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
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Day In a Page
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
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens