Mortgage deposits, a suggestion

[andrewducker]

Ok - so the reason for deposits when you buy a home is so that, if the value of the home goes down, the bank doesn't lose any cash. Which sucks for people that could afford to pay a mortgage, but don't have oodles of savings.

So, one suggestion I just saw was that instead banks could insist on insurance for the value dropping by up to (say) 10%. If you can afford the 10% deposit, then you're fine, otherwise you're paying a little more on top of the mortgage to cover the bank against the risk of lending to you.

Is there a massive flaw in this plan? I mean, obviously it's unfair on people who earn less or don't have rich family to give/loan them deposits. But other than that?

Comments

[pseudomonas]

Are insurers likely to offer such a policy? One good crash in house values and they'd have problems underwriting it.

[ironjeff]

Here in the US, we have "Private Mortgage Insurance" for borrowers who can't come up with the (typically) 20% down. There are also a variety of government backed mortgage programs that also serve to insure the mortgage holder against that 20%.