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Let’s support home owners, not income
KEVIN PATERSON, SALES AND MARKETING DIRECTOR, ASSURANT INTERMEDIARY
The Council of Mortgage Lenders and Shelter have hit out at the government’s plans to link the interest rate used to pay benefits under the Income Support for Mortgage Interest scheme to the Bank of England’s published average mortgage rate as opposed to the current more generous fixed rate.
The stance taken by the CML admittedly centres on the likely administrative burden of adjusting payments on a monthly basis to benefit recipients. But it doesn’t strike me as a complicated calculation and it could be done automatically.
Shelter has taken a tougher stance, stating that the way the benefit is currently calculated is one of the key factors holding back the tide of repossessions.
We all have to do our bit to meet the cost of the deficit left by the last government and benefits aren’t immune
But if you look at the facts, any defence of the status quo quickly evaporates. ISMI is a benefit paid to qualifying claimants who are in receipt of other state benefits, typically Income Support, income-related Jobseekers Allowance or Pension Credit.
The scheme has a waiting period of about 13 weeks, and for those claiming after January 2009 it can be claimed for up to two years for interest payments on mortgages and qualifying secured loans up to £200,000.
At the moment the rate of interest used to calculate the benefit is fixed at 6.08%. But as part of the emergency Budget the government announced that the measure used will be replaced with the Bank’s average mortgage rate which is currently 3.99%. This move by the government looks like a no-brainer to me and brings the benefit back into line with its intended purpose - to support the most vulnerable in society and keep a roof over their heads by helping to cover their mortgage interest payments. It was never intended to replace income by paying an inflated level of support.
We all have to do our bit to meet the cost of the deficit left by the last government and benefits cannot be immune, especially given the profligate nature of the previous administration’s approach to them. After all, the clue is in the name - benefits.
Target home cover renewals
Recent research by Moneysupermarket.com highlights the degree of inertia we Brits are guilty of when it comes to shopping around for the renewal of our home insurance.
Almost 30% of householders renew their home insurance without shopping around and are consequently paying an average of £132 too much per year.
The over-55s are most loyal, with almost half sticking with the same provider for a minimum of two years and a staggering 10% staying put for 10 years or more. Aside from the cost of cover, I wonder how many of these customers have reviewed the cover they have in place to ensure it is still adequate for their needs.
In many cases, going to the hassle of shopping around each year to save a few pounds is not worth it. But it’s here that brokers can perform an invaluable service by doing the legwork for clients. Offering to rebroke their home insurance on renewal should be a staple of any good customer relationship management system but all too often it is overlooked by brokers in pursuit of proc fees or chunky protection indemnity commission. It is these small elements of service that create the sort of loyalty that can pay big dividends.
Prepare clients for rate hikes
Research by the Consumer Financial Education Body shows that almost three-quarters of consumers with a mortgage are not aware of the impact a 1% rise in interest rates would have on their finances.
This finding throws a spanner in the works of the Financial Services Authority’s beloved Key Facts Illustrations which outline what a 1% rise in rates would cost.
More worryingly, 15% of home owners do not know what type of mortgage they have, such as a fixed rate or a variable rate deal.
Despite the fact that 51% of those interviewed expect interest rates to go up in the next nine months, more than half have no plan to review their existing mortgage.
Now is surely the time when your clients need a mortgage review to ensure they are prepared for the likely increase in rates. It is important that they are able to make decisions from an educated perspective when this happens.
Remortgages are still pretty thin on the ground so moving their mortgage might be difficult right now but a review is a good reason to get back in front of them. And you never know - they might even buy something else.
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