Mortgage Payment Protection Insurance News Articles
 

Chancellor weakens homeowners' safety net;
How could overstretched borrowers maintain mortgage repayments if they were to fall ill or be made redundant? Jeremy Gates explores the options for when the housing boom unravels
SO long as house prices keep racing ahead, homebuyers can't wait to bet their financial dreams on bricks and mortar. But beneath the record GBP 16.6 billion of home loans granted in March is an alarming statistic.
In February, first-time buyers borrowed an average GBP 71,500. A month later the figure soared to GBP 80,200 - a 14 per cent surge when annual wage inflation is two to three per cent per year and while many companies, particularly in manufacturing, telecoms and financial services, are in financial distress.
The personal finances of young homebuyers are an elastic band stretched to the limit, and it isn't only pessimists who await a painful snap. If jobs were to go as interest rates start to climb, how could overstretched borrowers maintain monthly mortgage repayments?
Nobody knows how this housing boom might unravel. Simon Burgess of independent brokers Goodfellows, which sells policies protecting homebuyers against accident, sickness and unemployment, says it is often too late to get cover when companies hit trouble.
When the Post Office announced it would be axing thousands of jobs, its soon-to-be-redundant workers with mortgages almost certainly lost the chance to arrange cover for repayments.
Employees of other firms in turmoil - Marconi, Arthur Andersen and dozens more in the financial sector - may have been in the same boat for months. Others will join them when their firms make the wrong sort of headlines.
Mr Burgess says: "If they have no savings, or no second income to buy valuable time, there is a serious risk of repossession."
The Council of Mortgage Lenders confirms the British government has weakened the safety net for homeowners who lose their jobs - thanks to reforms started by the Tories in 1995 and continued by Chancellor Gordon Brown.
The government extended from two months to 39 weeks the waiting period for entitlement to benefit help with mortgage interest payments. In doing so, it has slashed the annual cost of state help with mortgage interest payments from more than GBP 1.2 billion in 1993 to GBP 490 million in 2000.
The CML warns: "The full impact of the 1995 reforms have yet to be tested by significant economic downturn. But one of the key arguments for the reforms - the government's belief that the former benefits system was preventing the development of private insurance to cover mortgage payments - is only partially borne out by events."
Sales of mortgage payment protection insurance have grown steadily since 1998, but the CML says the take-up occurred largely because of better products, pricing and awareness, rather than because of benefit cutbacks.
Just 21 per cent of outstanding mortgages are protected by MPPI - far short of the government's stated target of 55 per cent by 2004. But more than a third of mortgages (36 per cent) taken out in the last six months of 2001 were covered by MPPI.
Recent borrowers are most likely to need MPPI because lenders allow more time to homeowners in distress if they have a substantial amount of equity in their property.
The CML survey says competition between suppliers is cutting the cost of cover - from GBP 7 per year for each GBP 100 cover to GBP 5.50 today.
In January, Nationwide Building Society announced that new borrowers taking MPPI would get it free for the first 12 months.
At the same time, The MarketPlace at Bradford & Bingley launched Payment Protection. Costing GBP 4.90 for every GBP 100 of mortgage covered, it guards against accident, sickness or unemployment - and even provides skilled advisers to help claimants find a new job.
Mr Burgess says: "Every single person who is employed should seriously consider unemployment cover, because he or she has no real control over future income stream."
Before you buy MPPI, these are the key points to check: Go to an independent provider for a quote - Goodfellow charges GBP 3.95 per year per GBP 100 of the mortgage, while Nationwide charges GBP 5.13, Abbey National GBP 5.99, Cheltenham & Gloucester GBP 7.25.
How much cover do you need? Accident, sickness and unemployment can be insured against, but Simon Burgess advises income and mortgage protection as employers with sick pay schemes may have disability dangers covered.