The low interest environment could encourage more people to take out mortgage payment protection ins...
The low interest environment could encourage more people to take out mortgage payment protection insurance (MPPI).
According to Legal & General, the cuts in base rates to 5% over the past year have given people more disposable income which the life office said they should be looking to put into products such as MPPI.
Gareth Hoskins, the company's director of housing markets, said: "If more homeowners bought insurance to cover their mortgage fewer homes would be repossessed. We now have a unique opportunity with falling interest rates and people having more disposable income.
"Rather than committing to other uses they should think carefully about protecting their most important asset."
Interest rates were cut to a 22-year low of 5% in June - the seventh such rate cut in the past nine months.
A £75,000 mortgage, for example, paid over 25 years would cost £411 pm in current market conditions, based on a standard variable rate of 6.85%. In January 1998, the same mortgage would have cost £522 at the rate of 8.7%.
Legal & General said that the resulting £111 saving could cover an MPPI premium. A 29 year old non-smoking man with the above mortgage could pay £36.36 pm for mortgage payment insurance with unemployment protection, or £24.58 pm for accident, sickness, and unemployment (ASU) cover to protect the £411 monthly mortgage payment.
Legal & General said that with the Government's backing of the initiative by the Council of Mortgage Lenders and ABI to increase the uptake of mortgage protection more homeowners will become aware of the need to protect their home.
Hoskins said: "I hope this will have an impact on the uptake of mortgage protection, but we will need to go back in a couple of years to check if the take-up has increased, and if not, then look at other options."
But the life office warned that home buyers need to understand the differences between ASU and MPPI.
ASU usually only protects the mortgage for a maximum of 12 months while L&G's MPPI protects the mortgage for the duration of the term.
