Last week’s Government announcement that consumers are to get their own ‘champion’ in the form of a consumer advocate and benefit from a raft of measures to help them better manage their debts is to be applauded says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses, but time will tell whether the theory works well in practice.

In its White Paper ‘A better deal for consumers – delivering real help now and change for the future’ – the Government is proposing to appoint an advocate who will raise awareness of national issues and represent groups of consumers in court to help them seek compensation and refunds.

It’s banning credit card cheques - blank cheques that are sent to card holders who are encouraged to use them as an alternative spending tool. These involve handling fees and contrary to credit cards, there are no interest free periods and no protection if something goes wrong.

Other debt-management measures include; preventing card providers increasing limits without their customers’ consent, launching a new online credit card comparison tool, courtesy of the Financial Services Authority, assessing whether monthly card minimum repayments are too low (and so allow debts and accrued interest costs to spiral) and reviewing high cost credit providers (50% + APR) who offer credit over the doorstep or via payday loans.

There are also plans to assist people who are at risk from rogue traders – they will be supported by a team formed to tackle internet-based scams and a review of protection for consumers who pay for goods but are not delivered due to the company going into liquidation.

“All of these recommendations sound great,” says Sara-Ann, “but unless the advocate has real power, he or she will not deter credit card providers from encouraging customers to plunge deeper into debt and it will probably take years to implement as there will be a consultation period.”

The Government predicts its advocate will be in post early next year, but concedes the appointee will have no legal power as consultation and a new law would be needed to allow this to happen.

Sara-Ann comments: “I’m interested to see how fast the Government will tackle rogue trader issues as it’s done little to address widespread mis-selling in the PPI sector for years. As a result of its sluggish response, consumers have sunk further into debt via prolific sales of single premium PPI, where the cost of the premium is included in the final loan amount and interest added onto both, complaints to the Financial Ombudsman Service have escalated, group actions are now being undertaken and providers have a free rein to increase their prices and restrict their cover.

“I wonder how long the White Paper review period will last for? The PPI sector has been under scrutiny for around four years now and the deadline for the Competition Commission’s remedial measures isn’t until April and October next year - some five years after the Citizens Advice Bureau first identified that features of the PPI market were seriously harming the interests of consumers.”

She continues: “Given the continued failings that have been allowed to occur within the PPI sector, I’m sceptical about how effective these measures and the role of the advocate will be. I hope I’m proved wrong and sweeping changes are made to stop consumers being encouraged to spend beyond their means, but I would equally like to see greater PPI mis-selling clampdowns and more advice on how to shop around for cover.”

Sara-Ann believes PPI is an effective debt prevention tool as it will repay monthly credit card bills for up to a year in the event the holder loses an income due to accident, sickness or unemployment and would have liked to see reference made to this product in the White Paper.

She concludes: “It only takes a couple of months of missed credit card payments to build up debts which is why this cover is so useful. Credit card providers should be pressurised into offering this cover free of charge to their customers or allow them to purchase at reduced rates.

“It’s a shame the Government didn’t consider PPI in its measures to tackle indebtedness – instead it’s left to online independent providers such as Burgesses and British Insurance to ensure quality cover is affordable and accessible to all. Premiums are calculated per £100 of monthly benefit and firms such as these two charge £1.90 per £100 for accident and sickness cover, £3.40 per £100 for unemployment and £3.90 per £100 for all three – well below other providers’ premiums.”

Anyone looking for Credit Card Payment Protection should opt for a policy that pays off all or part of the credit card debt, dependant on the amount of benefit purchased. Older-style policies tend to only pay a proportion of the total credit card bill, usually the outstanding minimum payment.

People with financial commitments are regularly reminded to take out payment protection insurance to enable them to continue paying off their debts should redundancy strike, but little attention is being given to the millions who may suffer from a stress-related illness as a result of the recession.

