Ironically, at a time when high property values have created a feel-good factor, many new homeowners are more vulnerable to the possibility of losing their income than ever before. This is because they have committed virtually every last penny to finding a deposit and paying other costs like solicitors’ and surveyors‘ fees. Mortgages are easier and cheaper to obtain and consequently people borrow large amounts to purchase homes.
But the State safetynet is unlikely to provide as much help as generally imagined. Most homeowners will not receive any State assistance at all because they have either a full-time working partner or savings totaling over £8,000. Even those eligible for State support will not get any help with capital repayments.They will only receive assistance with interest payments on mortgages of up to £100,000 – and even this will not be available for the first nine months if they have taken out their mortgage since October 1995.
Nevetheless, it is possible to take out Mortgage insurance to protect the monthly mortgage payments. Mortgage Insurance or Mortgage Payment Protection Insurance (MPPI) can be used to cover your mortgage outgoings if you are unable to work due to illness, injury or involuntary unemployment. In such circumstances it will typically pay out for a maximum of one year.
Mortgage insurance policies are available from a number of places but it is generally accepted that mortgage insurance which is obtained direct from the lender is the most expensive.
The amount of benefit offered by mortgage insurance companies does differ with £1500 per month and £2000 per month being the overall maximum allowed. Some insurers will allow you to insure your mortgage payment and then add say 25% extra cover on top to cover things like life cover and buildings insurance.
There is, however, normally a waiting period between when the claim is made and when the first payment is received.Typically this is 30 days, but with some policies it is 60 days whilst with others, particularly those from independent mortgage protection providers there is an option to backdate cover to day one.
Mortgage Insurance MPPI can cover the self-employed, but it will normally only pay out if they cease trading altogether, as opposed to merely experiencing a quiet period. This can therefore make it of questionable value. You are under no obligation to buy your policy from your mortgage lender, although they are most unlikely to volunteer this fact. Indeed, they will probably automatically include its premium in your mortgage quote, which is a very underhand tactic. It is important to realise that looking elsewhere cannot jeopardise your chances of being granted a mortgage.
If you find that you are simply too busy during the house buying process to look elsewhere then make sure that you do so when things have quietened down, because switching to a Mortgage Payment Protection Insurance policy offered by a specialist intermediary could save you thousands of pounds over the mortgage term
