Keeping your home if your income dries up

Finding the right mortgage is one thing, keeping up payments another. About 700,000 people are made redundant each year, while 1.6 million are off sick for six months or more.

Since 1995, benefits covering mortgage payments have been cut. Anyone with a mortgage taken out since then will have to claim unemployment benefit for nine months before qualifying for supplementary mortgage payments.

This affects not only first-time buyers but hundreds of thousands of people who have taken advantage of the many and increasingly popular cut- price fixed and discounted rates on offer over the past two years or so. Many lenders now offer insurance packages designed to meet the short-term consequences of accident, sickness or unemployment (ASU). Such policies offer extra security, but anyone contemplating taking one should carefully consider both the costs and benefits, and where to get the best deal.

Such policies pay a monthly benefit to meet interest on a mortgage loan, usually for 12 months, after a deferred period of two months. This means that if you claim, no benefit will be payable until you have been off work for two months, and then only for the 12 month period thereafter. Returning to work after a claim, you will not be able to claim again for a minimum period, usually set at three months' continuous employment.

Claiming for accident or sickness should be straightforward. Making a claim for unemployment may prove trickier. If made redundant from long- term employment there should be no problem. Being sacked for misconduct or not being re-hired at the end of a fixed-term contract will exclude you from claiming. The self-employed can qualify, but only if their business becomes insolvent, and ceases trading.

The cost of ASU is set as a percentage of benefits. As our table shows, there are wide differences both among lenders and between them and providers of individually rated policies.

Differences in rates are a result of the different ways in which lenders and insurers set up their policies. Lenders offer a group rate. This applies to all borrowers within a broad limits of age and occupation. Insurers rate individuals according to age, medical history and occupation.

This last method offers the advantage of tailoring prices more closely to a person's actual risk. But it also leaves providers open to charges of "cherry-picking", where the most vulnerable are either unable to obtain quotes or pay heavily for them.

The rates from Norwich Union, Zurich and ITT are for a man aged 34, or a woman aged 29, both office workers. They would save pounds 160.80 each year going to ITT instead of Bradford and Bingley.

Ian Burrell at ITT says: "Anyone under 40 in low-risk employment should shop around. Going into a group scheme means they are likely to subsidise higher-risk members. Of course, the reverse applies if you are older or fall into a higher risk occupational category."

Important differences can emerge when the basis for calculating benefits is taken into account. Zurich offers ASU as part of a larger package including life cover. ASU benefits must be 1 per cent of the amount of life cover taken. So life cover of pounds 50,000 for a mortgage of the same amount means ASU benefit of pounds 500 per month. Interest rates would have to top 12 per cent annually for a pounds 50,000 mortgage to cost as much. This looks like over-insurance.

Other policies, like that from ITT, allow extra cover to be built in for the cost of home insurance and premiums on an endowment. Portability may also be important. A free-standing policy should be transferable if you re-mortgage with a new lender.

The advice you receive on ASU will depend on where you buy your mortgage. Lenders are not obliged to inform you of alternative policies cheaper than their own. An IFA or mortgage broker should find the best deal for you.

THE COST OF UNEMPLOYMENT COVER

Provider Rate as % of Cover Cost of pounds 400 monthly cover

Bradford and 6.76 pounds 27.00

Bingley

Lambeth B.S. 5.99 pounds 23.96

Alliance & 5.0 pounds 20.00

Leicester

Norwich Union 4.46 pounds 17.84

Zurich 3.60 pounds 14.40

ITT London 3.40 pounds 13.60

For an indepedent financial adviser near you, call IFA Promotion on 0117 971 1177

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
A teenager boy wakes up.
life
Life and Style
tech
Arts and Entertainment
Critics say Kipling showed loathing for India's primitive villagers in The Jungle Book
filmChristopher Walken, Bill Murray, Scarlett Johanssen Idris Elba, Andy Serkis, Benedict Cumberbatch, Cate Blanchett and Christian Bale
Life and Style
food + drink
PROMOTED VIDEO
Life and Style
Playing to win: for Tanith Carey, pictured with Lily, right, and Clio, even simple games had to have an educational purpose
lifeTanith Carey explains what made her take her foot off the gas
Arts and Entertainment
A still from Duncan Campbell's hour-long film 'It for Others'
Turner Prize 2014
News
i100
Arts and Entertainment
Tony Hadley in a scene from ‘Soul Boys Of The Western World’
musicSpandau Ballet are back together - on stage and screen
Arts and Entertainment
From left to right: Ed Stoppard as Brian Epstein, Sheridan Smith as Cilla Black and Elliott Cowan as George Martin in 'Cilla'
tvCilla review: A poignant ending to mini-series
News
i100
Life and Style
Bearing up: Sebastian Flyte with his teddy Aloysius in Brideshead Revisited
lifePhilippa Perry explains why a third of students take a bear to uni
Arts and Entertainment
Sir Alan Sugar appearing in a shot from Apprentice which was used in a Cassette Boy mashup
artsA judge will rule if pieces are funny enough to be classed as parodies
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    SQL Developer (Stored Procedures) - Hertfordshire/Middlesex

    £300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...

    Day In a Page

    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?
    Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

    Homegrown ballerina is on the rise

    Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
    Education, eduction, education? Our growing fascination with what really goes on in school

    Education, education, education

    TV documentaries filmed in classrooms are now a genre in their own right
    It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

    It’s perfectly reasonable to negotiate with villains like Isis

    So why don’t we do it and save some lives?
    This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

    Is a sub-2-hour race now within sight?

    Dennis Kimetto breaks marathon record
    We shall not be moved, say Stratford's single parents fighting eviction

    Inside the E15 'occupation'

    We shall not be moved, say Stratford single parents
    Air strikes alone will fail to stop Isis

    Air strikes alone will fail to stop Isis

    Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
    Nadhim Zahawi: From a refugee on welfare to the heart of No 10

    Nadhim Zahawi: From a refugee on welfare to the heart of No 10

    The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
    Witches: A history of misogyny

    Witches: A history of misogyny

    The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
    Shona Rhimes interview: Meet the most powerful woman in US television

    Meet the most powerful woman in US television

    Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
    'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

    Endangered communities photographed 'like Kate Moss'

    Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style