This is the opinion of PPI lobbyist Sara-Ann Burgess from specialist firm Burgesses who says that consumers with mortgages, loans or credit cards are encouraged to ensure they have the means to continue paying their bills should they lose their job, but less emphasis is put upon safeguarding finances in the event of losing an income due to sickness.

Payment Protection Insurance pays claimants a monthly, tax free, pre-agreed amount for up to a year should accident, sickness or unemployment occur and Sara-Ann is fearful that people - in response to an increasing number of job losses - are opting to take out unemployment only cover on their policy.

She comments: “Feedback suggests that stress levels are escalating across the UK so it’s wise to opt for accident and sickness cover as well as unemployment - it appears you’re just as likely to have your income interrupted because of sickness as you are redundancy.”

A view confirmed by researchers from the University of Warwick who recently found that one in five workers – around five million – is believed to suffer from work-related stress. Researchers also suggested some half a million people have experienced stress at a level that made them ill.

Bernard Casey from the University’s Institute for Employment Research says the current recession will intensify stress as ‘uncertainty itself breeds stress’. And this is why Sara-Ann is urging consumers to cover all eventualities and include accident and sickness as well as unemployment on their cover.

She continues: “This recession isn’t just about business, property and jobs, it’s the emotional fall out that’s incurred as a result of a friend or colleague losing their job, the guilt at having held onto yours, the pressure to perform even better and do more with less people and the need to keep up your attendance rate in case more job cuts are announced.

“No one wants to fall ill and face the possibility of having their income interrupted, but at least PPI removes the stress of not being able to pay bills if something happens. Given stress is the perpetrator of the interrupted income in the first place, it’s an invaluable tool which could support you mentally as well as financially. It removes income uncertainty.”

Marriage counselling service Relate reported calls received last Christmas were 59% up on the previous year indicating family rows and associated stress are on an upward trend. So too are the number of working days lost because of stress, depression or anxiety.

According to the Health & Safety Executive, 13.5 million days were lost in 2007/2008 – more than the 12.9million days of output lost every year as a result of the 1970s strikes. It also reports 442,000 individuals believe they are experiencing illness from work-related stress.

Sara-Ann concludes: “More and more people appear to be leaving the labour force for longer periods of time so will need some form of financial support to maintain their bill commitments. PPI can do this, but check with your insurer before buying cover. Many of the big players like to exclude certain conditions in the small print, so it pays to shop around. When sourced from a reputable PPI provider, PPI is integral to that stress-busting toolbox. ”

Independent provider British Insurance was one of the first firms to cover stress and back-related conditions, the most common reasons for sickness absence and excluded on many policies, as well as partial cover on pre-existing conditions.

Premiums are £3.90 per £100 of benefit for accident, sickness and unemployment cover – so a person looking to receive £500 a month in place of a lost or interrupted income – would pay a monthly premium of £19.50.

News this week that two thirds of workers have not saved enough to manage their debts if they lost their jobs is a scary situation to be in, but it can easily be remedied by taking out a Payment Protection Insurance policy says PPI lobbyist Sara-Ann Burgess from specialist firm Burgesses.

Research recently undertaken by insolvency specialists MCR reveals 70% of workers only have enough money to last between a week and two months in the event of redundancy and 23% would have no idea how to manage their debts if their income went.

“These are staggering statistics,” opines Sara-Ann, “and clearly underlines the important role PPI policies have to play in these recession-hit times. PPI is the only mechanism that provides a cash boost to people who have been unable to stash away funds to meet future debts.”

The policy kicks-in if the claimant loses an income due to accident, sickness or unemployment and monthly premiums are priced dependent on the amount of benefit the policyholder is looking to receive. Tax free payments can be made for up to a year and cover is available specifically to meet mortgage, loan or credit card monthly repayment costs or to pay a wider range of bills such as rent, utility, council tax and food.

