Keeping your home if your income dries up
Wednesday 13 August 1997
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
Lambeth B.S. 5.99 pounds 23.96
Alliance & 5.0 pounds 20.00
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
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
How to start your own internet business
Bank-beating exchange rates on your international payments
- 1 King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
- 2 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Presidential optical illusion offers clues to how brain processes faces
- 5 Grumpy Roald Dahl letter warning student to 'eschew beastly adjectives' rediscovered after 35 years
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village