Simon Crone, VP - Mortgage Insurance Europe, Genworth

We spoke to Simon Crone, Vice-President - Mortgage Insurance Europe, Genworth, about high LTV lending and housing supply post-Help to Buy.

Related topics:  In The Spotlight
Amy Loddington
13th June 2014
In The Spotlight

FR: What can lenders achieve by utilising private mortgage insurance that they would not be able to do through using the Government’s Help to Buy 2 Scheme or going without any kind of insurance? 

Utilising insurance or other types of guarantee is all about mitigating risk so if you’re a lender looking to provide high LTV lending, which is naturally viewed as riskier lending, then you want to make sure you are covered should that loan go ‘bad’. Of course it’s not necessary to insure the whole of the loan but lenders opt to cover the riskier elements – so, for example, they might insure the portion of the loan between 80-95% LTV.

The Government Scheme is a sound guarantee however for many lenders it is probably too rigid. By that I mean there is little flexibility in terms of the cover and premium options available to lenders. Also, it only covers a certain type of business – it is not flexible enough for lenders wanting to lend at high LTV levels in specific niche areas. This is why lenders would use an insurer like ourselves rather than participate in the Scheme – certainly the building society sector wants this type of flexibility. In addition we offer additional support in our partnerships with lenders as we cover the whole of the UK and can bring ideas from other parts of the world.

Some lenders have obviously entered the high LTV market without any sort of cover – they are retaining the risk on their own balance sheets and this is fine to a point but we can enable these lenders to lend more of this higher margin lending. In addition many of our existing partners really appreciate our (free) independent review of their processes and lending decisions that can identify issues across all of their new lending, not just the insured portion.

FR: What can be done to help first-time buyers at a time when criteria for lending is getting increasingly tighter?

Let’s be clear. The new rules brought in by the MMR around affordability are spot on. Lenders need to be responsible for the affordability of borrowers and making sure that everyone taking out a mortgage can afford to do so is common sense.

The point, at the moment, is whether some lenders are gold-plating the rules in order to cover themselves to the nth degree and there is evidence to support that. I suspect that as time progresses, and they become more comfortable with the new systems and processes, they will relax their approach but this might take some time.

First-time buyers are probably a little confused at the moment. On the one hand we have Help to Buy and an increase in low-deposit mortgages meaning there is a better chance of them getting a home with say a 5-10% deposit. However, on the other hand affordability and other criteria has been tightened. The important thing is that we continue to support the provision of high LTV mortgages in the marketplace – we have seen big movements in this over the last 12-15 months and we must continue to support that.

FR: How important is it that the supply of high LTV mortgages continues to grow?

Very important if we want to bring first-time buyers onto the property ladder and if we want to help, for example, second steppers make the move up. I fully understand why there is nervousness around house price increases because no-one wants a bubble, and no-one wants that bubble to burst as it has done on many occasions in the past.

The fact is that the major issue is a lack of housing supply and we need to increase house-building in this country significantly. We must however be mindful that housebuilders will only commit to this increased supply if they think these properties can be sold – they need to know there will be an ongoing supply of high LTV mortgages for potential purchasers otherwise they might think it is not worth their while building these homes. We therefore need to provide some confidence to them that there will be mortgage availability so buyers can buy these properties.”

FR: Help to Buy 2 is due to finish at the end of 2016 – what could happen to the supply of high LTV mortgages if a credible exit strategy is not outlined soon?

To be completely pessimistic about it, it could drop off a cliff. While there was some high LTV mortgage availability pre-HTB, it was the Government Scheme that really kick-started greater numbers of products. Not just from those participating in the Scheme but other lenders outside the Scheme competing with those within it. Our own LTV tracker research has shown high LTV mortgage availability rising during that time and therefore we might think that when the Scheme ends, those within it will return to their strategy beforehand which was a very small appetite to lend at high LTV levels.

As stated above, we need some certainty about what happens after the end of 2016. House builders take many years to get their developments to market so they are going to need some idea of the post-HTB2 world from the start of next year. Confidence in this area will be key – we have already put forward our solution which would be that the private insurance sector shares the risk associated with HTB2 under a reinsurance agreement during the life of the Scheme and then step in after HTB.

We have already built an insurance and reinsurance market that has the capacity to transfer all the risk during the life of the Scheme and replace it going forward. It’s about taking away the taxpayer risk, moving it to the private sector, and at the same time ensuring that high LTV mortgage availability continues well into the future beyond the end of HTB2. The Government scheme is just a short-term solution to a long-term problem.

FR: If you weren’t in financial services, what would you be doing?

I would like to think I would be an engineer of some description, like my university studies in that field. Measuring dam walls, oil rigs or buildings. A world away from what I do now.

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