Personal finance site moneynet has warned that many of the 2.5m homeowners that have mortgage payment protection insurance could be paying up to 33% more than they need to.
Moneynet claims that mortgage lenders are taking advantage of borrowers on the basis that most are ignorant of the fact that they can shop around for their MPPI.
Over 2,534,000 of UK homeowners now have MPPI (also known as ASU), a mortgage safety net in the event of a homeowner becoming redundant or suffering a serious illness or injury that keeps them away from work for a substantial period of time.
Take up rates for new policies is increasing – the Council of Mortgage Lenders reported that in 1998, 23% of new mortgages were taken out with this insurance; in the last 6 months of 2001, the figure had increased to 36%. However, premiums vary between the providers.
Richard Brown of moneynet says: “Just because a mortgage payment protection plan is one of the most expensive, it doesn't mean you are getting a better level of cover. In fact, the only difference in 99% of the cases is how much commission goes into the provider's pocket.
“It's our belief that many of the mortgage lenders are taking advantage of people's ignorance of the fact that they can shop around for their protection cover. In lots of cases, the product is sold alongside a new mortgage without the borrower giving it a second thought.
“People should be aware that they can shop around. If every policyholder switched to a lower cost policy, some £6bn could be saved nationally over the term of an average mortgage. It's time this protection rip-off was highlighted to the consumer.”