Homeowners may be forced to take out mortgage protection
Last updated at 22:00pm on 15th September 2006
Millions of homebuyers could be forced to take out private insurance cover to protect them against unemployment, sickness, debts and repossession.
The move would add £10-£12 a month to repayments on a £100,000 home loan.
The cover would step in and pay monthly mortgage interest payments if a buyer suddenly lost their job or fell ill and lost their income.
The Government has been pushing the idea amid rising concern over personal debt, which has topped £1 trillion.
House buyers are being put under huge pressure from repayments on mega-mortgages and rising interest rates.
As a result more people are missing home loan repayments, bankruptcies are up and repossessions are rising sharply.
At the same time, it is estimated that taxpayers have paid out £8 billion in benefits over the past decade to pick up mortgage interest payments for the unemployed.
The Treasury is understood to be keen to get this cost off government books and transfer it to mortgage lenders and the public.
Any move to impose compulsory mortgage payment protection insurance(MPPI) would be highly controversial because it would, in theory, put up the cost of buying a house.
However, industry experts believe the government could insist the cost is borne by banks and building societies - coming out of profits - rather than being imposed on buyers.
An insider, close to talks between the government and consumer bodies, said: "Officials have been dropping heavy hints that the Government would like to move to a system of compulsory insurance to cover mortgages.
"They have raised the issue with consumer and debt bodies and are trying to get them to offer support for the idea.
"Obviously, the government can see a benefit in saving many millions of pounds by doing away with state support for mortgage payments, limited though it is.
"But clearly forcing people to take out insurance, with the prospect of adding to the cost of a home loan is potentially controversial."
Currently, banks and building societies sell MPPI as a separate optional insurance cover, generating big premiums and profit.
Premiums are estimated at £800 million and £1 billion a year, while some £250m-£500m of this is believed to be pure profit. At the moment just 24per cent of buyers take out the insurance.
The government is concerned this leaves millions of people vulnerable to repossession if they suffer a sudden shock to their finances, such as unemployment or sickness.
The benefits system offers some protection through the Income Support for Mortgage Interest(ISMI) scheme. However, there are strict rules limiting who can claim.
Just this week, the Council of Mortgage Lenders, which speaks for banks and building societies, advised first-time buyers to take out insurance to protect them from losing their home. However, the CML is fiercely opposed to a compulsory scheme, particularly if the industry is expected to pay for it.
Spokesman Sue Anderson said: "We would be astonished if this is the way government thinking is moving."
Colleague Bernard Clarke said there is no way the cost of a universal scheme could be absorbed by the industry. He warned that mortgages would become more expensive.
He said: "Clearly the cost of this insurance would have to come from somewhere. Insurers won't provide it for free. The likelihood is that the borrower would pay, even if it isn't displayed as a separate premium.
"There has been downward pressure on margins in the industry for some time, as a result it would be impossible for firms to absorb the cost of providing insurance."
The CML questions whether compulsion is the best option. It said people are better off making their own arrangements.
Mr Clarke said: "It may not be appropriate for everyone. Some people may have generous sick cover from employers, others may have substantial savings or other types of insurance.
"It would not be reasonable to require people to over-cover themselves with this type of compulsory insurance."
Credit and debt expert Iain MacQueen-Sims, of Omnichek, rejected the CML's complaints.
He said: "Compulsory payment protection insurance would provide an important safety net and there is no good reason why it should cost home-buyers a penny more.
"There is plenty of scope to require banks and building societies to treat the cover as a normal cost of business and wrap it into the price of the mortgage. Such are the industry profits, that they could quite easily fund such a system without putting up prices.
"Obviously, the industry is not keen because it would remove the opportunity to profit from sales of optional insurance. However there is an issue of social responsibility here.
"Banks and building societies do very well out of the housing market, it is right that they should do their bit to help stop people losing their homes through repossession."
He pointed to a draft European directive on the mortgage market, which proposes compulsory MPPI as a common feature in all member states.
A spokesman for the Department of Work and Pensions said: "The Government believes that mortgagees should always consider taking out appropriate insurance cover to protect against loss of income."
There was no official comment on the possibility of a compulsory scheme.
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Ok, so Brown wants to hedge himself from raising unemployment - surely it's going to cost more than 12-14 quid a month to insure from such an event - AFAIK most of that insurance is worthless anyway because small print can invalidate it easily, ie if there were layoffs in the firm already then you may not be covered as layoff was to be expected.
