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Govt housing support v MPPI – who wins when

by: Neil Galjaard
  • 03/10/2011
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In Ask the Experts, Paymentshield's Neil Galjaard explains how and when government schemes will support homeowners whose income suddenly stops compared to new-style PPI products.

Q: Mis-selling of payment protection insurance (PPI) has really hit my customers’ confidence in new PPI products like mortgage payment protection insurance (MPPI) or income protection.

I’m worried that clients will be left vulnerable if they don’t self-protect, as I’m unsure what support they would receive from the government through such schemes like Support for Mortgage Interest?

Neil Galjaard, insurance director at Paymentshield

A: The government has always provided a range of support, such as job seekers allowance or income support, to offer UK residents extra financial support if their income stops.

As mentioned, the Support for Mortgage Interest scheme falls into this category.

The initiative provides a fall back for homeowners who don’t have an alternative financial contingency plan, such as savings or insurance.

However, it only covers the mortgage interest payments, not the repayment of the overall loan, and the support only starts after 13 weeks subject to a range of criteria.

As you may know, the government reviewed the terms of the Support for Mortgage Interest scheme to reduce the waiting period to claim from 39 weeks to 13 weeks.

With the current austerity measures and pressure on the government’s budget, we cannot predict whether this timeframe will remain or change in the future, as it will clearly cost more than the 39-week scheme.

In addition, the Support for Mortgage Interest scheme is not guaranteed and some homeowners may not be eligible to claim.

Therefore, consumers may need to implement other measures to ensure they could support themselves if they were made redundant or couldn’t work due to sickness.

Other government initiatives, such as the Mortgage Rescue Scheme, have failed to provide effective support to UK homeowners.

The scheme has not succeeded in meeting its target to help 6,000 people struggling to pay their mortgage and has only helped 2,600 since its launch in 2008.

This highlights the uncertainty of state support and reinforces your concern, as some clients may be left vulnerable.

The way for clients to ensure they are protected should they be unable to work is to save or take out individual protection insurance, such as MPPI or short-term income protection (STIP).

Intermediaries, like yourself, are in the best position to take an overarching view of a client’s financial situation, including monthly outgoings and savings, to provide the right protection product.

As you point out, the mis-selling of PPI has hit both consumer and broker confidence and has affected the industry as a whole. This has seen new innovative PPI products enter the market to complement the current insurance need.

The risk of redundancy is high and products, such as MPPI and income insurance, could offer the reassurance your clients needs in an unstable market.

MPPI allows consumers to cover mortgage payments, including the loan and interest, and insurance related costs.

But, if a client would like further flexibility, then income insurance may be a more appropriate solution.

This product provides a monthly income that can cover financial commitments, such as mortgage repayments, but it allows the individual to use the funds as they wish.

Worryingly, in Paymentshield’s consumer research, only 4% of people claimed to have income insurance and 68% of respondents either thought they could not afford income insurance, could not see the value in it or had just never considered it.

This demonstrates a real need for education, as many consumers would benefit from expert advice to secure their financial stability for the future.

Intermediaries are on the front line when it comes to highlighting the importance of MPPI and income insurance, and should be advising clients of the increasing need for financial planning and protecting themselves in an uncertain marketplace.

Regardless of preconceptions, PPI should play a prominent role in all discussions with your clients, alongside mortgage and pension advice.

The new protection products have been developed to complement the current economic market and provide consumers the opportunity to protect what means the most to them.

In a nutshell, the government’s support is a useful fall back, but some clients may not meet the criteria and would be left vulnerable.

To reduce the element of doubt, new PPI products could provide a real solution to ensure your clients are protected if the worst happens.

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