Mortgage insurance scheme allowing home owners to borrow more may be shelved.

A Government plan to introduce a mortgage insurance scheme to protect banks and allow home buyers to borrow more appears to have been shelved.

Yesterday Mr Noonan said such a scheme could have “a contributory role” to play in delivering an affordable and sustainable housing market, but said the Central Bank’s new mortgage caps are designed to achieve that objective.

The plan would see the Government or private insurers guarantee parts of some mortgages.

In May, Mr Noonan said he thought a temporary scheme for first-time buyers purchasing new houses would be a good idea, and that the Government was hoping to include it in the last Finance Bill.

The Central Bank has warned against introducing mortgage insurance, which would shift risk from banks to insurers.

“From a macro-prudential perspective, mortgage insurance does not remove the risk of a systemic crisis, but shifts this risk from the lenders to the insurers. If this risk is concentrated in a small number of mortgage insurers, or in a State-owned insurer, this could increase the systemic problems in the underlying market,” senior economist Niamh Hallissey wrote.

“This is particularly the case where the insurers are domestic, and the risk and accompanying liability remains within the State.”

The Oireachtas Finance Committee has been examining whether mortgage insurance should be introduced here. Industry experts told the Committee that they were concerned the price of the insurance would be passed on to consumers.