Property: Mortgages: Home loan cover - more than a protection racket?

More than half of mortgage borrowers claim they have some form of insurance to protect them if they lose their jobs, according to an exclusive survey carried out for `The Independent'. But many borrowers, including those who have cover, complain about its
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Up to two years ago, mortgage borrowers were reasonably certain of one thing: if they lost their jobs the cost of their home loan would be met by the state.

Of course, things were never that simple. Mortgage interest payments did not kick in fully until after six months and there was an upper limit on the size of loans for which contributions were made.

If one half of a working couple was unable to work mortgage interest benefits were not guaranteed or even likely, while payments never included the capital element of a loan or endowments.

But the presumption of the state acting as the ultimate mortgage guarantor in the event of sickness or unemployment was still prevalent. That, and the heavy cost of policies to cover in case of sudden unemployment, meant few were receptive to the idea of insuring against the event.

Today, no such assumptions can be made. New borrowers since October 1995 will find any benefits don't kick in until nine months of unemployment have elapsed. Old borrowers remain under the old system - at least until they choose to re-mortgage their properties.

So has there been a shift in the number of those prepared to entertain insurance? Yes, according to the poll, carried out by NOP among 1,000 adults. Some 51 per cent have cover, with those most likely to be insured being in the 20 to 29 age group - 71 per cent are protected in this way. Yet up to 40 per cent of people polled thought it was too expensive.

Jim Chadwick, marketing director at Barclays Mortgages, says: "It is surprising that a significant minority consider it too expensive. It can be a very economical way to protect your mortgage payments."

Evidence shows that the willingness of people to take out insurance depends on the arguments put to them when the loan is discussed.

A Halifax spokesman says about 300,000 of its 2.5 million borrowers have cover, with about one third of all new customers taking it out. But he adds: "We believe that at the end of the day it is a question of free choice."

Alan Mudd, sales manager at John Charcol, the UK's largest mortgage broker, says that by contrast, about 50 per cent of his company's customers take it out. "We spend a lot of time arguing with people that it is a necessary part of protecting mortgage payments if anything happens. We find that when the argument is put to them, they are very receptive." Having a cut- price policy costing up to half that of many others also helps.

Part of the problem of the high cost of cover was that those willing to have it were most likely to need it, thereby keeping up premiums. But Mr Mudd stresses that charges are coming down and anyone with old-style, expensive premiums can always halt them and start a cheaper policy.

As charges continue to fall, albeit too slowly, the question many borrowers should be asking themselves is: how will my payments be met if I can't work for any reason?

The Independent has published a free 27-page `Guide to Mortgages', written by Nic Cicutti, the paper's personal finance editor. The guide, sponsored by Barclays Mortgages, is available to all readers by calling 0800 585691. Or fill in the coupon on page 4.

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