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Negative equity insurance touted

Monday 17th March 2008

The latest edition of the Housing Finance Review looks to put in place protection for UK homeowners facing the risk of a fall in house prices.

Under the proposals outlined in the document is the possibility that Britons could take out a policy to ensure they are not negatively impacted by a slump in the market.

Such insurance is listed among the "innovative products" which could be introduced, alongside suggestions such as index-linked mortgages.

These could help to minimise the effect of any adverse changes in inflation and would "flatten repayment profiles", HM Treasury explains.

But for those facing the possibility of a house price crash following recent turbulence in the credit markets, the option of insuring against such an eventuality might be more appealing.

HM Treasury warns, however, that any new products introduced could present a greater level of difficulty than those already available.

The review states: "These innovative mortgage products could help some borrowers better manage the financial risks associated with mortgages.

"However, these products usually involve an extra degree of complexity and will not be suitable for everyone."

In July 2007, the Housing Green Paper published by the Department for Communities and Local Government called for more sustainability in the property sector.

Housing minister Yvette Cooper wrote in the paper of a need for more widespread affordability among UK consumers.

"Too many young couples are still struggling to get that first step on the housing ladder," she observed.

In order to assist all residents, she recommended a focus on affordable mortgages - which could include those with repayments which take place over a longer term than has historically been the case.©

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