Halifax scraps charges for mortgage indemnities

Halifax, the retail bank, yesterday stopped charging customers for a highly controversial form of insurance which protects mortgage lenders from losing money on repossessions - at the expense of their customers. As Andrew Verity reports, it may force its rivals to follow suit

Halifax now joins Cheltenham & Gloucester and Mortgage Express among the few who do not insist on the insurance.

Mortgage indemnity guarantees (MIGs), which are paid for by the customer but protect only the lender, added up to pounds 1,020 to a mortgage worth pounds 100,000 until yesterday. Now Halifax will charge customers nothing for loans below 90 per cent of the house value.

Financial advisers and consumer groups have become increasingly angry at the sale of MIGs. Lenders typically buy the product from just one insurer. They also gain commission on its "sale" to the customer.

Alistair Conway, managing director of Clark Conway, an independent financial adviser, said: "Most buyers do no not understand what MIGs are and are shocked when they discover the cost. People are also shocked to find they could still be chased for losses many years after losing their homes."

When repossessions grew sharply in 1992, lenders frequently lost money as repossessed houses were sold at a loss. The greater risk caused MIG premiums to rise. With the housing market now bouncing back, advisers claim MIG premiums have failed to fall.

Mortgage protection has become increasingly controversial both for lenders and the Government.

In a separate development, Liberal Democrat MPs have accuse the Government of pushing people on income support into unnecessary mortgage arrears.

The Government last week admitted it based mortgage interest benefit on an interest rate used by the 30 biggest building societies. The Lib Dems said claimants were losing money because most lenders are now banks, charging higher interest.

The Government takes at least three months to change its rate of interest. It currently stands at 7.97 - against a market rate of 8.7.

Steven Webb, MP for Northavon, said: "I don't see why there shouldn't be a law saying as soon as official interest rates rise, so does the benefit."