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Mortgage Payment Protection Insurance Is Set To Become Compulsory In The UK

Recently leaked details of discussions taking place between some of the UK’s leading debt charities and mortgage lenders as added to speculation that the UK’s leading mortgage lenders look to cash in with the introduction of compulsory Mortgage Payment Protection Insurance (“MPPI”).

The UK’s undisputed high levels of personal debt have left a number of the UK’s leading debt charities and mortgage lenders concerned that rising interest rates and cost of living expenses will mean that many UK homeowners with mortgages will find it increasingly difficult to meet their home loan mortgage repayments in the coming months and years. Increased recorded numbers of homeowners who admit to having fallen behind on one or more of their home mortgage repayments and the dramatic increase in personal bankruptcy over the past two years have done little or nothing to alleviate these fears. As part of a move to counter these growing trends, UK home mortgage lenders are likely going to make it a compulsory condition to granting a UK mortgage that the homeowner also take out MPPI, in the event that they encounter problems repaying the home loan mortgage.

Currently only about one quarter (roughly 24%) of UK homeowners have an MPPI. Making MPPI compulsory would better protect both the homeowner and the mortgage lender as, under current rules, a UK homeowner without MPPI cover has to wait nine months from being made redundant before they can apply for state aid to help repay their mortgage. Even then, if the homeowner has over £8,000 in savings, which is likely if they have recently received a redundancy cheque, they won’t qualify for state help.

Nonetheless, as Moneynet’s chief executive Richard Brown commented: “Making this insurance compulsory would effectively mean substantial additional monthly costs would be passed on to homeowners, even if – as has been hinted – the Treasury demand that lenders and mortgage companies provide the cover as a bolt on to protect borrowers against falling into deep debt should they lose their jobs or be unable to work.”

In other words, the remedy that the UK mortgage lenders and debt charities have to the prospect of UK home loan mortgage lenders not being able to meet the repayments of their home mortgage loans as a result of growing debt problems and cost of living rises is to increase their monthly payment obligations, which seems contrary to what is otherwise a good intention.

As such, if you are either a UK home loan mortgage borrower or a prospective UK home buyer and you are asked to take out MPPI as part of the agreement to provide you with a mortgage on your home you need to be doing some math to see if the additional cost of having MPPI is going to actually be saving you any money in the long run. You’ll also need to be looking around to see if there are any cheaper home insurance alternatives out there before agreeing to any deal that your UK mortgage lender may trying to be pushing on you.

Richard Smith
25th September 2006

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