House Doctor: 'My broker suggests I buy a mortgage insurance policy. Is this a good idea or a waste of money?'

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The Independent Online

Question: I was surprised to hear my mortgage broker suggest I take out mortgage payment protection insurance (MPPI) for our home loan.

He seemed to suggest we'd be better off with lenders: do we have to do this? As a first-time buyer, our loan-to-value (LTV) is a reasonable 80 per cent. Is it a good thing to buy? It's not cheap, at nearly £35 a month. Any advice greatly appreciated. Jonny Fettes, Lancashire

Answer: Any salesman who tosses in "for peace of mind..." during a financial pitch is often halfway to a swift insurance sale.

Throw it into conversation when buying a house – the biggest financial commitment for most people – and nervous borrowers can be forgiven for asking where they sign.

MPPI is, in short, an insurance policy "that pays you a set amount each month – usually for a period of 12 or 24 months – if you are unable to work because of accident, sickness or unemployment," says David Hollingworth at broker London & Country.

It can cost as little as £17 a month for £500 of monthly mortgage cover in any eventual payout, according to research from Which?, and policies tend to pay out only 30 or 60 days after you first fall ill or lose your job.

However, most are "back to day one" policies, which means they do backdate the benefit, so you'll end up being paid for the earlier period too.

Although less controversial than plain payment protection insurance, MPPI has its own problems, including exclusions for the self-employed and those with pre-existing medical conditions.

But more importantly, it's a product that you don't have to buy.

Your reservations about the policy have stood you in good stead because your broker is selling you a pup and it certainly won't help you secure a better mortgage, warns Melanie Bien at broker Private Finance.

"It makes no difference to a lender whether you have MPPI or not, so it is misleading to suggest that not taking it out will affect your ability to get a loan."

The size of your LTV is also irrelevant; the only critical aspect to MPPI in your case is whether you even want to take it out or not.

Figures from the mortgage advice website Yourmortgage.co.uk suggest up to a third of all borrowers have MPPI, but many don't even bother thinking about any kind of back-up in the event of not being able to pay the mortgage.

The alternatives to MPPI include income protection – which pays out a monthly sum of up to two-thirds of your income for as long as needed – or critical illness cover, but it's worth speaking to a protection specialist such as Lifesearch.co.uk to get an idea of what you need to suit your circumstances.

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