Friday 29 May should have been a day of celebration. It was the date the Competition Commission set for the abolition of single premium Payment Protection Insurance. But thanks to some skulduggery from Barclays and Lloyds, High Street lenders can still continue to make obscene profits from these policies, at their customers’ expense.

This is the view of PPI lobbyist Sara-Ann Burgess from specialist firm Burgesses who suggests banks and building societies will fight tooth and nail to keep hold of these profit-laden policies. Barclays and Lloyds lodged an appeal against the Competition Commission’s ruling banning the sale of single premium cover and as a result, the Commission’s remedial measures have yet to come into force.

She says: “Lenders know the writing’s on the wall for single premium products but they can’t bring themselves to ditch them. This is a £5billion plus sector and 90% of it is in the hands of High Street lenders. No wonder financial commentators are inferring that if providers lose the right to sell single premium cover, they will make up their lost profits elsewhere.”

Many lenders are already inflating their rates on other products in a bid to recoup the two or more billions of pounds profit they will lose. The recent personal loan rate rise is testament to this. The average rate for borrowers wanting £5000 or more is up from 8.6% two years ago, to 12.4% today.

Sara-Ann continues: “This means thousands of consumers are facing a double whammy; they’re boosting lenders’ coffers by paying higher than average interest rates on loans and then topping them up again by shelling out on single premium policies that are so over-inflated they fall off the scale.”

With single premium cover, the cost of the policy is added onto the loan amount and interest is charged on both, generating millions of pounds in profits for the provider and leaving the customer vastly out of pocket. Lloyds alone stated the switch from single premium to monthly policies would reduce its income by £300million over the next year.

The Financial Services Authority has said it will come down hard on lenders who continue to sell this type of cover, but Sara-Ann fears that as the Commission’s report is now subject to an appeal, the regulator may have lost its appetite to investigate providers who fail to treat customers fairly.

She comments: “Rising unemployment is making it easier for lenders to pressurise customers into buying their cover – they will fall victim to unscrupulous selling and scare tactics, especially as more people are considering PPI, keen to receive financial support should they lose their job. I hope the FSA is keeping a close eye on the activities of its lenders, as past experience shows they cannot be trusted.”

The Financial Ombudsman Service reports a high proportion of the 25,000 PPI complaints received last year were traced back to High Street lenders and the FSA has fined a number of banks, including Alliance and Leicester, Egg, LV Banking Services and HFC bank, for PPI mis-selling.

Sara-Ann counters: “PPI is invaluable in this current climate – it will repay mortgages, loans or any other type of financial commitment if a salary is interrupted because of redundancy, accident or sickness. However, people should not be paying up front for cover when a loan is taken out – they should demand their premiums are paid monthly and they must shop around for a good deal. Would-be borrowers do not have to purchase their credit provider’s cover – it is not a condition of the loan.”

Economist and retiring Monetary Policy Committee member David Blanchflower recently indicated that at least one million more people will lose their jobs before UK unemployment peaks. He predicts 100,000 will lose their job each month until the end of the year.

Sara-Ann concludes: “This is a frightening statistic. I sincerely hope lenders do not prey on the vulnerabilities of their customers and push single premium policies – they are widely acknowledged as not being fit for purpose. I advise consumers to steer clear of lenders when looking to purchase PPI – independent providers are far more competitive when it comes to premiums and offer superior benefits and support services.”

Homeowners without the financial safety net of Payment Protection Insurance to repay their mortgages should redundancy strike are being lulled into a false sense of security by Government schemes that are only applicable to a minority and in reality, will increase rather than reduce debts.

The warning comes from PPI lobbyist Sara-Ann Burgess who is concerned that homeowners are ignoring PPI - a product that ensures continuity of mortgage repayments if a salary goes – in favour of recently-introduced or amended schemes that have attracted much Government ‘hype’.

Income Support for Mortgage Interest (ISMI) has been running for around 20 years. Claims can be made 13 weeks after the job loss and if successful, up to 100% of the interest on mortgage repayments will be made for two years. Repayment costs are not included, mortgages are capped at £200,000 and payouts will only be made if there’s no salary coming into the household. To be eligible, claimants have to receive income support, jobseeker’s allowance, pension credits or other means-tested benefits.

