How to avoid losing your home if you lose your job

Now that very few people can expect a job for life, taking out mortgage payment protection couldn't be more important.
FOR MANY people, making sure that they can keep up their mortgage payments is a fundamental part of their personal welfare state provision. Mortgage payment protection is an effective, but expensive, way of doing that. Employment patterns have changed dramatically in recent years and unless your insurance arrangements reflect this, you could be in for a rude awakening if anything goes wrong.

Today, many people who would once have expected a job for life are on short-term contracts, have already experienced redundancy, or have set up their own business and are now self-employed. Now, however, these people can insure against redundancy as well as against illness or disability. For most people, their mortgage is their biggest monthly commitment. If they can no longer afford to pay the mortgage then they may well lose their home.

If they are forced to sell, they are unlikely to achieve the best sale price and getting a future mortgage can be difficult, or impossible if there are serious arrears.

Once, the State would pay the mortgage if illness or redundancy hit. Since 1995, after some high-profile cases where once-wealthy individuals had their six-figure mortgages paid by taxpayers, help is restricted to mortgages up to pounds 100,000.

The State will only pay interest - which means the outstanding capital will not fall - and only then from nine months after you first claim. If you still qualify, but your partner works more than 24 hours a week or you have more than pounds 8,000 of savings, you can't claim the benefit.

What you can do is to take out mortgage-payment protection. This is not the same as mortgage-protection, which is life assurance that pays off your mortgage if you die. It is one of the cheapest forms of life assurance, not least because with a repayment mortgage, the capital you owe goes down each year.

When you have a mortgage, your lender is likely to try to persuade you to take out its mortgage payment protection (MPP) policy, sometimes also called ASU, or accident, sickness and unemployment. But less than one in three of us, 28 per cent, have such cover, whereas the Government and industry body, the Council of Mortgage Lenders (CML), wants to see an increase to 55 per cent.

To help, the CML has drawn up a list of policy requirements that its members must now have on their policies. A typical policy will pay out 30 or 60 days after you are made redundant or can no longer work due to illness or accident and pay your mortgage costs for up to 12 months until you are able to return to work. A number of exclusions apply, although these are usually what you might expect - self-inflicted injury, taking part in a crime, pregnancy, or war, for example.

In the past some policies did not cover the self-employed or those on contract but most now cover contract workers provided that the contract has been renewed more than once, and small businesses if the firm goes out of business.

Specialists such as John Charcol will sell policies to existing as well as to new borrowers, often undercut lenders' rates and can provide protection over and above the monthly mortgage payment. That can be useful as otherwise you may be able to pay the mortgage but still have little or nothing to live on.

To work out what cover would cost, multiply your monthly mortgage cost in hundreds of pounds, by the premium rate. So, if you pay pounds 400 a month for all your mortgage costs, including insurance, and you are with the Woolwich, you would pay four times pounds 5.75, or pounds 23 a month.

The maximum amount you could receive would be pounds 400 times 12 or pounds 4,800, so cover is not cheap, and the insurance company has the right not to renew the policy or, in some cases, can give you just 90 days notice if they decide that the risk is getting too great - if we had another major recession for example.

T he writer is publishing editor of `HealthCare Insurance Report'