What’s new is that, with effect from April this year, state benefits for the unemployed include a new deal on help with mortgage repayments. The new deal represents significant improvements in the extent of government help available and might even tempt some people into thinking that they can therefore forget about any need for mortgage protection insurance. A brief comparison of the two sources of support, however, suggests that mortgage protection insurance remains as important as ever.
The government’s new deal comes in the shape of amendments to the Support for Mortgage Interest Scheme which allows interest payment relief on mortgages being paid by those made redundant. As from April, the scheme has been extended to those with mortgages of up to £200,000 (a doubling of the previous cap of £100,000), and might therefore now appear to offer sufficient relief to a greater number of recently unemployed. The catch remains, however, that to qualify for such relief, applicants need to have been unemployed for 13 weeks (91 days). With mortgage lenders still beginning repossession proceedings after only one or two missed repayments, therefore, it is possible that the government-backed scheme will not act in time to save many homeowners.
It is also important to remember that the Support for Mortgage Interest Scheme is specifically targeted towards the unemployed and that those who are off work because of an accident or illness (and have their normal pay stopped as a result) will not qualify for this kind of assistance.
Compare these restrictions, on the other hand, with mortgage payment protection insurance (MPPI). In return for a modest monthly premium, this insurance can cover all mortgages where the repayments are up to a maximum of £1,500 a month or the equivalent of 50% of the policy holder’s normally earned income. Admittedly, there is still a minimum time (usually called a “qualifying period”) that the policy holder needs to be off work before he or she can claim against the mortgage protection insurance, but with the best of policies this is typically only 30 days (rising to 90 days with the less popular types of policy).
Crucially, of course, mortgage protection insurance is not limited to the repayment of mortgage interest, but can be used to make full repayments of the mortgage each month and thus keep the homeowner from accumulating still further debt.
Perhaps even more critically, mortgage protection insurance extends the areas of risk to cover not just unemployment, but also loss of income arising from absences from work caused by accident and ill-health. The qualifying period and the maximum amount of protection available is just the same cover whatever the risk to which the policy holder is exposed and recognises that a loss of income carries just as much a financial impact whether it is caused by redundancy, accident or illness.
In summary, therefore, the improvements to the Support for Mortgage Interest Scheme might be welcomed by those who have not had the foresight to arrange mortgage protection insurance, but the government scheme is a poor second choice for those seeking much greater financial security and peace of mind.
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