The Department for Work & Pensions estimates 200,000 people will benefit over the next year, however Sara-Ann believes this is nothing when you consider the number of households with mortgages. She says: “200,000 as a percentage of the 11.1million mortgages in the UK equates to under 2% of households eligible to claim. This is not such a wide-ranging scheme when you put it into context, especially as it appears the majority of claimants are pensioners.”

A second scheme, billed as a Mortgage Rescue package, also appears to be benefitting very few. Homeowners struggling to make their repayments could either sell part or their entire home to a local Housing Authority and continue living there paying part rent and a lower mortgage, or subsidised rent. Figures released by the Department for Communities and Local Government show that of the 452 homeowners who applied for this scheme, only one was deemed eligible for support.

Sara-Ann continues: “A good idea in theory, but in practise, it’s a non-starter. Mortgage Rescue is only available to the elderly, disabled or those with young families and is dependent on local councils taking part. The figures speak for themselves.”

The Homeowner Mortgage Support Scheme allows cash-strapped borrowers to take a two year mortgage interest payment break. Available to those who don’t claim benefits, borrowers must pay 30% of their mortgage every month and the remaining amount owed will be added onto the overall cost of the loan. The government guarantees a portion of the interest should the borrower default and a shortfall occurs.

In April, Housing Minster Margaret Beckett announced that Lloyds Banking Group, including Halifax, Bank of Scotland and Royal Bank of Scotland, including NatWest, were supporting the Scheme. They were recently been joined by Northern Rock, Bradford & Bingley, Cumberland Building Society and Yorkshire & Clydesdale banks.
However, not all lenders are advocates and Barclays, Abbey, Nationwide and HSBC have not signed up. Recent media calculations show that a homeowner with a £150,000 interest-only mortgage at 5% would make repayments of £625. Under this Scheme, payments reduce to £187.50 and the difference of £437.50 is added to the mortgage. After two years, the loan has increased by £10,500 to £160,500 and repayments would rise to £669.

Only households that are five months or more in arrears are eligible for the scheme, which Sara-Ann reckons is useless: “Lenders tend to start repossession hearings after three months, so it’ll be too late by then. Also it’s never a good strategy to defer payments as these figures illustrate - you’re just increasing the amount you owe in the long term.”

She concludes: “Mortgage arrears are in freefall – 205,300 in the first three months of this year – and PPI is the only tangible support scheme that can combat this. It makes repayment and interest payments for up to a year, effectively reduces the overall amount owed, and provides support services to help you get a job. No Government or lender scheme offers this – all they do is increase the debt and frustrate millions who are unable to claim, leaving them high and dry.”

Low-cost PPI is available from independent providers such as British Insurance who are widely-recognised as offering more competitive premiums and comprehensive benefits than credit providers.

These hard-pressed times have prompted banks and building societies to introduce a number of money education schemes. They’ve been launched in an attempt to make consumers more financially-savvy and despite them described as offering independent and impartial advice, Payment Protection lobbyist Sara-Ann Burgess from specialist firm, Burgesses, thinks otherwise.

She is sceptical about their altruistic motives – referring to findings from the Competition Commission‘s investigation into the PPI sector and citing Which? feedback on NatWest’s MoneySense service.

Sara-Ann says: “Let’s not forget the morals of the High Street banks and building societies were seriously questioned by the Commission after learning these PPI providers sell 80% of the policies in the market, take over 70% of premiums in commission instead of using it to pay claims, encourage customers to waste £350m a year on cover that fails to pay out and lures borrowers with low APR rates and then adds PPI onto the loan, dramatically increasing the APR.”

The Commission found issues with over-pricing, product design and irresponsible/pressurised sales, asked whether lenders were using PPI products to clear their debts and stated they were seriously harming the interests of consumers. In June 2008, it criticised providers for overcharging consumers £1.4bn a year – representing a 490% return for the 12 largest distributors.

Sara-Ann continues: “Now all of a sudden, these ethically-barren organisations have turned over a new leaf and are jumping at the chance to launch initiatives for the good of the consumer. We all know there’s a hidden agenda to push their products even more and so prop up their failing profits and my suspicions are beginning to be confirmed.”

