Paymentcare warns of consumer vulnerability

Amanda Jarvis

March 21, 2006

Paymentcare blames the high cost of bank mortgage payment protection insurance (MPPI) for homeowners becoming increasingly exposed by not taking out the policy.

According to recent figures from the Council of Mortgage Lenders, the number of properties taken into possession by mortgage lenders leapt by 70 per cent in 2005 compared to the previous year, with a total of 10,250 keys being taken back by lenders.

Also up by 11 per cent over 2004 is the number of mortgages in arrears of between three-six months, and the rising incidence of household debt also casts a worrying spectre over the ability of many homeowners to keep up with mortgage repayments.

Shane Craig of Paymentcare, said: “The situation gives cause for concern as so few homeowners have taken out any protection for their mortgages to cover them if they have an accident or are sick or lose their jobs.

“Research by money charity Advice UK shows that mortgage borrowing accounts for 83 per cent of consumer borrowing, yet MPPI is only taken out by 17 per cent of mortgage holders.

“Advice UK has concluded that this is an ‘unacceptable imbalance, as above all other loan commitments, mortgage repayments should be prioritised for protection,’ – but it’s perverse, when you consider the level of penetration that lenders achieve on the sales of single premium PPI for personal loans, compared to that of the level of sales for monthly paid MPPI products.”

The Advice UK report points out that MPPI bought through mainstream lenders is up to 70 per cent more expensive than that offered by cheaper brokers such as Paymentcare.

Craig added: “At present, all MPPI offerings look like they are being tarred with the same brush, as homeowners appear to take the view that cover is only available at rip off prices set by the major lenders.”

Major job losses announced in recent days – Boots and Stoke on Trent NHS accounting for well over 3,000, for example – will also be of concern to homeowners. Under current government guidelines, homeowners with at least £8,000 in savings will not qualify for benefits to cover mortgage payments.

The Bank of England also warned that a growing number of families are putting their homes at risk by extending their mortgages to pay off other debts many opting to lump all their debts – typically credit cards and loans – onto their mortgages.

About a quarter of the people who extended their mortgages last year admitted that the main reason was to pay off other debts.

Iain Macqueen Sims, director of consumer debt consultants Omnicheck, said consumers expose themselves to further problems by not taking out MPPI – but that the banks and building societies were guilty of alienating borrowers because of the high price of cover.

“Consumers need to be more aware of the benefits of going through a low cost, independent provider – until then, they will continue to be vulberable,” he said.

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