to service the demand for it. Printing money will lead to hyper-inflation whilst the economy limps on. You could have a scenario of a three bed semi worth less than a loaf of bread, as they have in Zimbabwe. To truly get a grip on whats happened I would recommend you look up fractional reserve banking or goto youtube.co.uk/debtasmoney. The government however will probably go ahead with the scheme or one similar because they are motivated by votes and dont want us all unemployed. Basically we are screwed either way and some people on here need to understand the gravity of the problem
So if its such a great scheme, then why did the insurance companies drop it? Maybe because they were paying out their own money, not someone elses. We love you Phil xx Be my valentine.
WELL DONE PHIL.
I remeber the 80's. We thought MIG's were horrid but with benefit of hindsight I realise what a useful tool they were.
Prices have become overheated but price reductions are only of any use if there is a buyer who can pay the reduced price.
MIG's are the only thing that will improve sales. Remember that the current situation in not only hurting estate agents. The knock on is only just starting to be felt.
A robust property market gives the whole country a feel good factor. Without it most of us are affected.
Remember that even at the worst point of the last cycle only a proportion of the MIG's had to be called upon.
I have no idea how many. Someone might know.
The Government would have had to inject far less in this manner than what has been spent on the VAT cut or bailing out the banks.
Scrapping Stamp Duty would be nice but the treatment needs applying where the patient needs it.
Phil,
Congratulations. It's refreshing to see a common sense idea being put to the fore. Anything that will help stimulate the housing market must be considered to the full and I know you have given this idea much thought. If the Government does its research they will realise that the risks are very low, the majority of repossessions during this recession will be 2nd home/buy to let gone wrong properties. Therefore the 'public money' payout will be considerably less than the bank/favoured businesses bail outs currently being thrown out like confetti.
Any experienced Estate Agent who worked through the last recession will remember MIGs and why they allowed the property to be sold for next to nothing - the lender was covered for any loss they sustained. They just wanted their money back. Despite paying a large premium the debtor was then chased for the difference 'owing' (that had already been paid by the Insurance company!) In short they were a great scam. Lender gets their money, mortgagee gets stiched in the first instance - premiums were high and if you wanted the mortgage you had no choice(my first mortgage was for £68k, 95%, MIG was £2k), insurance company gets lots and lots of premiums - slight catch repos went through the roof and the insurance companies had to pay out. Something they hate doing.
Here's the thing that any estate agent will honestly think. So what!!
If a scheme creates more buyers at the bottom end then the whole market will move and we'll all earn more money. I'm afraid to say that poor tax payers money doesn't go straight into my account (unlike a bank!!)I have to earn anything in there and like you all I am not earning alot at the moment.
If you have any business accrumen whatsoever you will get behind this scheme 100% and do your bit to convince this Government to do it now.
Rebel, sense at last.
Young FTB fashionistas now need to do something they have never done before - SAVE. The days of 'I want it now' have thankfully gone. Vendors still need to drop their prices (I know it's a challenge). At some point the figures will add up. A property is only worth what you can sell it for. Throwing insurance into the pot distorts the market further. These public sector credit default swaps are a non-starter. Keep this dog faeces Government out of it.
Actually, seeing how incompetent and inept this present government is, they will probably think this is a good idea.
David, explain the point I have missed or shut up. Phil "then why not HMG". It's not your money to give away. It's the taxpayers money. To suggest that anything (however small) is given to cover defaulting borrowers from the treasury is ridiculous. This includes failed businesses such as banks, although you can argue whether such a thing is in the public interest. There is a very good reason why the insurers no longer want to supply this type of insurance. It's called RISK. So you want to risk our money do you? No thanks. And please, don't start bleating on about MIRAS either. Whether there is anything wrong with the housing market depends entirely upon your perspective. If you are an estate agent, then you are simply trying to feather your own nest at the peoples' expense.
