Sky-high commission forces borrowers to pay over the odds
THE DAILY EXPRESS - 17TH APRIL 2002
Mortgage borrowers are wasting thousands of pounds on insurance premiums because Britain’s largest home-loan banks are earning “obscene” commission on protection policies, claims an independent adviser.
Most High Street lenders rake in up to 80 per cent in commission from policies that pay out if the borrower is made redundant or suffers accident or illness resulting in loss of income. But they do not provide remotely competitive products, warn industry insiders.
Simon Burgess of Burgesses, a direct insurance broker specialising in mortgage payment protection insurance, says many banks cream off 70 per cent commission based on the annual premiums of policies sold through branches.
Burgess said Halifax, the UK’s biggest mortgage lender, was the worst offender, rewarding sales teams with up to 80 per cent in bonuses and commission.
“No wonder the lenders are so keen to promote mortgage payment protection insurance policies,” said Burgess. “They are tremendously lucrative as cover can be bought cheaply on the international markets and then sold on at huge mark-ups.”
Halifax denied its sales teams earned such large commissions. “It’s a complex reward structure based in part on branch performance, bonuses and a percentage of policy sales,” said a spokeswoman. But most borrowers are paying through the nose, in many cases for cover they do not really need.
Big job losses in the City, in some quarters of the manufacturing and airline industries following the downturn since September, are tempting more people to take out unnecessarily expensive cover.
Most lenders do not provide the simple version of the insurance that covers only unemployment, preferring to focus on full-blown policies supposed to protect against accidents and illness.
About a fifth of all mortgage holders have mortgage payment protection insurance policies, with about 2.35 million policies in force, says the Council of Mortgage Lenders and the Association of British Insurers.
But Burgess reckons most policyholders are throwing good money after bad, adding up to thousands of pounds after paying uncompetitive premiums over the mortgage term.
“Most homeowners come to us simply wanting unemployment cover which, by and large, they can’t get from High Street,” said Burgess. “They end up paying over the top for all the bells and whistles.”
Policies bought through Cheltenham & Gloucester, for example, typically cost £7.25 for every £100 of mortgage protected. C&G is among the most expensive on the High Street, according to Burgesses.
On average, bank and building societies mortgage payment protection insurance policies cost £5.80 per £100 of loan – on a typical £500-a-month mortgage over 25 years this adds up to £8,700.
“Buying identical cover through Burgess would cost £5,925, a significant saving,” said Burgess.
But hardly anyone buys from direct firms, invariably opting for convenience by taking out cover when arranging a mortgage with their lender.
