Partnership plan could improve on MPPI, says JRF

A partnership between government, lenders and borrowers would provide a cheaper alternative to mortgage payment protection insurance, according to the Joseph Rowntree Foundation.

In a new report, the social policy charity recommends the Sustainable Home Ownership Partnership scheme. But it’s not all good news for lenders.

The scheme’s insurance facility would cover 10 months’ worth of mortgage payments should borrowers face unemployment, sickness or have accidents.

The report suggests the cost of SHOP could be shared between government (25%), lenders (25%) and borrowers (50%).

To minimise the effect on public spending and ensure transparen-cy and accountability, the report recommends the scheme should be a joint venture between lenders and government.

This is seen as an incentive to lenders to lend more responsibly as they would have to contribute more if their possession rates were higher than average.

A housing tax credit would complement SHOP by providing assistance to home owners in low-paid work. This would support those who face a sharp drop in income without becoming unemployed and also make it easier for owners to move from SHOP into low-paid employment without facing a net reduction in their income.

The report also suggests that SHOP should be compulsory for all new borrowers and those who remortgage. While initial coverage would be limited, this would rise rapidly as new mortgages represent 10% of all mortgages.