Financial intermediaries are sceptical about the value of mortgage payment protection insurance (MPPI...
These findings come from research carried out by the Centre for Housing Policy at the University of York which polled a range of IFAs, mortgage brokers, estate agent advisers and lenders - the largest sellers of MPPI. While a small proportion of the sample did not criticise the product the majority saw a number of limitations.
Janet Ford and Deborah Quilgars, authors of the report said: "Key limitations relate to the restricted terms and conditions of the product, the assessment and underwriting process and the view that other ways of providing social protection are available, sometimes at a roughly comparable cost and often with a greater certainty of paying out. On the whole the preference was to protect borrowers' income rather than specific costs such as mortgage costs."
MPPI was also criticised as being poor value for money and too expensive and there was also a belief that it should be underwritten at point of sale - suggesting that the current focus on MPPI is misplaced.
This was particularly the view of IFAs, who have access to a greater range of mortgage protection products such as income protection and critical illness.
A number of intermediaries highlighted the value of integrated mortgage protection products that combine income protection with unemployment cover.
IFAs dissatisfaction with the product was reflected in this group achieving the lowest levels of MPPI take-up.
Lenders and estate agents tended to be motivated by the need to reach sales targets to bolster margins. One estate agency director interviewed in the research identified the sale of MPPI as a key growth area as sales of endowments continue to threaten income streams. With MPPI policies needing to be in force for five years before the adviser earns what could have been earned by the sale of one endowment mortgage, the pressure to sell MPPI in volume is high.
However, for smaller intermediary organisations the motivation was different. For these groups, where the volume of business was lower, the financial imperative was reduced. Ford and Quilgars said: "This was the case whether they were tied or independent intermediaries and consequently it was among these brokers, most typically IFAs, that there was the most likelihood that some alternative package of social protection to MPPI could be offered, encouraged by their reservations about the product."
Although products such as critical illness and income protection offer IFAs higher levels of commission than MPPI this was ruled out as the incentive for selling them. The authors of the report said: "Most claimed this was not the case as the need to do the 'right thing' by their clients was central to the continuation of their businesses which is based on repeat business and personal recommendation."
