Lenders stand firm on mortgage payment protection insurance
MORTGAGE STRATEGY - 12TH JANUARY 2004
Lenders are failing to adjust the cost of mortgage payment protection insurance cover in proportion with falling mortgage SVRs, leaving borrowers paying hundreds of pounds more than required.
Latest market figures show that none of the top 10 lenders automatically adjust premiums in line with changes in monthly mortgage repayments that arise as a result of interest rate changes.
Calculated on a £100,000 standard variable rate mortgage five years ago, when monthly mortgage repayments were £800, the cost of mortgage payment protection insurance will still be based on that amount rather than the £625 the mortgage now costs.
This finding coincides with research from insurance broker Burgesses, which shows that brokers as well as borrowers could be losing out by allowing mortgage lenders to sell general insurance to their clients.
Burgesses calculates general insurance premiums for household and mortgage payment protection insurance are on average £20 each per month for a borrower who obtained quotes from a variety of independent providers compared with an average of over £30 from mortgage lenders.
Burgesses adds that with monthly general insurance policies lasting on average five years, clients could save over £1000 in premiums which the broker would earn £660 in commission.
Simon Burgess, managing director of Burgesses, says: “It is crazy to allow lenders to profit at our and our clients’ expense by selling second rate policies with inflated premiums.”
But Paul Fincham, spokesperson for Halifax, argues that the pricing scheme is fair.
He says: “Although we don’t move cover when interest rates fall, neither do we make any change when rates start to rise. Customers wouldn’t be happy if we automatically started to take money whenever rates increased.
