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Yes,
says Sara-Ann Burgess of specialist brokers Burgesses
We are in one of the worst economic downturns for decades, with everyone at risk of redundancy, yet no effective measures are being taken to ensure that people have a financial support mechanism in place in case they lose their job.
There is plenty of rhetoric from the government about how it will support families if they lose a salary, via income support for mortgage interest payments, but fewer than 2% of households on means-tested benefits will get this. Its recommendations to lenders to allow homeowners to defer their mortgage payments or pay interest rather than capital aren't helpful either - this eases the short-term burden of repossession by increasing long-term debt. Such measures might provide some temporary relief, but they do not tackle spiralling debt levels.
No one, other than smaller independent providers, is highlighting the importance of payment protection insurance (PPI). This will wipe the financial slate clean for up to a year, paying a monthly income in the event of an accident, sickness or unemployment. It is the one measure that can prevent families from sinking further into debt.
The Chartered Institute of Personnel and Development predicts that 600,000 jobs will go in 2009 - around 1,644 a day - and the Council of Mortgage Lenders (CML) expects 75,000 repossessions this year, or 205 a day. Many repossessions could be avoided, as PPI will cover mortgage payments. I'm saddened that so few of the 11.7m households paying mortgages appreciate the benefits of PPI - it provides a breathing space should redundancy strike.
According to the Association of British Insurers and the CML, only 22% of new homeowners bought PPI in the first half of 2008 and the proportion of existing ones fell to 17%. I suspect this is because many people believe "it'll never happen to me", coupled with the poor reputation of the PPI sector. Its investigation by the Competition Commission has been well publicised and consumers are wary of lenders who mis-sell or overcharge PPI at point of sale. A number of high-profile credit providers have been fined by the Financial Services Authority for pressuring customers into buying cover and there has been a rapid rise in the number of complaints to the Financial Ombudsman Service - more than 25,000 last year. However, there are firms who do not link the sale of PPI to the provision of credit and have been found to offer mortgage cover four times cheaper than their high street counterparts.
Those who balk at mandatory PPI should consider that an outlay of £17 a month will return a monthly benefit of £500, or up to £6,000 a year, to meet mortgage payments. What other policy or support mechanism guarantees this? To those who say they can't afford PPI, I counter that the Office of National Statistics says an average family's weekly spend is £459.20 - a PPI premium of £4.25 a week is less than 1% of that, a small price for peace of mind.
But let's not stop at mortgages; those who are renting are equally at risk of redundancy and should have access to the same financial protection. Make PPI compulsory for all!
No,
says Teresa Fritz, principal researcher for Which?
There is no question that everyone should be reflecting on whether they are adequately protected should the worst happen. However, the one-size -fits-all approach of making redundancy cover compulsory with your mortgage is a return to the bad old days of financial services forcing decisions on its customers to suit its own needs.
Providers of redundancy cover insurance and mortgage lenders would both reap rewards from compulsory insurance in the form of higher sales and higher commissions. It's easy to see, therefore, why they would see compulsion as a good idea. Consumers, however, would find their financial choices even more restricted than they are now and could end up paying for insurance they will never claim on.
There are many people for whom redundancy is not an issue or who cannot benefit from this type of insurance, or whose financial circumstances make them highly unlikely to default on their mortgage. Also, the self-employed or those on a fixed-term contract have limitations on when they can claim under this type of cover, which may make insurance unrealistic for them.
Not everyone who is made redundant is going to have problems making his or her mortgage payment. Some people have redundancy packages or savings that will enable them to pay their mortgage until they find another job. For these people, compulsory redundancy cover just means they are paying for insurance they don't need.
And, as with most insurance, those who need the cover most would probably find it difficult to come by because of the exclusions under the policy, which would result in these people finding it even more difficult to find a mortgage than they do now.
No - compulsion is not the way forward and in any event would not be allowed if the Competition Commission's proposals for change in the payment protection insurance market go ahead. The commission has suggested that the sale of any credit product must be separated from the sale of any insurance, which is how it should be. Finding the right mortgage is a difficult and daunting task and consumers don't need to be told that, in order to get that mortgage, they'll have to buy an overpriced insurance product they probably won't be able to claim on.
Which? has fought for many years against those elements in the financial services sector that think it is acceptable to force its customers to take out its (usually inferior) insurance products as part of the eligibility criteria for lending them money. Many years ago we managed to stop lenders compelling you to take out their buildings insurance and most lenders nowadays don't even compel you to take out life insurance. What we don't want is a return to the Dick Turpin dark days of "take out the insurance or you don't get the loan".
We don't deny that good insurance to cover you in the event that you are unable to work because of illness, accident or redundancy is a vital and often missing piece in many people's financial jigsaw. However, we believe education, readily available good independent advice and, above all, good value for money products are the answer to the protection gap - not compulsion.
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