Earlier this month, Which? released its mystery shopper findings indicating NatWest’s MoneySense service was far from impartial. The service was promoted on national television, explaining how MoneySense advisers in 1000 branches were there not to sell, but to give free impartial financial guidance. When researchers put this to the test, they found that only four out of 20 branches provided impartial advice without an attempt either at, or after the meeting, to interest customers in new products.

In some instances, the advisers spoke exclusively about NatWest products, made no reference to shopping around for the best deal and passed enquirers onto customer service advisers. When asked about what products offered the best rates, a NatWest product was offered, despite it being one of the least competitive.
The Financial Services Authority is piloting a Money Guidance Service in the North West and only last week the Nationwide launched a Money Active scheme working in a three year partnership with the Citizens Advice Bureau. Nationwide announced it was investing three million pounds to fund the training of 1300 CAB volunteers to run financial education sessions that are set to benefit 10,000 people.

Sara-Ann concludes: “It’s been made clear the financial sessions will be run by impartial, independent volunteers and rolled out in an increasing number of CAB offices over the years. I sincerely hope this is the case, as we’re beginning to find out that schemes launched under the guise of impartiality are failing to live up to expectations.

“I also wonder why millions of pounds are being investigated in a scheme for the ‘greater good’, when technically it will do little to boost Nationwide’s coffers. What strategy will Nationwide use to recoup these millions? The optimist in me says the scheme is being launched for the greater good and to help consumers avoid getting into a financial crisis, but the pessimist worries volunteers will feel compelled to plug their products.”

News that home repossessions in the UK have risen by 50% in one year is shocking and indicates that High Street lenders’ actions speak louder than their words, says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses.

The Council of Mortgage Lenders reports repossessions shot up to 12,800 in the first three months of this year – a dramatic increase from 8,500 in Q1 2008. And this is despite assurances from the CML that its members do not want to repossess if a realistic alternative solution can be found.

Sara-Ann believes that as job losses continue to stack up and borrowers fall behind with their mortgage repayments, more and more homeowners could find themselves without a roof over their heads unless they take action now to avoid becoming yet another lender statistic.

She explains: “Lenders are working hard to appear sympathetic to customers’ financial difficulties, but these statistics show this is far from the truth. They claimed months ago that repossession would always be a last resort, so why have so many people lost their homes in the first three months of this year? Borrowers must not rely on the goodwill of their mortgage company to keep them afloat when times are tough, instead, they should consider other options.”

Already this year, the number of homeowners with arrears of more than 2.5% the mortgage balance has spiralled to 205,300 – a 62% increase from 127,000 in Q1 08. Sara-Ann has for months called for lenders to introduce compulsory PPI with all new mortgages, and foot the costs themselves; however her request is being ignored.

She continues: “I cannot understand why they’re not doing something that will relieve the pressure on them and their customers. After all, it’s the insurance industry that will foot the bill for the claims, so it’s a win, win situation for lender and borrower. PPI will not only reduce the number of repossessions, but cut down the cases of people in mortgage arrears.”

Also known as Accident, Sickness and Unemployment cover, PPI pays the mortgage for up to a year if the policyholder loses their job, has an accident or becomes sick and is unable to draw an income. Sara-Ann suggests that if lenders are unwilling to offer this cover, free of charge, then borrowers may want to pay out themselves for a low-cost policy sourced from an independent provider: “British Insurance charges £20.40 a month for an unemployment-only policy that ensures a return of £600 a month, paid direct to the lender if redundancy strikes. This is the only tangible solution that covers the mortgage in the absence of a salary or savings.”

Although the Government introduced a number of measures to help borrowers cope in these recession-hit times, evidence suggests more radical solutions are necessary.

Money charity Credit Action says that the Government’s Mortgage Rescue Scheme is failing indebted homeowners. It reports only three households have been able to clear their debts by selling their properties to either the local council or a housing association and renting them back.

The Mortgage Support Scheme, which allows the recently unemployed to defer up to 70% of their mortgage interest payments, has also come under fire from critics who suggest it does little more than increase homeowners’ indebtedness. Less money paid into the mortgage now, builds up the amount owed later on, with extra interest.

