No threat to jobless, say lenders: Mortgages cost government pounds 1bn a year, says Vivien Goldsmith

MORTGAGE lenders do not believe the Government will halt payments to unemployed homeowners and force home buyers to take out insurance instead.

Home buyers on income support have half their mortgage interest payments made by the Government for the first 16 weeks of unemployment, with full payment after that.

The Government pays 556,000 mortgage payers pounds 1.26bn a year and is keen to cut the social security budget. The maximum amount allowable for payments was reduced earlier this month from pounds 150,000 to pounds 125,000. The average full payment is pounds 44.75.

Unemployment insurance is usually only offered to borrowers when they first take out a mortgage to prevent those who face an unemployment threat from signing up. The cover is usually for accident and sickness as well.

At Nationwide, the premiums are linked to the size of the mortgage. It costs 58p per pounds 1,000 of mortgage loan. The cover can be extended to cover utility bills.

National & Provincial Building Society charges buyers pounds 7.20 per pounds 100 worth of benefit to be paid for two years. The average monthly premium is pounds 18. A quarter of all N&P borrowers have the cover and 30 per cent of all new borrowers take it out.

Uell Kennedy, manager of customer requirements, said: 'I don't think it would work for everyone in practice. Some employments, such as professional deep-sea divers, would not be covered by this type of insurance.'

There are particular problems with the self-employed. The N&P scheme covers them only for accident and sickness, but in a month the cover will be extended to encompass some unemployment.

Mr Kennedy said: 'It's a bit surprising that the Government is talking about withdrawing support. The effect on the home market could be severe.' As the premium was related to the monthly interest payment, rising interest rates would mean a rise in premium rates as well.

Others have pointed to the difficulties of ensuring that premium payments are made to ensure the insurance cover remains in force, and ask how existing mortgage holders whose loans were taken out without a requirement to have unemployment cover should be treated.