Peter Lilley, Secretary of State for Social Security, attacked mortgage lenders for taking "fat commissions" on mortgage insurance policies and accused their spokesman of being "extraordinarily complacent", in a row over his plans to persuade people to take out private insurance to protect themselves if they are unemployed or sick.
He clashed with Adrian Coles, director-general of the Council of Mortgage Lenders, as a report commissioned by the Government said mortgage protection policies are no substitute for social security benefits.
Mr Coles said on BBC Radio yesterday: "There is a clear indication in the report that mortgage protection policies sold by insurance companies to home-buyers are not really worth a great deal."
Mr Lilley responded: "It is his members who have been selling these policies. If he thinks they are as worthless as he is pretending, presumably they will now be handing back the fat commissions they have taken."
He defended his plans to replace Income Support, which he intends to withdraw for mortgages for the first nine months for new claimants from this October. He said Mr Coles was "being extraordinarily complacent. He wants to see continue a system which allows 50,000 repossessions a year ... We want to make sure that in future anyone who takes out a mortgage has proper protection."
He rejected the findings of researchers at Loughborough, who were asked by the Department of the Environment to look at the problems of mortgage arrears and repossessions.
The report says policies do not seem to offer adequate protection. "It is hard to see what could be gained by expanding them in their current form. Indeed, it could be argued that in many instances they take borrowers' resources that might otherwise be put towards mortgage payments, while offering little in return."
Nick Raynsford, Labour housing spokesman, said: "This is the Government's own report and it provides conclusive evidence that Peter Lilley's plan is misconceived." Labour will oppose the regulations making the change in the Commons, with the support of building societies and banks, which fear they will undermine confidence in the housing market by increasing repossessions.
The Loughborough University study found that two-thirds of claims on mortgage protection policies were unsuccessful. t Mortgage Arrears and Possessions: Perspectives from Borrowers, Lenders and the Courts; Janet Ford, Elaine Kempson and Marilyn Wilson; Dept of the Environment; HMSO; pounds 25.