Should mortgage insurance be mandatory for first-time buyers?

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Economist Jim Power, commenting on the Irish mortgage market, has suggested that mortgage insurance should be compulsory for first-time buyers in Ireland.

In an October 2016 Irish Independent article, Power argues that if mortgages payments were insured then this would result in lenders offering higher loan-to-value loans because an insured loan is less risky. Many first-time buyers who could afford the mortgage payments are prevented from purchasing houses because they do not have the high deposits that lenders require.

Power wants banks to lend 90% mortgages to first-time homeowners. If more homes were sold to first-time buyers, Power claims that this would result in a fall in property prices, which would then encourage more first-time buyers to enter the property market.

Though Power was looking specifically at the Irish housing market, his reasoning could be applied to the UK sector as well. The government’s Help to Buy scheme does insure the lender for some of the mortgage risk in high loan-to-value loans, but this scheme will end at the end of the year.

In the USA, any lender offering a loan of 80% or more of the home’s purchase price is required to include mortgage insurance, but this is not mandatory in the UK.

All lenders, whether they are first-time buyers or not, can take out mortgage protection insurance to cover mortgage payments if they are off work through sickness or an accident. Some insurance policies will also pay out in the case of redundancy.

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