Research by NOP for the ABI found that one person in five believe they can
rely on the Government for financial support with their mortgage if they
were unable to work. What they did not realise was how long they would have
to wait. Whether buying a new home or remortgaging, borrowers whose loans
completed on or after October 1, 1995 have to wait 39 weeks for any help
from the state.
For people whose loans started earlier, the rules are a little more
generous – mortgage interest benefit starts after eight weeks, with
borrowers having half their interest paid for the next 18 weeks and the
full amount after that.
The state will only meet the interest costs. It will not pay off any
capital or contribute to other expenses, such as insurance premiums.
There are two other important restrictions. Only the first £100,000
borrowed qualifies for support and there is no help for anyone with savings
of £8,000 or more.
The Government admits that some 70 per cent of all homebuyers will not
qualify for income support.
In 1999, with the number of all borrowers covered by accident, sickness
and unemployment policies standing at only about 20 per cent, the
Government introduced the sustainable home ownership initiative to
emphasise to – gage borrowers that the onus is on them – with guidance from
their financial advisers – to provide for themselves.
The industry, in the shape of the ABI and CML, took up the baton and
introduced “baseline” minimum standards for mortgage payment protection
insurance policies covering the risks of accident, sickness and
There were two main aims. – to provide a minimum level of protection and
to increase the percentage of borrowers covered to more than 55 per cent by
The Government encourages borrowers to apply for this cover – the consumer
leaflet Take Cover for a Rainy Day, produced by the CML and the ABI
includes a strong Government endorsement
Lenders and intermediaries who are members of the mortgage code are
required to discuss MPPI cover as part of the advice process during the
Two recent pieces of research show there is cause for optimism that the
Government target is attainable if the problem continues to be addressed
The first, in March by the ABI, shows borrowers are receptive to this
cover but are ignorant about what the state provides – 46 per cent of
non-purchasers would have bought MPPI cover if they had been offered it or
if it had been explained to them better.
The other piece of research by York University Centre for Housing Policy
showed a huge diversity in the emphasis placed on MPPI cover by
intermediaries when discussing the insurance.
Firms which present MPPI as part of a comprehensive mortgage protection
package and go to some lengths to explain the need and its benefits achieve
a conversion rate of up to 90 per cent whereas success rates can fall as
low as 5 per cent if due emphasis is not given to MPPI.
The problem is that even MPPI policies which meet the baseline standards
are very basic. Benefits are payable for a limited period only, typically
for no more than a total of 12 months. That is adequate for unemployment
cover but how can borrowers unable to work through long-term illness or
injury manage when benefit payments come to an end?
Some 30 per cent of them – this is likely to be smaller among typical
higher-net-worth clients of IFAs – will qualify for state support with
their interest payments but what about the others? Even those who do
qualify may struggle to avoid going into arrears before the nine months are
There are other problems which advisers may come across for clients with
existing MPPI/Asu cover sold by a lender. The existing premiums may be
inflated, with the lender using the high mar-gins to subsidise cut-price
mortgage interest rates.
Clients may not have been offered any choice when their MPPI cover was
being discussed and benefits may not have been tailored to any sick pay
IFAs can offer a real choice for MPPI cover. In addition to different Asu
packages from different insurers, they can offer versions of income
protection tailored to mortgage requirements.
Accident and sickness cover payouts can be for the full mortgage term if
incapacity continues rather than being limited to 12 or 24 months with the
short-term accident and sickness cover typically found in MPPI sold by
Cover can be written on a deferred period of one or two months to ensure
it falls within the baseline product criteria and, for many in nonmanual
jobs, income protection mortgage cover combined with unemployment cover can
be cheaper than traditional Asu policies, costing £25-£30 a month
for £500 monthly benefit.
Another major benefit that IFAs can offer is MPPI cover that is not tied
to the loan. With borrowers remortgaging more frequently, portability of
cover needs to be brought much more to the fore. On remortgages, there is
normally a 120-day period after MPPI policies are taken out during which
any notice of unemployment will render the cover invalid.
Where cover is bought from a lender, each time a new lender is used and a
new MPPI policy effected, this qualification period will recur. If MPPI
cover is separate from the loan then no such requalification period is