Sara-Ann comments: “Whilst all these schemes are well intentioned, they will not help improve the financial situation of the thousands who at risk of losing their home - all they do is increase future debt. I’d much rather see a solution such as PPI put in place, it is the only way to reduce the overall amount owed in the long term and provide some much needed financial breathing space for the borrower.”
Credit Action reports one home is repossessed every 10 minutes, confirming Sara-Ann’s view that lenders are far from sympathetic when it comes to keeping people in their homes. She concludes: “I’d like to believe the CMLs claims that repossession figures will go down in the next quarter, but I’m not convinced this will be the case. If lenders were really keen to act in the best interests of consumers, they’d introduce a scheme that benefits more than a handful of people and avoids debt escalation.”

Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses is reminding people that if they do not have any savings to fall back on in times of hardship, they can always take out cover that either provides a monthly income or pays specific loan or credit card bills, should they lose their salary.

Feedback from credit reference agency Callcredit prompted Sara-Ann to give this advice after it emerged that 21% of the UK population does not have any savings at all and 38% could not survive beyond one month on their reserves.

The agency released statistics after quizzing over 2030 respondents in April. It also found one in four are not currently saving, 65% are more concerned about their financial situation than they were a year ago and 41% do not believe their situation will improve in 12 months time.

Sara-Ann comments “People who are without an emergency back-up plan such as savings, must consider other ways to maintain financial stability should their income become interrupted. Redundancy is the major threat, but an accident or sickness could also affect earnings and a person’s ability to meet their financial commitments.”

Figures released by the Association of British Insurers, indicate that despite PPI claims figures increasing in line with spiralling redundancies, very few people who lose their jobs receive monthly mortgage payments, courtesy of this cover. In January, 32,077 claims were received – a 203% increase on the previous year’s figure of 10,581.

However, it only represents around 1.45% of the 2.2million unemployed between January and March.

The Council of Mortgage Lenders confirms less than one in five borrowers with mortgages continue with their PPI policies, despite them paying loans for up to a year if job losses occur. Sara-Ann continues: “There’s appears to be a general malaise surrounding PPI - people have no desire to set aside a small amount to buy something that prevents debts mounting and yet very few have enough to pay one months worth of bills, let alone the three months that experts recommend you set aside for a change in circumstances.”

She concedes that if people are unable to spare cash to put into a savings pot, it’s unlikely they’ll have enough to pay into a PPI policy. However, feedback from Uswitch on the number of households shelling out for digital television, suggests consumers do have the funds, for what in Sara-Ann’s view, are luxuries.

Uswitch says 89% of households have digital on their main tv set and collectively they pay more than £5bn a year for the service. This is 23% more than was spent on digital tv in 2008 and equates to an average of £228 per household.

Sara-Ann responds: “This shows that people do have funds to spend on a financial safety net, if they wanted to. For £17 a month - less than households spend on digital tv - you could buy a policy from an independent provider that pays £500 worth of bills every month for up to a year. Those unwilling to give up their extra channels and rely on Freeview instead, could perhaps consider cutting back on their digital bundle and make savings that way.”

With BT announcing 15,000 job losses across the UK this week and predictions that unemployment will top three million by the end of the year, Sara-Ann is asking consumers to assess their priorities, and if they are without savings or have depleted funds, look for another source of income to pay future bills.

She concludes: “It’s wise to have some sort of back-up plan and in the absence of savings, there are low-cost policies that provide financial stability. Money spent on luxuries now, will not pay for those necessities if a salary goes.”

Standalone firm British Insurance charges £3.40 per £100 of benefit for unemployment cover. A person spending £17 a month or £204 annually, would, in the event of redundancy, receive £500 a month or £6000 a year.

News that consumers are increasingly bartering to ensure they get the best deal for goods and services comes as no surprise, says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses. “But what is surprising,” she comments, “is that more people don’t use the same tactics and scrutinize what they’re getting for their money when it comes to PPI.”

According to comparison website uSwitch, 73% of UK adults are loathe to pay full price for items and undertake a variety of money-saving activities to help boost their coffers. These include; cutting hair, stopping tipping in restaurants, using meal discount vouchers, saving small change in a piggy bank and taking packed lunches to work.

