Insurance

New Mortgage Protection Insurance

The number of people threatened with repossession could be helped with a new form of insurance.

A report recommends the Sustainable Home Ownership Partnership scheme, a partnership between lenders, government and borrowers. The insurance would pay full mortgage repayments for ten months should a borrower fall ill, become unemployed or suffer an accident. The cover would be cheaper than other similar products available.

If the economy were to face the same circumstances as in 1992, 25% more homeowners would face repossession.

The scheme, it was suggested would be shared, the government giving 25%, the lenders share also would be 25% and the borrower would pay 50%. This would lead to lenders lending more responsibly as they would have to contribute more if their repossession rates were higher than the average.

Since 1995 homeowners have to wait nine months before the state safety net come into place. Only 20% of homeowners have private insurance.

Also a Housing Tax Credit would be introduced providing help to homeowners on low wages. This would help those who faced a drop in wages though not necessarily out of work.

It was suggested that it became compulsory for new borrowers and those that remortgage.

Because of the housing market conditions many homeowners are more exposed to risk and helping these households would provide underpinning for the housing market and also the wider economy.

The assessed cost of the insurance would be £3.40 per £100 of mortgage payments covered with borrowers paying £1.70. Therefore anyone paying £500 mortgage repayments per month would pay £8.50 per month for the insurance.