Despite its benefits, very few people opt to take out and claim on this cover. According to the Association of British Insurers there were 33,895 people claiming on the unemployment section of their policy in February this year. Given unemployment reached 2.2million earlier this month, Sara-Ann suggests more people should pay into a product that will prop them up financially when hard times strike.

She continues: “Around 1.5% of the unemployed are relying on PPI for an ‘income’, ahead of their savings, if they have any. This is pitifully low and I urge anyone worried about their financial situation and job security to consider this cover as an option.”

Surprisingly, MCR found that only 14% of respondents in its You Gov survey were concerned about losing their job, despite predictions from the Centre for Economics and Business Research that 334,000 jobs from the business services sector alone will go in the next five years. MCR did, however, find that more workers are taking steps to get prepared for a job loss - 64% professed to be changing their spending habits in a bid to better manage their debts. But the consultancy, along with Sara-Ann believe these actions are ‘too little, too late’.

She comments: “Any attempt to save funds for the future must be applauded, but in order to meet bill commitments for three months or so, most people would need thousands of pounds to cover the mortgage or rent, utility, tax, food etc. This means saving over a prolonged period of time, which for many is unachievable.”
Sara-Ann has for years called for lenders to lower their costs and make these policies more easily accessible to all, but instead they have increased their premiums and restricted unemployment cover to certain sectors. But Sara-Ann remains optimistic that independent PPI providers will continue to offer policies at competitive prices and provide cover for those looking for unemployment cover only.

She concludes: “Firms such as British Insurance charge £3.40 per £100 of benefit for unemployment cover, so a person paying £17 a month in premiums would receive £500 a month for up to a year. There are mechanisms out there to help people manage their finances when redundancy occurs and they do this without eating into any savings. After all, why should people lose their savings when there’s a low cost alternative that will keep those funds intact and still pay the bills? A monthly PPI policy costs less than a monthly digital tv subscription package or a take-away for a family of four.”

As retailers continue to vie for consumers attention by offering an ever-increasing number of ‘buy now, pay later’ deals, Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses is warning people not to be taken in by agreements that could end up costing them more than they bargained for.

The Finance and Leasing Association earlier this year said the number of consumers opting for store instalment credit deals – whereby they put down a small deposit or nothing at all, take their goods home and then pay off the lump sum with interest over a number of months - is steadily increasing, despite the uptake of credit in other areas slowing down.

In February and March this year, shoppers opting for store instalment credit deals grew by 8% and 24% respectively and a month later, the Confederation of British Industry reported April retail sales had risen by 44% - the highest rate since January 2008.

Although confidence to splash the cash via low-cost store deals appears high, shoppers are reluctant to take on higher-value financial commitments. According to the FLA, loans secured on borrowers’ homes fell by 76% in March 09, when compared to the same period last year. No surprise given unemployment now tops 2.2 million.

Sara-Ann is concerned that although a bit of retail therapy is a great moral booster in the short term; in the long term it is another financial burden that will drain resources further. She comments: “We all like to think we’re getting a bargain, but the final cost of the hire purchase deal will undoubtedly end up costing more than if the item had been bought outright.

“What happens if the monthly repayments cannot be met because of a drop or loss of income? The borrower will have spent months paying for something that’s now gone back to the store because of a default on payments, so there’s nothing to show for the early outlay.”

Debt agencies all advise against building up debt levels via store cards and hire purchase deals and agree that low-level debts collectively can prove crippling. Sara-Ann continues: “There’s only a certain amount of money available each month to pay debts and whilst offers to ‘take home now and pay later’ are very tempting, these goods will take-up a proportion of the monthly salary and add to the list of financial commitments such as the mortgage or rent, utility, tax and food bills.

“Anyone with a number of financial commitments should ensure they have the means to continue making their monthly repayments should redundancy occur. Unfortunately, for many people, their savings pots are shrinking leaving them to have to consider other options such as Income Payment Protection.”

