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House price insurance could protect home loans

New proposals unveiled as part of his 2008 Budget by the chancellor should help homeowners protect themselves better against falling property prices.

In the Housing Finance Review, the government outlines proposals to examine the possibility of developing insurance cover that is based on changes in house prices.

The review, a 93 page Treasury document, reveals that insurance against a fall in property prices would be linked to detailed house price indices and policies would pay out if the value of a property fell by more than equivalent homes in the index.

According to the Observer, the plans announced by Alistair Darling will need to take into account the need for homeowners to have cover based on an index that takes local conditions into consideration, making the system complicated to set up.

Insurance company MarketGuard revealed just after the Budget announcement last week that it is scheduled to launch the first interest-rate insurance product to provide cover against home loan repayment rises linked to the Bank of England base rate.

An estimated seven out of the 12 million mortgages in Britain are fixed rate loans and many homeowners are searching for new deals this year to replace mortgages taken out when interest rates are lower. Experts have warned that thousands of people are facing higher repayments as a result and many could struggle to keep on top of their home loans in the midst of rising energy, fuel and food prices.

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