MIGs become more commonplace in Spain

Mortgage Indemnity Guarantees (MIGs) were widely used in the UK a decade ago to safeguard lending at high loan to value (LTV). They still exist in the UK to a certain extent although lenders now have to make it very clear that the premium protects the bank and not the customer due to widespread criticism in the press. It would seem that Spain is again lagging behind the UK in terms of its mortgages and has now chosen to adopt MIGs on a wider scale to protect against defaulters, particularly non-residents.

A number of Spanish banks have made recent moves to tighten up their non-resident lending to protect themselves against fraudulent applications. Many are now double and triple checking documentation, some are registering a non-resident loan granted in Spain back in the UK on the client’s credit file whilst others have opted to introduce MIGs. One such bank is Banesto, part of the Santander group.

As of earlier this year Banesto had withdrawn all of its own non-resident lending via intermediaries and was only offering foreign applicants (non-resident) a self-certification loan which they are administering on behalf of GMAC, but they now offer an alternative. This alternative includes asking clients to pay ‘an insurance’ (in Banesto’s words) otherwise known as a MIG. Banesto is not the only one, other banks in Spain are now using MIGs, SolBank, Barclays and Bancaja included.

A MIG is basically an insurance policy designed to protect the lender (the bank) against loss in the event that the customer defaults on their payments and the mortgage falls into arrears. The policy is issued at the start of the loan and usually based on a percentage of the amount borrowed, often 1 – 2%. The higher the amount borrowed, the higher the percentage.

Even though the MIG protects and is for the benefit of the bank, not the applicant, it is the client that pays the premium, and this is the reason that they came under such criticism in the UK a decade ago. For loans for up to 80% LTV, 80% of the banks in the UK who apply a MIG now pick up the cost of the premium themselves and at 90% LTV or above, 30 – 40 % of the banks pick up the cost themselves. Most brokers will avoid banks that still insist that the client pays for the MIG premium themselves.

IMS is sure that in the fullness of time that the banks in Spain will receive similar criticism on who makes the payment of the premium as they are also being used in their resident market by lenders such as Banco Halifax and Barclays.

For more information, visit imsmortgages.com.