IPP is a policy that pays a pre-determined monthly amount to the clamant in the event a salary goes due to accident, sickness or unemployment. Premiums are priced per £100 of benefit and policyholders can choose how much they would like to receive every month if their income is interrupted. The higher the benefit payout, the higher the premium.

Sara-Ann concludes: “In-store credit appears to be the favoured option at the moment, but let’s not lose sight of the fact that if it’s free now, it will cost more later and you will have to have the means to make that repayment, or risk losing it. In comparison, income protection offers the benefits later on. It costs as little as £3.40 per £100 of benefit for unemployment cover with independent providers such as British Insurance, so a person looking to receive £600 for up to a year to cover their commitments would pay a monthly premium of £20.40. This equates to a yearly premium of £244.80 which could in the future return an ‘income’ of £7,200.”

News that the Citizens Advice Bureau witnessed a 179% rise in inquiries about redundancy in the first three months of the year has prompted Payment Protection Insurance lobbyist Sara-Ann Burgess to review the options available to people who fall into debt because of a lost income.

She comments: “Recent statistics show more and more indebted people are opting for bankruptcy or Individual Voluntary Arrangements. A bankruptcy order may be obtained by a creditor for debts of £750 or more, or a debtor can bankrupt him or herself by filling in forms at a County Court. The debtor’s assets are sold and money distributed to the creditors, after insolvency practitioners’ fees are taken. If there’s a shortfall, it’s written off and in most cases, bankruptcy ends after one year when the slate is wiped clean.

However, bankruptcy is usually seen as a last resort as there’s a risk of losing your house, your financial downfall is made public and it will affect your ability to secure credit in the future.”

Sara-Ann continues: “IVAs, on the other hand, are more of a private matter. They allow people to settle their personal loan debts and outstanding credit card balances within a reasonable period of time with their creditors. An IVA is a legally binding contract between debtor and creditor – a payment period and amount is agreed, usually around five years and whatever the debtor can afford - and once the final payment is made, any remaining debt is legally written off.

“They’re organised via an insolvency practitioner and although there are cases where a property has to be remortgaged to release funds, you should at least keep your home.”

The Government Insolvency Service in May announced that the number of bankruptcies and IVAs had reached new highs in the first three months of 2009. There were 19,062 bankruptcies and 10,713 IVAs – 19% more than a year ago - and insolvency specialist Begbies Traynor predicts personal insolvencies could top 125,000.

But credit risk management firm TDX warns that as the number of people opting for these arrangements continues to grow, so too will the percentage of those unable to meet the criteria required by IVAs or other debt management plans. Analysis shows that of all IVAs activated, 40% were never completed and 15% stopped paying in the first year.

In April, a third option was introduced; Debt Relief Orders. Described as cheap, accessible insolvency options for people with debts below £15,000, (excluding student or secured loans, child support payments, arrears and court fines) and little or no prospect of repaying, they effectively allow them to discharge their financial liabilities after a year.

Sara-Ann explains: “There’s a strict criteria that must be met before the Insolvency Service will approve an application. The debtor has to have no more than £50 a month in surplus income, less than £300 in assets (including savings, shares, cars, caravans, antiques etc) and must not be homeowner. Given the CAB says the average debt is £16,971 and more inquiries are coming from homeowners, this would exclude a lot of people.”

Unemployment figures released this week indicate the redundancy spiral is set to continue, despite many believing we are heading out of recession. In the three months to April, the jobless total topped 2.261 million, the highest since November 1996.

Sara-Ann concludes: “With more people contacting the CAB with redundancy concerns, I would like to see more advice and guidance on PPI – it will help people tackle their debt problems before a job loss occurs and provide a support mechanism should the worst happen. I therefore believe it should top people’s ‘things to consider when reviewing finances’ list.

“Those with this cover will get their monthly financial commitments paid for up to a year if they lose their job, removing the need to have to consider any insolvency or debt relief options. By taking out a policy now, you can effectively stabilise your finances should circumstances change.”

