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I'm searching for an insurance policy to protect against negative equity on a residential real-estate.

The risk I'm trying to protect against is that house prices will fall.

I'm looking for something like this: https://www.professionaladviser.com/ifaonline/news/1321187/brokers-offer-insurance-negative-equity

Homeloan Partnership (HLP), the mortgage network, has signed a deal with Equity Protection Policy (EPP) which would give homeowners access to a new insurance product which protecting them against a sudden fall into negative equity.

But I cannot find the policy on their website: https://www.hlpartnership.co.uk/ 🤔

This is especially true with Help to Buy (assume this question is located in the United Kingdom):

  • access to cheap credit, pumping the prices
  • properties are by definition newly built, therefore there is no opportunity for improvements to increase the value

Background, definitions (not really a core question)

Definition on the wiki: https://en.wikipedia.org/wiki/Home_equity_protection

The protection is for a new or existing homeowner that wishes to protect the value of their home from future market declines.

When searching for negative equity, I get plenty of results but not a single mention of an insurance product:

It’s estimated that there are around half a million properties in negative equity in the UK, although some areas are affected far more than others.

Clearly such term exist, it is well defined.

UK House Price Index shows that prices go up and go down:

enter image description here

http://landregistry.data.gov.uk/app/ukhpi/browse?from=1969-05-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2019-05-01

Somoeone asking on the forum: Where Can I Get Insurance Against House Price Falls?

https://www.housepricecrash.co.uk/forum/index.php?/topic/31514-where-can-i-get-insurance-against-house-price-falls/

Can you get insurance against the value of your stock portfolio falling, or the price of gold dropping?

Well, you can, various financial products, derivatives, futures, options. I'm not an expert, just playing bullshit bingo.

Big Short

enter image description here

https://youtu.be/Q89eZka94NU?t=45

My one concern is that when the bonds fail... I want to be certain of payment in case of solvency issues of your bank.

How can I get such insurance?

EDIT / UPDATE: Seems like I've been downvoted. I understand the question includes background, definitions (not really a core question) but there is a reason to provide background information, so that you can better understand the situation and correct any potential mistakes.

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    Seems like this is asking for a product or service recommendation. Such questions are off topic.
    – Robert Longson
    Jun 30, 2019 at 13:07
  • I think it's more asking for general advice on how to get that kind of product, rather than a specific recommendation. It's very long and hard to follow though.
    – GS - Apologise to Monica ♦
    Jun 30, 2019 at 13:21
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    Like too many articles on the web, the first one you reference (announcing the availability of the product) isn't dated. However, towards the end it says "but it [is] only available through HLP intermediaries, who formally started trading under the network on 1st October 2001". If the announcement/product was from prior to 2008, then events of that year probably killed it as a viable product (as you say, there is no mention of it on their website). Even if it was later, the assumption must be that it is no longer (if ever) a profitable product.
    – TripeHound
    Jul 1, 2019 at 7:36
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    As this popped back onto the top page, see also How can one hedge against property price change when buying a home? (which I just found while looking for "a similar question I'd commented-on", but before realising it's the comment above I was remembering!). The accepted answer includes a link to the paper Home Equity Insurance which proposes such a scheme. A comment to that answer notes that the few companies that did offer such schemes no longer do.
    – TripeHound
    Dec 12, 2019 at 9:12
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    It’s not something you can insure against, and never will be. Insurance companies rely on a few people claiming every year, with the costs of those claims more than offset by the premiums paid by the majority who don’t claim. But house prices are highly correlated with each other, so everyone claims at once in a year when they fall, and the company goes bust.
    – Mike Scott
    May 10, 2020 at 5:51

1 Answer 1

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Such a product does not exist in the insurance industry because the product you describe is not insurance, you are describing an option. Effectively, you want to purchase the right to sell your house at the price you paid or greater.

To simplify, insurance is protection against scenarios in which there is downside only, such as someone stealing something for you or being held liable for damage that occurs. If you were to purchase the product you describe, you could also experience a major upside if your house doubles in value and that makes it an investment.

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  • I think put options are pretty similar to insurance, all things considered.
    – Daniel
    Jan 10, 2020 at 19:37
  • They are not because you cannot be "in the money" on insurance contracts.
    – Ben
    Jan 10, 2020 at 20:28
  • Why do you say that? If my house burns down and I get an insurance payout for the value of my house isn't that equivalent to being "in the money"?
    – Daniel
    Jan 10, 2020 at 21:08
  • I don't see why the product described by the OP would be conceptually much different from any other homeowner's insurance policy. Except, instead of paying out due to the property losing value because of physical damage, the policy pays out when the property loses value for any reason.
    – Daniel
    Jan 10, 2020 at 21:12
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    Critical part of this difference is that rebuild costs are much easier to define and hedge for than land values. In major cities the land value can be over 80% of the value of a house and immensely volatile depending on the fashion of the neighbourhood. This is very high risk for an insurer as the land value moves fast and often in a very correlated way (houses don't all burn down at the same time, land values do), but also because its impossible to hedge unlike stock options, as there is no clean way for the insurer to short or buy the underlying.
    – Philip
    May 11, 2020 at 9:14

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