Building societies advised to use MIGs

Date:Wednesday 31st March 2010
Author: Max Freedman

The Financial Services Authority (FSA) has advised building societies that if they want to offer high loan-to-value products they should use a Mortgage Indemnity Guarantee.

According to the group, they do not believe that making it compulsory for smaller societies with less well-developed credit risk management will have a detrimental effect on the market for first time buyers.

The FSA pointed out that MIGs are already being obtained and used by societies of a variety of sizes, with there being reports of several smaller firms forming consortia in order to create a climate in which MIGs are practical for them.

Mortgage Indemnity Guarantees are a form of insurance policy that is taken out by the lender in order to protect them if the borrower defaults or stops paying the loan.

The lender may insist on the loan at the start of the policy, although some have been criticised in the past if they do not explain that it is for their benefit, even though they often pass on the cost of the customer.