The Intermediary – October 2026 - Flipbook - Page 12
RESIDENTIAL
Opinion
Could this help
solve the deposit
problem?
T
he UK mortgage
market is moving
toward higher loan-tovalue (LTV) lending,
as lenders search for
ways to reduce the
deposit barrier without abandoning
responsible underwriting.
That raises a broader question: what
if part of the risk in high-LTV lending
comes not simply from low borrower
equity, but from concentrating both
borrower and lender exposure in the
price performance of one property?
Home Diversification is designed
around that problem. The homeowner
continues to own the property, but
exchanges the home’s individual price
performance for the performance of a
diversified housing benchmark.
If the property outperforms the
benchmark, the excess appreciation
is exchanged. If it underperforms,
the homeowner receives an offseing
benefit relative to the benchmark.
The objective is not to eliminate
national housing-market risk. It is
to reduce property-specific and local
concentration risk.
The most damaging mortgage
outcomes tend to occur when
borrower financial stress coincides
with deep negative equity.
Diversification can reduce exposure
to extreme individual property
underperformance.
The underlying concept was
originally tested using more than
one million Freddie Mac mortgages
originated between 1999 and 2020
in research we published in 2022.
That study established the empirical
foundation for the proposition that
diversifying individual-home price
risk can materially alter mortgage
credit outcomes.
Since publication, the credit
framework has been substantially
10
The Intermediary | October 2026
updated. The current internal model
begins with an estimated 25 basis
points of annual expected loss for
a well-underwrien zero-down
mortgage before Home Diversification
or the structure’s additional credit
protections. It then applies an
82.5% reduction in expected loss
aributable to Home Diversification.
That assumption is calibrated to the
original mortgage-loss model and
is independently consistent with
housing market research showing
approximately 14% annual volatility
for an individual home versus roughly
2% to 3% for aggregate housing.
Aer additional modeled credit
effects associated with a liquidity
advance against the homeowner’s
position and creditor-directed
treatment of positive selement value
in foreclosure, the current framework
produces estimated annual expected
loss of approximately 3.25 basis points.
That is a modeled estimate, not an
independently validated actuarial
result, and a lender would need to
recalibrate the framework using UK
borrower, mortgage and house-price
data. But if independent analysis
confirms anything close to that level
of performance, the implications for
high-LTV lending could be significant.
The obvious consumer benefit is
the deposit. A structure capable of
materially reducing the credit risk
of very high-LTV lending could
potentially support mortgages
with much smaller deposits, or
eventually no deposit at all, while
preserving normal affordability and
underwriting standards.
The case may also extend beyond
first-time buyers. Borrowers with
substantial savings may prefer to
preserve liquidity, while homeowners
generally may value protection against
severe property underperformance.
MARC BIRON
is co-CEO at Home Diversification Corp
STEVEN SIEGEL
is co-CEO at Home Diversification Corp
Mortgage intermediaries could
play a central role. This is not a
product that can be explained
solely through a rate comparison.
Borrowers would need to understand
how the benchmark works, what
happens when their property
outperforms or underperforms, and
how the structure operates at sale or
refinancing.
That creates an important role
for intermediaries in explaining the
trade-offs and helping borrowers
determine whether the product is
appropriate.
But distribution comes aer
product creation. The larger question
is who will build the UK version.
A workable structure would
require a lender or building society,
appropriate servicing and technology,
clear consumer disclosures, funding
or capital-markets support, and
a defined regulatory and legal
framework.
The logical route may be a
controlled pilot involving a lender, a
selected intermediary network and
conservative underwriting.
The UK already has the ingredients
for serious evaluation: a persistent
deposit problem, renewed interest
in high-LTV lending, a strong
intermediary market and growing
regulatory aention to mortgage
innovation. What is missing is
an institution prepared to test
the concept. ●
