What is Mortgage Insurance UK? Complete Guide for Homebuyers
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Mortgage insurance is a term that confuses many UK homebuyers. Unlike buildings or contents insurance, mortgage insurance (also called mortgage indemnity guarantee or MIG) is designed to protect the lender, not you. This comprehensive guide explains what mortgage insurance is, when you need it, how much it costs, and strategies to avoid or remove it.
đź“Ś Quick Answer: What is Mortgage Insurance UK?
Mortgage insurance (Mortgage Indemnity Guarantee or MIG) is insurance that protects the lender if you default on your mortgage and the property sale doesn't cover the outstanding loan.
- It protects the lender, not you—you still lose your home if you can't pay
- Typically required for high loan-to-value (LTV) mortgages, usually above 80-85%
- You pay the premium, but the lender is the beneficiary
- Not all lenders charge it—some build the cost into higher interest rates instead
What is Mortgage Insurance (MIG)?
Key Points:
- Mortgage insurance is an insurance policy that protects the lender against losses if you default on your mortgage
- If you can't pay and your home is repossessed and sold for less than you owe, the insurance covers the lender's shortfall
- You pay for the insurance, but you receive no benefit from it
- It's different from buildings insurance, contents insurance, or life insurance
- Also known as Mortgage Indemnity Guarantee (MIG) or Higher Lending Charge
When is Mortgage Insurance Required?
Mortgage insurance is typically required when you're borrowing a high percentage of the property's value.
Common Thresholds:
- 80% LTV or below: Mortgage insurance rarely required
- 80-85% LTV: Some lenders may require it
- 85-90% LTV: More lenders require it
- 90-95% LTV: Most lenders require it or build the cost into rates
Note: Each lender has different policies. Some don't charge mortgage insurance at all, whilst others have different LTV thresholds.
Who Typically Needs Mortgage Insurance?
- First-time buyers with small deposits (5-15%)
- Home movers with limited equity from their previous property
- Those remortgaging with high LTV ratios
- Buy-to-let investors with smaller deposits (though rules differ)
How Much Does Mortgage Insurance Cost?
The cost of mortgage insurance varies significantly between lenders and depends on several factors.
Factors Affecting Cost:
- Loan-to-Value Ratio: Higher LTV = higher cost
- Loan Amount: Larger loans typically mean higher premiums
- Lender's Policy: Each lender calculates costs differently
- Property Type: Some property types may attract higher premiums
- Your Credit History: May influence the premium in some cases
Typical Costs
Mortgage insurance premiums can range from a few hundred pounds to several thousand pounds, depending on the factors above. The premium is usually:
- A one-off payment added to your mortgage
- Or paid upfront when you take out the mortgage
- Calculated as a percentage of the loan amount above a certain LTV threshold
Mortgage Insurance vs Other Types of Insurance
It's important to understand how mortgage insurance differs from other types of insurance you might need.
Buildings Insurance
Purpose: Protects the physical structure of your property
Beneficiary: You (and your lender has an interest)
Required: Yes, by all mortgage lenders
Covers: Damage to the building from fire, flood, storms, etc.
Contents Insurance
Purpose: Protects your possessions inside the property
Beneficiary: You
Required: No, but highly recommended
Covers: Theft, damage to furniture, electronics, clothing, etc.
Life Insurance / Mortgage Protection
Purpose: Pays off your mortgage if you die
Beneficiary: Your family/estate
Required: No, but recommended
Covers: Outstanding mortgage balance upon death
Mortgage Payment Protection Insurance (MPPI)
Purpose: Covers your mortgage payments if you can't work
Beneficiary: You
Required: No
Covers: Mortgage payments during unemployment, illness, or injury
Mortgage Insurance (MIG)
Purpose: Protects the lender if you default and property value doesn't cover the loan
Beneficiary: The lender (not you)
Required: Sometimes, for high LTV mortgages
Covers: The lender's losses, not your home or payments
How to Avoid Mortgage Insurance
There are several strategies to avoid paying mortgage insurance.
1. Increase Your Deposit
The most straightforward way to avoid mortgage insurance is to put down a larger deposit, reducing your LTV ratio below the threshold where mortgage insurance is required (typically 80-85%).
2. Choose a Lender That Doesn't Charge MIG
Not all lenders charge mortgage insurance. Some lenders:
- Don't charge MIG at all, even for high LTV mortgages
- Build the cost into slightly higher interest rates instead
- Have different LTV thresholds for when MIG applies
Understanding which lenders might suit your circumstances can help you find one that doesn't charge mortgage insurance.
3. Use a Guarantor
Some lenders offer guarantor mortgages where a family member guarantees your mortgage. This can sometimes help you avoid mortgage insurance, though the guarantor takes on significant risk.