Despite watching the pennies in everyday activities, Sara-Ann believes consumers are more free and easy with their cash when it comes to PPI -.insurance that provides a monthly income to meet a variety of bills or make specific payments for a loan or mortgage, should the policyholder lose their job, become sick or have an accident.

She explains: “People are regularly encouraged to shop around and save money on their mortgage deals and general insurance premiums, but I fear PPI is overlooked. Consumers tend to buy the cover that’s offered by their loan provider, often in the mistaken belief it will help with their credit application. As a result, they’re shelling out for premiums that are often four times more expensive for mortgage protection, five times for income and 10 times for loan cover. And in many cases, these policies have so many exclusions they would never pay out on the claim.”

A view borne out by research undertaken by Which?. The consumer champion estimates there are around six million policies in force in the UK and reckons between 1.7 and 2.1million people will have their claims rejected because they fall foul of the exclusions. It is this figure that disturbs Sara-Ann.

She continues: “Consumers are generally very careful about spending money and accounting for every penny. But there are instances where cash is literally being poured down the drain every month because people are not checking the small print on their policies or shopping around for a better deal with cheaper premiums and superior benefits.”

As well as meeting the financial commitments if an income is interrupted, independent PPI providers, such as British Insurance, include partial cover on pre-existing conditions, plus stress and back-related conditions (two common reasons for sickness absence and excluded on other policies).

The firm also insures people who are renting and in shared ownership schemes, alongside homeowners, and is one of a few to still offer unemployment-only cover at a time when job losses are rising.

It offers; back to day one payouts, age-rated premiums, a choice of cover options, carer support and a free back to work service for claimants with unemployment cover. Benefits include; self help guides, access to a specialist website, a job vacancy database and telephone advice via employment counsellors. Claimants can get ongoing support and guidance on work searches, career changes, state benefits, managing time effectively, tips on CV preparation and help with interviews.

Policies have free Health, Employment and Legal Protector cover, provide 24/7 health and legal helpline services, plus Legal Expenses in relation to employment and bodily injury disputes. The legal advice line aids people with personal legal problems, whilst the health and medical helpline provides information on general health and non-diagnostic matters such as allergies, side effects of drugs and health service waiting lists. The counselling helpline also offers a confidential service with onward referral to relevant voluntary and professional services where appropriate.

Sara-Ann concludes: “This is a comprehensive list of benefits and I would urge consumers with PPI to check what they’re paying for their cover and assess what support they will receive if they have to claim. 98% of policies are sold at the time of the credit application, so I urge consumers to compare providers, determine how their policy stacks up and if they’re unable to barter for a better deal, switch to another insurer. I fear the money saved on packed lunches and hair cuts is being spent on over-inflated premiums and sub-standard cover.”

Attempts by housing-related trade bodies to bring back Mortgage Indemnity Guarantee schemes demonstrate, yet again, how keen members are to put their own financial well-being ahead of consumers. This is the view of Payment Protection Insurance lobbyist Sara-Ann Burgess, who says elements of the recently-published Association of Mortgage Intermediaries’ report - The Mortgage Market, Fiscal Stimulus - are misguided and ill-considered.

Mortgage Indemnity Guarantees or MIGs are single premium insurance policies designed to protect lenders against financial loss if a property is repossessed. The borrower pays the premium up front and if the loan defaults and repossession looms, the policy is claimed upon - ensuring the lender is reimbursed the amount it loaned. As is the case of single premium PPI, which can no longer be sold at the end of this month, MIGs provided lenders with high profits, but little benefits for consumers. As a result, demand for this product petered out.

AMI says it should be re-invented and is calling for the Government to partially underwrite the policy in a secondary capacity, relieving pressure on insurers. The Building Societies Association also supports a re-introduction of this scheme, stating it would allow members to offer higher Loan To Values above 70%.
Borrowers without hefty deposits are keen to borrow the full purchase price of their property, however lenders will only currently release funds that equate up to 70% of the property’s value. AMI argues that if lenders had assurances, courtesy of MIGs with negative equity guarantees, they would release more funds and so kick-start the housing market.

