Increased MPPI sales due to better products and pricing ' not benefit cuts
Mortgage benefit reform has not led to an increase in mortgage payment protection insurance (MPPI) uptake, according to the Council of Mortgage lenders (CML).
One of the key arguments for 1995's mortgage benefit reforms ' the Government's belief the benefit system was slowing the development of private insurance to cover mortgage payments ' has only been partially borne out by events, a CML study has shown.
The most significant aspect of the reforms was extending the waiting period for entitlement to help with mortgage interest to 39 weeks. This has allowed the Government to cut payments from £1.2bn in 1993 to £500m in 2000, although the report notes this was against a backdrop of falling unemployment.
Sales of MPPI have been growing steadily since the CML and the Association of British Insurers began monitoring its take-up in 1998. But the CML said this is largely due to better products, pricing and awareness, rather than as a result of the benefit cutbacks.
Laura Shanks, product development manager at Scottish Equitable, believes the cuts have mainly been used as a sales tool as many people do not understand how little benefit they will be entitled to. But what effect this has had on the public's perceptions of State support is debatable.
She said: 'When working with IFAs we highlight exactly what the State will provide, so that they can show clients it is not going to give as much help as many think it will.'
The report also states that extending the qualifying period for State help with mortgage payments has weakened the safety net for home owners. The research warned that the full impact of reforms is yet to be tested by a significant economic downturn, but concludes the benefit reforms are likely to lead to an increase in repossessions, if unemployment were to rise suddenly.
Commenting on the report, Peter Williams, deputy director general of the CML, said: 'Some homeowners may not be able to afford insurance and are not entitled to the Housing Benefit available to tenants ' including those that work. The introduction of a Housing Tax Credit would remove a bias, meaning homeowners on low incomes are treated less favourably by the State than tenants. Government, lenders and insurers must continue to work together to create fully sustainable home-ownership.'
