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Abstract
This article examines the interrelationship of the U.K. residential mortgage and insurance industries and mechanisms for mortgage repayment and considers the products supplied by the insurance industry to mortgage lenders, concentrating on mortgage indemnity guarantees. The relationship between the mortgage and insurance markets in the United Kingdom is closer and more complex than in any other country, but it has recently been strained by the likelihood of realignment.
Much of the stress in these markets stems from the mortgage indemnity guarantee market. Due to the recent large‐scale defaults by borrowers, house price deflation, lenders’ failure to comply with their policies, and restrictions on the amounts lenders can collect after defaults highlight the need to price correctly for credit going forward. New strategic alliances will likely emerge between lenders and new parties, but the precise shape of the markets cannot yet be predicted.