Huge variations in payment protection insurance and mortgage payment protection insurance premiums
MORTGAGE FINANCE GAZETTE - 1ST JULY 2007
The differences in prices customers pay for payment protection insurance and mortgage payment protection insurance have been highlighted by separate research from British Insurance and MoneyFacts.
British Insurance contacted ten of the UK’s top lenders and found that, on average, consumers are paying £7,119 more than necessary on a £100,000 mortgage with monthly repayments of £700. The most expensive lender was Nationwide quoting £7.89 per £100 of cover, which over the lifetime of a 25-year loan equates to £16,569 – nearly three times more expensive than British Insurance at £2.25 per £100 or £5,775 over 25 years. Cheltenham & Gloucester’s rate per £100 closely followed Nationwide at £7.70.
Simon Burgess, managing director of British Insurance, said: “This is another example of blatant profiteering at the expense of the consumer – how can Nationwide justify charging £10,794 more for cover that is inferior to mine?”
MoneyFacts research has shown that some providers have been raising premiums despite payment protection insurance being “under the OFT microscope”.
“Although the average cost of personal loan payment protection insurance has not changed, there have been some hefty changes in premiums form a number of providers,” said Michelle Slade, personal finance analyst at MoneyFacts.
“The cheapest cover for a £5,000 loan over 36 months still remains around £14, and the most expensive at £35,” continued Slade. “This means by choosing a loan with the most expensive payment protection insurance could cost you as much as £756 more over the three-year term.
“Also because your insurance premium will be added to the amount borrowed, the total amount payable can fluctuate further still, depending on the interest rate charged.”
The huge profit margins on payment protection insurance are illustrated further by the fact that independent providers can offer the same cover at a fraction of the price: e.g. accident, sickness and unemployment cover from Paymentcare.co.uk is £5.93 per £100, the Post Office (Lifestyle Protection) charges £6.75 and British Insurance premiums range between £3.98 and £8.33 depending on age.
“These examples show how competitive deals can be, offering savings of between £500 and £1200 compared to the policies offered by the loan providers,” said Slade.
