Mr. Joe Leddin:

I thank the committee for inviting us here. I am here with my colleague, Mr. Stephen Rance, from our London office. I work with JLT, which advises companies and governments on insurance matters across 135 countries. Our expertise in the construction sector has led to our becoming the largest construction insurance broker in the world. The Irish housing market is not functioning effectively. As a company that advises globally, we believe the solution is relatively simple. The key issue is risk and how it is regulated. Nobody wants to return to the housing bubble. The current mechanism for regulating risk in the market, particularly the proposed mechanism that most borrowers, unless privileged, would have to provide a 20% deposit, is too crude an instrument and would serve to exacerbate the problems already evident. There is an alternative. Rather than reducing risk by restricting first-time buyers' access to the market, one could insure against the risk. The remedy is to introduce a mortgage indemnity guarantee scheme which would protect the banks against the risk of loss in the event of a fall in house prices.

Most of the people who will address the committee today will suggest, as we do, that the solution is an insurance product. The question is who should carry the cost. Under the system we propose, there would be no cost to the State. The bill would go to the banks, which would pay a once-off premium to insure against a fall in house prices of up to 30%. Mortgage indemnity guarantees, MIGs, are being considered by the Central Bank, which, last month, suggested that people buying a house from a bank with a MIG in place could be exempt from the proposed 80% LTV restriction. The Central Bank's principal concern is that such products be provided by highly-rated companies. We agree, and would go further, suggesting all MIGs should be provided not by one company but by a pool of companies, all of which have an minimum credit rating of A. The key point is that pooling reduces the risk even further. Equally, such A rated plus insurers should be in a number of markets, not depending solely on mortgage risk.

Under current proposals for dealing with the issue of mortgage risk, namely, the LTV restrictions, the banks would be fully liable for the first 80% of the value of the property.

If MIGS were implemented as we are proposing this would see banks exposed only to the first 70% of the value of the property. Aside from providing greater risk cover to the banks operating in the Irish market and doing away with the need for young house-buyers to come up with 20% deposits, MIGS would also provide a very valuable but very simple regulatory tool to the Central Bank. By setting the level of MIGS in the market the Central Bank can effectively ease or restrict access to the housing market. One could think of MIGS as being the Central Bank's thermostat.

In advance of addressing the committee today, JLT has held detailed discussions with the Construction Industry Federation, the banks and equity funds looking at the Irish market. All are agreed that MIGS would act as a very effective stimulus to the new homes market. In particular, the companies, including banks, which fund builders, have told us that the introduction of MIGS to the Irish market would greatly free up the availability of finance to Irish builders. In every other country where MIGS were introduced, they have served to facilitate credit flow to builders. I do not wish to prompt a detailed discussion about the banks' capital requirements but under BASEL rules the introduction of MIGS would relieve the capital requirements on Irish banks.

MIGS have already been considered by the Irish Central Bank would remove the need for first-time buyers to come up with onerous deposits. They would significantly reduce the risk to banks operating in the Irish mortgage market; they would reduce the risk to the Irish economy of an overheating of the property market; they would give the Central Bank a very effective tool to restrict or promote access to the market place. This would allow banks to pass on the savings to customers which come from reduced risk. If 100% of the savings were passed on directly, we believe the average mortgage rate in the Irish market could fall by up to 2%. MIGS would provide an immediate proven boost to builders, particularly those building for the new home and rental markets. All of the above would be at no cost to the Exchequer, as all costs would be borne by the market.