Last updated at 22:00pm on 15th September 2006
Millions of homebuyers could be forced to take out private insurance cover to protect them against unemployment, sickness, debts and repossession.
The move would add £10-£12 a month to repayments on a £100,000 home loan.
The cover would step in and pay monthly mortgage interest payments if a buyer suddenly lost their job or fell ill and lost their income.
The Government has been pushing the idea amid rising concern over personal debt, which has topped £1 trillion.
House buyers are being put under huge pressure from repayments on mega-mortgages and rising interest rates.
As a result more people are missing home loan repayments, bankruptcies are up and repossessions are rising sharply.
At the same time, it is estimated that taxpayers have paid out £8 billion in benefits over the past decade to pick up mortgage interest payments for the unemployed.
The Treasury is understood to be keen to get this cost off government books and transfer it to mortgage lenders and the public.
Any move to impose compulsory mortgage payment protection insurance(MPPI) would be highly controversial because it would, in theory, put up the cost of buying a house.
However, industry experts believe the government could insist the cost is borne by banks and building societies - coming out of profits - rather than being imposed on buyers.
An insider, close to talks between the government and consumer bodies, said: "Officials have been dropping heavy hints that the Government would like to move to a system of compulsory insurance to cover mortgages.
"They have raised the issue with consumer and debt bodies and are trying to get them to offer support for the idea.
"Obviously, the government can see a benefit in saving many millions of pounds by doing away with state support for mortgage payments, limited though it is.
"But clearly forcing people to take out insurance, with the prospect of adding to the cost of a home loan is potentially controversial."
Currently, banks and building societies sell MPPI as a separate optional insurance cover, generating big premiums and profit.
Premiums are estimated at £800 million and £1 billion a year, while some £250m-£500m of this is believed to be pure profit. At the moment just 24per cent of buyers take out the insurance.
The government is concerned this leaves millions of people vulnerable to repossession if they suffer a sudden shock to their finances, such as unemployment or sickness.
The benefits system offers some protection through the Income Support for Mortgage Interest(ISMI) scheme. However, there are strict rules limiting who can claim.
Just this week, the Council of Mortgage Lenders, which speaks for banks and building societies, advised first-time buyers to take out insurance to protect them from losing their home. However, the CML is fiercely opposed to a compulsory scheme, particularly if the industry is expected to pay for it.
Spokesman Sue Anderson said: "We would be astonished if this is the way government thinking is moving."
Colleague Bernard Clarke said there is no way the cost of a universal scheme could be absorbed by the industry. He warned that mortgages would become more expensive.
He said: "Clearly the cost of this insurance would have to come from somewhere. Insurers won't provide it for free. The likelihood is that the borrower would pay, even if it isn't displayed as a separate premium.
"There has been downward pressure on margins in the industry for some time, as a result it would be impossible for firms to absorb the cost of providing insurance."
The CML questions whether compulsion is the best option. It said people are better off making their own arrangements.
Mr Clarke said: "It may not be appropriate for everyone. Some people may have generous sick cover from employers, others may have substantial savings or other types of insurance.
"It would not be reasonable to require people to over-cover themselves with this type of compulsory insurance."
Credit and debt expert Iain MacQueen-Sims, of Omnichek, rejected the CML's complaints.
He said: "Compulsory payment protection insurance would provide an important safety net and there is no good reason why it should cost home-buyers a penny more.
"There is plenty of scope to require banks and building societies to treat the cover as a normal cost of business and wrap it into the price of the mortgage. Such are the industry profits, that they could quite easily fund such a system without putting up prices.
"Obviously, the industry is not keen because it would remove the opportunity to profit from sales of optional insurance. However there is an issue of social responsibility here.
"Banks and building societies do very well out of the housing market, it is right that they should do their bit to help stop people losing their homes through repossession."
He pointed to a draft European directive on the mortgage market, which proposes compulsory MPPI as a common feature in all member states.
A spokesman for the Department of Work and Pensions said: "The Government believes that mortgagees should always consider taking out appropriate insurance cover to protect against loss of income."
There was no official comment on the possibility of a compulsory scheme.
---------------
Ok, so Brown wants to hedge himself from raising unemployment - surely it's going to cost more than 12-14 quid a month to insure from such an event - AFAIK most of that insurance is worthless anyway because small print can invalidate it easily, ie if there were layoffs in the firm already then you may not be covered as layoff was to be expected.
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