Recession or not, mortgage cover doesn't work

MOST of us will do anything to avoid unnecessary hassle when we are buying a house and sorting out the mortgage. So it is not surprising that most people do not take up lenders' offers of insurance that will pay the mortgage if they fall on hard times or become too sick to work.

But the Government has hinted that this type of insurance may become compulsory. In theory, mortgage payment insurance makes sense, especially at a time when the economy is predicted to be heading towards recession. The number of houses repossessed by lenders rose almost 10 per cent, to 17,310, in the first half of 1998.

The Government has openly asked all those involved in selling mortgages to broach the subject of mortgage payment protection with prospective buyers. The problem is that many of the insurance schemes around at the moment are expensive (costing about pounds 6 of every pounds 100 of mortgage payments you make) and are riddled with exclusions which make payout unlikely. Contract workers and part-time workers will have difficulty getting any cover. And most policies, generally sold under the term accident, sickness and unemployment (ASU) insurance, only pay out for a maximum of one year.

You may find that a mortgage lender will try to increase take-up of ASU by offering it free for six months. But beware - sometimes premiums on these "freebie" policies are higher than those on policies with no free period. So take the insurance, but check prices before you go ahead and pay after six months.

Many buyers can do without this cover if they save enough money to pay the mortgage for nine months. If you are still out of work or sick after nine months, you will be eligible for some state help with the mortgage.

There are alternatives to mortgage payment protection. You can buy insurance which pays out a percentage of your regular income in the event that you are unfit for work - chronic back pain or stress-related illnesses are the most common claims. Or you could opt for critical illness cover. It pays a lump sum if you are diagnosed as suffering from a serious illness - heart attack, cancer and stroke are the most common claims.

These are health insurance policies: only ASU insurance can help with payments if you are made redundant. But people who have problems with their work history are the biggest stumbling block to making this insurance compulsory. As Philip Watson, a director of mortgage specialist John Charcol, explains: "The disabled and the long-term unemployed are, in effect, uninsurable."

If you are advised to take out ASU, be aware that advisers get paid commission of 12 to 15 per cent. Do not buy if you feel you have been given a "hard sell" - under the new Mortgage Code you can complain if you feel you have been badly advised.

An Ealing-based independent adviser, Geoff Buckingham, advises would- be buyers to check the financial background of the insurer and look for a fixed premium for the period of cover, say five years, such as that offered by Capital Bank.

q David Burrows is deputy editor of `Planned Savings' magazine

Useless insurance

Many borrowers, particularly first-time buyers, mistakenly believe that a mortgage indemnity guarantee (MIG) gives them some protection if they can't pay the mortgage. It doesn't. MIG is the one-off insurance premium which some lenders charge when you borrow more than 75 per cent or 80 per cent of a property's value. (It is also called a "high lending fee".)

In fact, you pay the MIG money to the lender and it uses the cash to buy insurance in case you can't pay your mortgage. So you have no rights and the bank or building society can still repossess and sell off your home.

Unsurprisingly, there has been a lot of negative press about MIGs and some lenders have responded by scrapping MIG for loans of less than 90 per cent of a property's value. These include Abbey National and the Halifax. Northern Rock charges no MIG for loans up to 85 per cent.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Sport
Harry Redknapp. Mark Hughes and Ryan Shawcross
footballNews and updates as Queens Park Rangers host the Potters
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
New Articles
i100... with this review
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
New Articles
i100
Arts and Entertainment
musicHow female vocalists are now writing their own hits
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
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.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam