Mortgages: British lenders shamed by cynical mortgage insurance rip-off.
BANKS and building societies continue to deliberately rip off mortgage customers by selling them massively over-priced mortgage payment protection insurance (MPPI). Shockingly, many prominent lenders are also withholding vital information when talking up their products, which could jeopardise claims. Many hard pressed home owners are now paying thousands of pounds more than they need for the cover – which protects against unemployment, accident and sickness - according to a shocking new mystery shopping survey.
In a wide ranging exercise Essex-based broker Rhino Insurance this week contacted 25 major mortgage lenders. None of the lenders surveyed advised the mystery shoppers that they could shop around for cheaper rates and save substantial sums.
But more alarmingly, just one lender – NatWest – asked the MPPI shoppers about their medical history. Worse, none bothered to inform them that pre-existing medical conditions are automatically excluded from the cover. Borrowers are therefore putting themselves at risk of being tripped up by the small print if they have to make a claim.
High Street lenders’ MPPI cover is also staggeringly expensive. As the table (see below) shows, the highest charging of all is the Lloyds TSB-owned Cheltenham & Gloucester, which levies a paralysing £7.70 per £100 of cover. Next up is Abbey at £6.04, with Barclays in third place at £5.95. The average cost of high street cover is £5.98.
And it’s not only the major High Street banks like Barclays, Lloyds TSB, Halifax, Alliance & Leicester, Abbey and HSBC that are shy about coming forward with what their policies will not pay out on.
Many building societies – including Britannia, Leeds & Holbeck, Skipton and Market Harborough – were also caught out by the mystery shopping exercise.
Mortgages not insured because of pre-existing medical conditions
"It is absolutely disgraceful that these lenders do not make the most cursory of enquiries as to the status of the potential customer’s medical history," said Rhino boss Simon Burgess.
"Even the so-called mutuals, which are supposed to have a customer’s interests at heart, seem curiously mute when it comes to revealing the finer details of these policies. And it’s not as if they are exactly giving them away," added Burgess.
"These lenders charge a fantastic amount of money for this cover. By going to a cut price broker like Rhino, borrowers wanting mortgage protection can save thousands of pounds over the life of their mortgage."
And it’s not just Rhino which is concerned about MPPI being sold without the pitfalls being properly explained to customers.
A General Insurance Standards Council (GISC) spokeswoman said she is "extremely concerned about the behaviour of lenders selling MPPI.
"There is evidence that an awful lot of this insurance is sold to unwitting customers. And they are often being sold something they don’t want, which is morally wrong and bad business practice Worst of all, in far too many cases they are being sold loan protection insurance that is of no use – and that amounts to deceiving unsuspecting customers. It is little better than fraud."
Mortgage lenders are – for obvious reasons - unwilling to disclose how much they make from MPPI but with premiums exceeding £2 billion in the UK alone and with commissions to lenders exceeding 70% of premiums, this equates to a profit of nearly £1.5 billion.
A Council of Mortgage Lenders (CML) spokesman defended its members and said that most purchasers of MPPI "are happy with the product."
For more information, visit www.rhinoinsurance.co.uk
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