Future Mortgages has called for the industry to review its use of mortgage indemnity guarantees (MIG).
It warned that MIG can add thousands of pounds to the cost of a mortgage, financially stretching borrowers while they receive no benefit from the policy.
Brian Pitt, sales and marketing director of lender Future Mortgages, said: ‘With house prices nearly 20% higher than this time last year, there is a serious affordability issue to be addressed.
‘Customers attempting to enter the housing market may have a healthy deposit amount, but with spiralling house prices the relative value of their deposit is much lower. As a result, more first-time buyers are falling into higher loan-to-value bands and are facing additional MIG payments.’
He added: ‘It has long been argued that it is inappropriate for borrowers to pay for an insurance that does not offer them any protection. With all the recent talk of mortgage regulation it seems prescient to call upon the industry to review its use of MIG as well.’
Steve Hoare, managing director at mortgage network HomeLoan Partnership, agreed: ‘I am not convinced lenders need MIGs at the moment, even a small deposit involves quite a lot of equity with prices where they are now. A number of lenders are lending on affordability, looking at basic income not multiples, they are stretching income multiples and want to secure the loan, so they can’t lose out.
‘MIG is becoming rarer, but it will sit on the back burner as an option for many lenders if it looks like house prices might drop and negative equity raises its ugly head again.