But Sara-Ann says this is irresponsible and will encourage consumers to borrow beyond their means – just as they have done before. She comments: “Is this the best they can come up with - bringing out a product that was discredited years ago? It’s being dusted off and sold as a consumer benefit by saying it will allow consumers to borrow more. The more they borrow, the harder it will be to meet those commitments but this doesn’t appear to worry lenders. If their customer has a MIG, they’ll get a nice return on the property, leaving the homeowner out in the cold – literally.

“That’s no benefit, and as for asking the Government to partially fund this hare-brained idea … billions of pounds of tax-payers money is already being used to prop up other schemes, so we don’t need any more – it’s a complete fallacy.”

The report says with mortgage funding and consumer confidence reduced, the need for a targeted fiscal stimulus is required immediately. This measure, along with other recommendations such as; abolishing Stamp Duty/Land Tax and Home Information Packs, re-introducing Mortgage Interest Relief at Source and Real Estate Investment Trust, plus setting up tax-free savings accounts, AMI believes, will support consumers to become homeowners.

Sara-Ann counters it will simply increase levels of indebtedness. She continues: “The report confirms first time buyers are borrowing 5.1 times their earnings and even says jobs that might have looked safe a month or two ago, no longer do. So how can they come to the conclusion that vulnerable consumers should be saddling themselves with more debt, via higher loans and paying up front for an insurance policy that might clear their mortgage, but will not keep a roof over their head?

“If the Association truly does have the best interests of consumers at heart – it should recommend including PPI with every mortgage offer and if it’s so intent on asking the Government for help, should request it partially underwrites these policies? Consumers and lenders would both benefit then.”

PPI will meet mortgage repayment costs for up to a year if the borrower is made unemployed or suffers an accident or sickness. In Sara-Ann’s opinion this is a much better way to instil confidence in nervous lenders and consumers. She concludes: “PPI is far more effective as it protects lenders and customers against unforeseen circumstances. Lenders will still receive their payments, as the money can go direct to them, and consumers will keep their homes.

“Alternatively, AMI’s members should focus their efforts on sourcing PPI that’s affordable and offers extensive benefits and support services. This wouldn’t involve any discussion groups, meetings or Government intervention – just practical support to borrowers who need it now.”

Policies can be sourced from independent firms such as British Insurance. It’s widely-recognised as offering market-leading products with competitive premiums, has won more awards than any other PPI provider and has never received a product or service complaint.

Car manufacturers are putting High Street lenders in the shade when it comes to ensuring customers can repay their loans should their circumstances change says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses.

Last month a number of firms, such as Honda, Volvo, Renault and Nissan, started offering free redundancy payment protection cover with their finance deals. It is hoped the move, designed to boost consumer confidence to borrow again and tackle head-on unemployment fears, will kick-start car sales and reverse sliding sales figures.

According to the Society of Motor Manufacturers and Traders, new car registrations were down 24% in April. Of those who purchased new cars in the last 12 months, the Finance & Leasing Association reports 52.9% (462,000) used dealer finance. With 0% finance deals commonplace and lenders putting the brakes on their credit offers, dealerships are confident more customers will turn to them for credit, increasing this figure.

Honda was the first manufacturer to offer complimentary PPI and as is the case with other dealerships, will meet customers’ loan repayments for up to a year should they lose their jobs, providing they’re without a salary for three months or more. Volvo also pays out if accident or sickness occurs and provides life cover.

Sara-Ann comments: “I’m delighted these manufacturers are being pragmatic and considering the effect it will have on them and their customers if the loan defaults. For months I’ve called upon High Street lenders to do the same, but these requests are falling upon deaf ears. It comes to something when firms outside the financial services arena are leading the way in responsible lending and I’m hopeful others will follow their example.”

However, free PPI is only available with certain models and specific types of finance. With Honda it’s with Civics and CRVs and 0% APR Hire Purchase or 4.9% APR Personal Contract Plans. The interest that would have been charged to the customer is reimbursed by Honda UK. Volvo includes it with the C30, S40 and V50 models but only accepts claims from people during the first 18 months of car ownership.

