London: Loans to UK first-time homebuyers could double if insurers offered protection to banks against borrowers defaulting, according to Lloyds Banking Group, the UK's largest mortgage provider.

"There's been a lot of conversation recently about mortgage indemnity and whether it's a way to manage the transference of risk," said Stephen Noakes, commercial director for mortgages at London-based Lloyds. "You could be missing an opportunity to double the first-time buyer market."

New home sales have suffered after banks reined in lending in the financial crisis and demanded larger deposits as a percentage of a property's value, excluding many first-time buyers. Homebuilders, some of which offer their own lending plans to aid customers, say the government should persuade banks and insurers to do more to boost mortgages.

Mortgage indemnity insurance involves a lender purchasing protection against a buyer who defaults on payments and has a home repossessed. If the property is sold for less than the amount outstanding on the loan, the bank can make a claim for part of its loss.

"We need a mortgage indemnity guarantee," Mike Farley, chief executive officer of Persimmon Plc, Britain's No 3 homebuilder by volume, said in a March 1 interview. "It was in place many years ago and we need to reinstate it so we're able to offer and underwrite mortgages at 90 and 95 per cent levels."

Michael Coogan, director general of the Council of Mortgage Lenders, said he encouraged Housing Minister Grant Shapps at a February 15 meeting to promote "a more active mortgage insurance market" to help lenders reduce the risk of higher loan-to- values.

Banks curbed lending after mounting losses and plunging asset values forced several to accept UK government bailouts. The state ended up with a 41 per cent stake in Lloyds after a taxpayer-financed rescue. Loans for 95 per cent to 100 per cent of a property's value were common before the UK housing market collapsed in 2008. Banks are asking for as much as 25 per cent, according to a presentation by Barratt Developments, the UK's biggest homebuilder by volume.

Approvals

Mortgage approvals rose to 46,967 in February, the most since November, the Bank of England said last week. That's still only about half the average level recorded over the last decade. Approvals for first-time buyers have fallen more than 50 per cent since 2006, to 194,600 last year, according to CML data. They peaked at 612,700 approvals in 1986. The average age of a person buying their first home has risen to 37 from 33 in 2007, the National Housing Federation said.

"We're looking for the government to help us create an industry solution," Bovis Homes Chief Executive Officer David Ritchie said in an interview. "We're not short of houses to build. We're short of customers. Capacity in our industry could step up significantly."

Bovis pays Barclays Group Plc's insurance to reduce the bank's risk under "The Perfect 10" product for first-time buyers. Previously, lenders have been protected for around 15 per cent of the value of the loan if a repossessed home is sold at a loss, Ritchie said.

Jubilee Insurance, a Lloyd's of London insurer which provides mortgage indemnity coverage for homebuilder Taylor Wimpey Plc, said that others may add similar products.

"There certainly is some interest from the house builders in trying to club together with a group of lenders," Jubilee mortgage underwriter David Swan said in an interview. "We're not going to go from one mile an hour to 60 miles an hour in a straight line."

Mortgage indemnity insurance was "commonplace" in the UK until the early 1990s, when a recession led to increased claims and rising rates from insurers, CML spokeswoman Jayne Chichester said in an e-mail. "It eventually fell out of favour and is rarely used nowadays," she said.

John Franklin, a spokesman for Aviva Plc, said the insurer doesn't have any plans to offer mortgage indemnity insurance. Helene Barnes, a spokeswoman for Axa SA, declined to comment. Royal Bank of Scotland Group Plc spokeswoman Erica Nelson said "It isn't general insurance and we're not likely to become more than a general insurer."

Aviva, Axa and RBS are the three biggest UK non-life insurers according to the Association of British Insurers.