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Half a million borrowers think buying insurance from lender mandatory

by: Mortgage Solutions
  • 02/06/2016
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Research showed 466,200 homeowners wrongly thought they were required to take out home insurance through their mortgage lender in order to get the loan.

The comparison site surveyed property owners who bought their mortgage lender’s home insurance and found that 6% were told it was mandatory, 30% thought it was a condition in order for the money to be released and 24% mistakenly believed that going elsewhere would invalidate their mortgage.

Based on the 11 million mortgages in the UK, the research suggests that 1.6m people have bought home insurance through their lender and 466,200 households bought it believing it was a condition of the offer.

Worryingly, 12% said they felt under pressure to buy it, while 14% thought it may help with their mortgage application.

Nearly one in 10 said they didn’t realise they could be covered elsewhere and others thought their mortgage provider offered the best value cover for their home insurance.

For some, it was more convenient to go through their provider and 72% hadn’t compared prices elsewhere.

The practice of compulsory home insurance tied-in mortgage deals was never formally outlawed despite promises to do so in the late 1990s.

 

Ben Wilson from Gocompare.com home insurance said: “We were shocked to find that so many people still think that their mortgage offer is conditional on buying their lender’s home insurance, and that a significant minority are essentially in a mortgage-linked insurance trap – believing that switching away from their lender’s insurance will invalidate their mortgage.

“We were also concerned that a handful of lenders could be exploiting their relationship with their customers by pushing them to buy their insurance cover.”

 

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