Jim seems to have missed the point that there would be a premium payable to HMRC which would result in considerable revenue at little risk if, and surely it would, this initiative stabalises the market. Well done Phil!
yes the govnt underwriting or having insurers / lenders reintroducing mig's for higher loans to values is just logical.. good working methods need to be urgently introduced to enable a massive part of the housing market & the majority of first time buyers to borrow higher loan to value mortgages ..THIS WILL HELP STIMULATE THE MARKET .. prices have reduced to a much more affordable level & interest rates are low, if property values stablized then why would n't buyers return if mortgages were available at cheap rates!!
I'm not sure who Jim is or what experience he has in the property market but I have over 40 years experience as both property lawyer and estate agent. The fact is lenders are not lending to even prudent FTB's who have a substantial deposit of say £10 or £20,000.Even at a price of £150,000 a FTB today would need a deposit of £37,500 to have a chance of a reasonably priced loan or indeed any loan at all! If the lenders could insure the "risk" factor of the loan i.e. the last 10 or 20% then they might be inclined to lend whereas at the moment they are not.If the insureres don't want to underwrite the policies, as they used to then why not HMG? This is not an original idea merely a reheating of what was normal practice in the 70's and 80's when the Building Societies Association would not allow lenders to lend above 75% without such a policy in place.
Jim, I think it goes without saying that all good agents are lowering prices where that is possible but that does not solve the problem of banks not offering high (95%) percentage loans. Paying Stamp Duty did not deter people from buying when money was readily available and conversely the temporary abolition of Stamp Duty up to £175,000 has done little or nothing to persuade buyers back, primarily because the vast majority don't have even a 10% deposit let alone 15 or 20% that some lender's require. That is why the initiative suggested by TEAM may actually help, unlike yours. And no I am not a TEAM agent!
This is effectively a property industry bailout proposal stumped up by taxpayers on top of the motor industry and banking industry. This is taking us down a path of bailing out every sector of the economy. This load the taxpayer will have to carry will bring down the whole economy in higer taxes and most likely rapid inflation from printing all this money that doesn't exist. This idea is very short-sighted. Best to feel the pain now than let it snowball later.
I have a better idea. House prices that people can afford. I'll give you a clue, LOWER prices. It's the stamp duty that puts people off moving, not this nonesense. At the moment a first time buyer pays £9000 stamp tax. NINE GRAND! Are you mad?
Silly prosposal, but McBroon likes BIG government, so wait & see...Everyone seems to be missing the point that market normality is where we are now, the 15 year boom was a perversion based on funny money. Get used to it & try to get vendors to drop their asking prices.
Whilst the suggestion of a government-backed MIG scheme may not meet with universal approval, i.e. the likes of "Jim", it may actually help to kick-start the bottom end of the housing market and therefore the rest of the market would almost certainly follow. With houses becoming more affordable for FTB's through reduced prices and low interest rates, now is absolutely the right time to introduce such a scheme in order to get transaction levels rising, afterall isn't that we all want? It may not solve all issues but at least it would help rebuild confidence amongst buyers. Jim, no doubt you have a better plan and I, along with others, would love to hear it. Over to you Jim..........
Australia also has border controls, so what.
The whole point is if you guarentee you bring confidence to the market and then you dont need a guarentee,chicken and egg stuff and about 9 months to late.....
Hit a bottom now and the damage has been done.
At least the boys at team are coming up with ideas! - Someone has to! -Actually i thought it was a good idea - In Australia the Government give or used to give First time Buyers $15,000 to help them - We can't afford to do that so why not an MIG scheme!
So what point have I missed then. "Her Majesty’s Government stands as the insurer of last resort."
Jim you have totally missed the point. Underwrite the MIG only...only payable if buyer is repossed
This is absolutely shocking. What a totally riduclous concept to expect the Treasury to underwrite mortgages for the general public. If Margaret Becket supports this iniative, I should expect her to sacked. Phil, please come up with a sensible suggestion.