4. Consider a Joint Mortgage
Buying with a partner or family member increases your combined income and deposit, potentially reducing your LTV ratio below the MIG threshold.
5. Look for First-Time Buyer Schemes
Some government schemes and lender programs for first-time buyers may help you avoid mortgage insurance or reduce the cost.
đź’¬ Want to Avoid Mortgage Insurance?
We can connect you with FCA-regulated mortgage advisers who can identify lenders that don't charge mortgage insurance and find the best options for your circumstances.
How to Remove Mortgage Insurance
If you're currently paying mortgage insurance, you may be able to remove it by reducing your LTV ratio.
Ways to Reduce Your LTV Ratio:
1. Make Overpayments
Regular mortgage overpayments reduce your outstanding balance, improving your LTV ratio. Learn more about overpaying your mortgage.
2. Wait for Property Value to Increase
If property values in your area increase, your LTV ratio improves automatically without you paying down the mortgage.
3. Remortgage When Your LTV Improves
Once your LTV ratio drops below the threshold (typically 80-85%), you can remortgage to a product without mortgage insurance.
4. Make Home Improvements
Improvements that add value to your property can increase its value, improving your LTV ratio.
⚠️ Important:
If you paid mortgage insurance as a one-off premium added to your mortgage, you won't get a refund when your LTV improves. However, you can remortgage to a product without MIG, and you won't have to pay it again.
Is Mortgage Insurance Worth It?
This is a complex question because you don't have a choice if your lender requires it. However, understanding the value helps you make informed decisions.
Key Points to Understand:
- Mortgage insurance protects the lender, not you
- If you default, you still lose your home
- You still owe any shortfall after the property is sold
- The insurance doesn't help you keep your home or make payments
- You're paying for protection that benefits the lender
However, mortgage insurance does serve a purpose in the market:
- It allows lenders to offer high LTV mortgages with less risk
- This means more people can buy homes with smaller deposits
- Without it, lenders might not offer 90-95% LTV mortgages at all
- It's often cheaper than waiting years to save a larger deposit
Frequently Asked Questions About Mortgage Insurance
Do I have to pay mortgage insurance?
Only if your lender requires it, which typically happens with high LTV mortgages (usually above 80-85%). Not all lenders charge it, so shopping around can help you avoid it.
Can I cancel mortgage insurance?
If you paid a one-off premium, you can't cancel it or get a refund. However, when you remortgage and your LTV has improved, you won't have to pay it again on your new mortgage.
Is mortgage insurance the same as buildings insurance?
No. Buildings insurance protects the physical structure of your property and is required by all lenders. Mortgage insurance protects the lender against losses if you default.
Do all lenders charge mortgage insurance?
No. Some lenders don't charge mortgage insurance at all, even for high LTV mortgages. Others build the cost into slightly higher interest rates instead of charging a separate premium.
Can I add mortgage insurance to my mortgage?
Yes, most lenders allow you to add the mortgage insurance premium to your mortgage loan rather than paying it upfront. However, you'll pay interest on it over the life of your mortgage. Learn more about adding fees to your mortgage.
What happens to mortgage insurance if I sell my home?
If you paid a one-off premium, it's gone—you won't get a refund. The insurance was for the lender's protection during that specific mortgage, and it doesn't transfer to your next property.
Important Information and Disclaimer
This guide provides general information about mortgage insurance in the UK and is not financial advice. Your individual circumstances should guide your decisions.
When you request mortgage advice through our website, we connect you with FCA-regulated mortgage advisers who can help you understand your options. By submitting an enquiry, you consent to us passing your information to an FCA-regulated firm for the purpose of providing you with mortgage advice.
We may receive a commission from the FCA-regulated firm we introduce you to, but we do not charge you any fees for this introduction service. Your information is handled in accordance with our privacy policy, and we do not sell your data to third parties.
For full details, please read our disclaimer page.
Key Takeaways: Mortgage Insurance UK
- Mortgage insurance (MIG) protects the lender, not you—you still lose your home if you default
- Typically required for high LTV mortgages, usually above 80-85%
- You pay the premium, but the lender is the beneficiary
- Not all lenders charge it—some build the cost into higher interest rates instead
- Cost varies based on LTV ratio, loan amount, and lender policy
- Different from buildings insurance, life insurance, or mortgage payment protection
- Can be avoided by increasing your deposit, choosing a different lender, or using a guarantor
- Can be removed by reducing your LTV ratio through overpayments or property value increases
- If paid as a one-off premium, you won't get a refund when your LTV improves
- Understanding which lenders suit your circumstances helps you avoid mortgage insurance
Whether you're a first-time buyer in Essex or remortgaging your home, understanding mortgage insurance helps you make informed decisions and potentially save money by choosing lenders that don't charge it.