Sara-Ann suggests customers check the figures, small print and terms & conditions before signing on the dotted line. She says: “I would never deter anyone from taking out PPI, it’s a prudent thing to do and could provide a financial lifeline if redundancy occurs, but these offers are only applicable to people meeting a certain criteria and there will undoubtedly be exclusions and possibly extra costs involved with the finance deal. As with any product or service, it pays to shop around. ”

The FLA says 48% of new car buyers opting for garage finance deals choose Personal Contract Plans – where a deposit is put down, a proportion of what’s owed is paid over a pre-agreed period of time, so reducing the term and payments, and the remaining amount is paid off at the end of the loan period. If borrowers are unable to pay the outstanding sum, they can hand the car back to the garage and walk away, find money from a separate source or sell their car back to the garage after three years. The dealer uses the money to repay the final loan amount and puts any left over towards a new model.

Forty four per cent choose Hire Purchase – where the loan is secured against the vehicle and monthly payments are made. When the last repayment is received, the purchaser becomes the rightful owner. Around 6% take up the Leasing option where the car is rented over a period of time.

Sara-Ann continues: “Whatever finance deal is chosen, whether through a garage or separately, it’s vital to consider PPI. I applaud any initiative that underlines the importance of having this cover and cannot understand why others are so sluggish in offering the same incentives to their customers. If dealers can safeguard customers and help them keep their cars, you’d think mortgage lenders would do the same. After all, there’s a home and family’s well-being at stake.”

In a bid to stop the number of personal insolvencies spiralling to yet another all-time high, Payment Protection Insurance lobbyist Sara-Ann Burgess is calling upon households with credit card or loan commitments to ensure they have the means to continue repaying their debts if their income is interrupted.

The Government Insolvency Service recently announced that 29,755 people declared themselves bankrupt (19,062) or opted for Individual Voluntary Arrangements (10,713) by the end of the first quarter this year – 54% more than in 2008. Money education charity Credit Action estimates that one person will be declared bankrupt or insolvent every 3.3 minutes during 2009.

Whilst Sara-Ann concedes that for many insolvency may be the only answer to insurmountable debts, she does question whether this ever-growing statistic could be reduced with a proactive approach to debt management. Insolvency specialist Begbies Traynor suggests personal insolvencies will rise above 125,000 this year, reflecting high levels of personal debt and rising unemployment.

She says: “We’re always hearing about the options open to people once they’ve fallen into debt, but little attention is given to how to prevent it in the first place. I believe PPI is a far more effective debt management tool, addressing indebtedness early on. This proactive approach, rather than reactive strategies, could make a huge difference to thousands of families.”

More and more people are choosing options such as bankruptcy, IVAs or the newly-introduced Debt Relief Orders as they are all designed to wipe the financial slate clean. They either allow the debtor to sell off assets to pay creditors, make payments over an agreed period of time that meet a proportion of what’s owed or discharge any financial liabilities after a year. In many cases, the debts have grown because of unemployment.

Sara-Ann continues: “Very few people like to consider the financial consequences of losing an income, but if they have loan or credit card repayments to make, they must. I’m regularly hearing about debt-laden families where an income has been lost and monthly repayments are missed. PPI addresses this as it pays a pre-agreed monthly sum for up to a year in the event of redundancy. In this current climate having a policy is common sense, especially if there are no savings to fall back on.”

Credit Action reports the average UK household debt is £9,280, excluding mortgages, an amount that may appear perfectly manageable. But the likelihood of having to service that debt without an income could become a stark reality given the charity’s statistics reveal unemployment increased to 1,967 people every day during the three months to February this year.

And with the Office of National Statistics reporting that weekly wages fell to £459.10 in February - the fastest drop in 60 years - the opportunities to build up savings are slim.

Credit risk management firm TDX recently highlighted that 51% of IVAs are taken by homeowners. In early 2008, they accounted for 34% of them. With fewer refinancing deals available, homeowners have been left with little choice but to opt for an IVA.

“Or have they?” questions Sara-Ann. “I appreciate people may balk at the idea of paying into a PPI policy to protect themselves against the financial consequences of redundancy, but look at the statistics – they’re compelling. This is another form of debt management but is something you do before and not after the situation has got out of control.”

