It suggested that the industry should be urging government to insist borrowers take out a minimum level of protection to be eligible for it.
The scheme is a key part of the coalition’s housing strategy and will see the government underwrite mortgages up to 95% LTV on new build properties.
However, the government and home builders could be liable for losses in the event that a home is repossessed and sold at a loss.
Pacific Life Re believes that, given the risks to the public purse, compelling a minimum level of income protection and possibly unemployment cover would be a fair trade-off.
David Heeney, chief marketing officer at Pacific Life Re, told Mortgage Solutions’ sister title COVER he was intrigued by the scheme.
“This looks an interesting initiative although not without its practical challenges,” he said.
“The obvious risk is that borrowers will be unable to keep up repayments (particularly if interest rates rise at some point in the future).
“One way or another, this risk will largely be borne by taxpayers.
“Surely we should be lobbying for borrowers to be required to take out a minimum level of income protection, and perhaps also unemployment cover, to be eligible for this scheme?” he added.
The possibility of protection being made compulsory was raised earlier this year by PruProtect and prompted a spirited debate.
