Mortgage benefit reform has not led to an increase in MPPI uptake, according to the Council of Mortgage Lenders (CML).
A key argument for the 1995 mortgage benefit reforms was the Government’s belief the benefit system was slowing the development of private insurance to cover mortgage payments. However, this has only been partially borne out by events, a CML study has shown.
The most significant aspect of the reforms was the extension of the waiting period for entitlement 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 back drop of falling unemployment.
Sales of mortgage payment protection insurance (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 are entitled to. But what effect this has had on public perceptions of State support is debatable.
She said: ‘Our distribution channel is IFAs and we work with them to make sure the client understands what they will get from State benefits. Certainly when working with IFAs we highlight exactly what the State will provide, in order for them to show clients it is less than they think.’
The report also states that extending the qualifying period for State help with mortgage payments has weakened the safety net for homeowners.
The research warned the full impact of reforms is yet to be tested by a significant economic downturn, and concludes the benefit reforms are likely to lead to an increase in repossessions, if unemployment were to rise.
Commenting on the report, the CML’s deputy director general Peter Williams, said: ‘Some home owners may not be able to afford insurance and are not entitled to the housing benefit available to tenants, including those in work. The introduction of a housing tax credit would remove a bias that means 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.’