She concludes: “I’m urging people to change their mindset and put in place a mechanism that will reduce the likelihood of financial hardship in the future. Already this year 7,241 people are contacting Citizens Advice Bureaus every day with debt problems, doing something now, means you will not be one of them.”

Low-cost PPI is available from standalone firms that are widely-recognised as offering far more competitive premiums than those offered by credit providers. One company, British Insurance, has won more awards for its customer service and products than any other PPI provider in the UK.

Lenders are continuing to fail consumers by offering gimmicky mortgage deals minus any financial protection for people who in the future, may be unable to continue loan repayments because of a change in circumstances, warns Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses.

Her comments are in response to a recent Halifax announcement that it’s offering to pay stamp duty for first time buyers who spend £175,000 - £250,000 and half their council tax costs for a year. Other offers included low-rate fixed deals, courtesy of the Royal Bank of Scotland and the Woolwich, plus the opportunity to borrow more than is usually dictated by salaries, via the Co-op, who is allowing potential customers to use parents or relatives as mortgage guarantors.

Sara-Ann is outraged that yet again, lenders are behaving irresponsibly and using smoke and mirror tactics to encourage people to increase their financial commitments, without offering a free safety net such as PPI, which will prove invaluable if a salary goes.

She explains: “Have these businesses learnt nothing over the last year or two? We’re in an economic crisis - job losses and a reliance on credit continue to reach all-time highs, savings accounts have been plundered and most people are wondering how to pay next month’s food and utility bills. Yet here they are, offering incentives that in my opinion, offer no long tem benefits to people – they’re a ‘flash in the pan’ short-term seduction. Customers would be far better off with a free PPI policy.”

PPI will meet mortgage repayments for up to year in the event of accident, sickness or unemployment and is beginning to grow in popularity as redundancy figures spiral out of control.

Sara-Ann continues: “If I was saddled with mortgage debt and lost my job I’d much rather have my mortgage paid for up to a year, than know the council tax is covered for six months. Payment of council tax will not keep a roof over my head – lenders have got their priorities all wrong again and mistakenly believe consumers will be lured into deals with no substance.

“I’ve urged lenders to include PPI free of charge in their mortgage offers for months, but this is falling upon deaf ears. They’ve proved they can easily include extra offers in with the mortgage, so why not give something that provides peace of mind during times of economic instability? It’s reckless to allow people to borrow beyond their means and for the Co-op especially as it flies in the face of their so-called ethics. Why offer more money than can realistically be repaid? Salary calculations are there for a reason and should not be ignored. I thought lenders were looking to reduce the level of mortgage arrears and repossession, not encourage them.”

Sara-Ann calculates that the Halifax, instead of shelling out up to £1000 of council tax per new customer, could have purchased three PPI policies for customers. She says: “PPI cover with one of the standalone providers is far cheaper than lenders, so for example a British Insurance unemployment-only mortgage policy at £3.40 per £100 0f benefit, would cost £27.20 per month or £326.40 annually, for someone making £800 mortgage payments. If redundancy occurs the policy would pay out £800 per month for up to a year, totalling £9,600 and that’s just for one person.”

Three policies at £326.40 per year would equal £979.20 and this doesn’t take into account the money spent on stamp duty. Sara-Ann is of the opinion that these latest marketing tactics perfectly illustrate just how short-sighted lenders are. She says: “They’re not working for the best interests of consumers, if they were, they would act responsibility and help customers proactively manage their debts by providing them with the tools to do so.

I suspect lenders will never offer PPI free of charge because they can make too much profit in-branch by charging for it. However it’s the perfect way to reduce the number of customers defaulting on their mortgages and would halt their long term losses as well.”

In response to the increasing number of unemployment-only PPI claims – the ABI reports they increased by 200% last year – the Halifax recently withdrew its PPI cover from the intermediary market. Sara-Ann concludes: “This confirms lenders are not interested in the financial well-being of customers - insurance is supposed to deliver support at a time you need it most, but the Halifax has cut and run from a whole area of the market, scared it will have to pay too many claims. If it has the money to invest in stamp duty and council tax, it has the money to prop-up customers via PPI. I look forward to the day when a lender offers a mortgage deal that truly reflects the needs of customers – until then I urge consumers to beware of lenders bearing gifts.”