Mortgage lenders make hundreds of millions with the mortgage payment protection insurance scam.
A survey carried out in November 2003 by leading protection broker Goodfellows reveals that mortgage lenders are selling expensive and unsuitable mortgage payment protection insurance (MPPI) with their mortgages.
Posing as a potential customer (see Editors' Notes for profile) Goodfellows’ Managing Director, Simon Burgess, 'phoned the top 25 mortgage providers by sales volume to obtain a mortgage with MPPI, which is designed to protect mortgage payments if you lose your job, fall ill or have an accident, which prevents you from working.
According to Goodfellows, the average cost of MPPI from the major lenders is £6 per £100, which is almost double that charged by independent providers. Lloyds TSB was the worst culprit with a premium of £7.70 per £100.
All 25 lenders failed to inform Mr Burgess that he could shop around for a better rate and save himself £3075 over the lifetime of his mortgage (see Editors’ Notes).
More shocking, only one lender asked about medical history or informed Mr Burgess that pre-existing medical conditions are automatically excluded from MPPI.
Furthermore, with very few exceptions, full MPPI which includes redundancy is not worth the paper it is written on for the self-employed or newly employed contract workers as it is almost impossible to claim. Notwithstanding this, not a single lender informed Mr Burgess that as a self-employed person (see Editors’ Notes) it would be impossible for him to be made redundant.
GISC extremely concerned about Mortgage Payment Protection Insurance
The GISC is extremely concerned about MPPI. Its press spokeswoman said, "There is evidence that an awful lot of this insurance is sold to unwitting customers. They are being sold something they don’t want, which is morally wrong and bad business practice, and in many cases they are being sold loan protection insurance that is of no use – and that is fraud."
Mortgage lenders are unwilling to disclose how much they make from MPPI but with premiums exceeding £2 billion in the UK alone and with commissions and overiders to lenders exceeding 70% of premiums this equates to a profit of nearly £1.5 billion.
A Council of Mortgage Lenders spokesman defended its members and said that most purchasers of MPPI are happy and the relatively low take-up of MPPI was due to customer’s reliance on other types of insurance such as Critical Illness and Income Protection.
Mr Burgess, however, disagrees. He says, "People don’t take MPPI because it is expensive. Accordingly in order to preserve their profits lenders are willing to sell it at all costs and irrespective of its suitability and value for money. This is really disgraceful."
CONTACT:
Further information: Simon Burgess on 07718 152635
Consumer enquiries: Tel: 0870 240 3946
Or visit: www.goodinsurance.co.uk
NOTES:
1 Consumer Profile
Simon Burgess adopted the following risk profile when making the calls:
Self Employed Accountant
Homeowner for ten years looking to re-mortgage
Currently off work with stress/high blood pressure due to the death of a parent.
2 Cost Saving
The figure of £3075 is calculated as follows
Monthly mortgage payment £500 x 12 x 25 (mortgage term) x £6 (premium) = £9000
This compares with a superior policy from Goodfellows which costs £5925 (500 x 12 x 25 x £3.95)
This produces a cost saving of £3075
3 Who are Goodfellows?
Goodfellows is the wholesale insurance broking arm of the family owned Burgesses Group of Companies. They have traded successfully since the early 1990’s, achieving a premium income approaching £30 million per annum.
Goodfellows foundations are based upon integrity and professionalism, but above all they consider honesty and reasonableness to be the lifeblood of our company, which will only prosper and grow if they behave ethically. Furthermore, they realise that their hardworking and highly skilled staff make all the difference. They are trained, developed and invested in, to ensure that their clients receive only the very best advice together with the very best products that are both suitable for their needs and meet or exceed their expectations.
Goodfellows are members of The British Insurance Brokers Association and The Corporation of Insurance Financial and Mortgage Advisors, and we are widely considered to be market leaders in the field of protection insurance.
Why are Goodfellows’ premiums cheaper?
Goodfellows charge less than the vast majority of our competitors because we are simply less greedy and more efficient. Unlike other brokers, who profiteer at their client’s expense; we only need to take a modest commission because our highly efficient administration system vastly reduces our operating costs. With this saving, we obtain far superior insurance policies for our clients via unique and exclusive insurance facilities that are underwritten in the London Insurance Market.
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