PPI does not have to be purchased from loan or credit card providers; low-cost, good quality products are available from standalone firms offering superior cover and benefits. For example, British Insurance charges £3.40 per £100 of benefit for an unemployment-only policy. This means a person with financial commitments costing £500 a month would pay £17 a month in premiums. In the event of job loss, £500 a month would be paid for up to a year.

British Insurance’s policies offer back to day one payouts, age-rated premiums, a choice of cover options and carer support. There’s also a free back to work service for claimants with unemployment cover which includes; self help guides, access to a specialist website, 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.

With loss of income now the main reason why people sign up to debt management plans, Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses is urging borrowers to consider PPI when taking out a mortgage, loan or credit card.

According to debt management provider, Euro Debt, ‘loss of income’ is the top response when it comes to explaining why a plan is needed and for the first time, pushes ‘spiralling multiple debts’ into second place.
Some 4000 respondents were questioned over a six month period (December 08 to May 09) and over one in four - 28.5% - cited redundancy as the key driver behind their indebtedness. A figure which Sara-Ann says could be much lower if PPI was purchased.

She questions: “For a low outlay, people can buy a policy that will meet their monthly financial commitments should they lose their job and avoid the need to set up debt management plans, so why do so few opt to purchase this type of cover? There’s a huge amount of job uncertainty out there and yet people ignore something that provides financial certainty for up to a year.”

Issues surrounding PPI mis-selling and recent news of premium hikes and cover restrictions appear to be putting people off purchasing policies, but Sara-Ann is quick to point out that not all providers are adopting the same tactics and where properly sold, low-cost PPI can be a financial lifeline.

She counters: “Over half the mis-selling complaints to the Financial Ombudsman Service are as a result of the actions of the UK’s six largest financial services groups. However, where PPI is purchased separately to the mortgage, loan or credit card provision, you will find a completely different story. I know of standalone firms such as British Insurance who have never received a complaint about their claims, price or service delivery, reiterating my point that good quality cover at affordable premiums is available to all.”

The TUC this week warned that unemployment will carry on rising for some time after the UK economy picks up and predicts jobless figures will increase until the autumn next year. There are also predictions that the Office of National Statistics will today announce unemployment figures of over three million.

“With such compelling statistics,” continues Sara-Ann, “I urge anyone taking out a loan or with credit card commitments to put in a place a mechanism to ensure their monthly payments can still be made in the event of redundancy. This is not scare-mongering - it’s encouraging people to act prudently and fend off financial adversity.”

Whilst the Bank of England confirms mortgage approvals rose in May to 43,200 – an increase of 57% on November’s figure of 27,500, money charity Credit Action says that during the three months to the end of March this year, 3,178 people reported they had become redundant every day.

Sara-Ann concludes: “On the one hand mortgage lenders are congratulating themselves for increasing the amount of credit they’re extending, and on the other, we’re seeing more and more people losing the financial capacity to repay their debts. PPI can stem that tide of indebtedness and I sincerely hope borrowers siphon off a small amount of their monthly income to pay into a policy – then they will lose that loss of income worry.”
British Insurance charges £3.40 per £100 of benefit for unemployment cover, meaning that a person spending £17 a month would, in the event of redundancy, receive £500 a month for up to a year.

Banks and building societies that continue to use devious tactics to take cash from customers must be boycotted says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses.

Her call to action follows news that credit providers are charging customers as much for monthly-paid payment protection insurance as they did for now-outlawed single premium policies – when the cost was added onto the value of the loan and interest charged on both. Payment protection meets monthly financial commitments such as loans, mortgages and credit card bills if the policyholder’s income is interrupted due to redundancy, an accident or sickness.

Consumer association Which? recently published research revealing how a customer repaying a £5000 Alliance & Leicester loan with monthly PPI in June would shell out the same in interest payments and premiums as a loan with a single premium policy in November 08.

The Financial Services Authority called for members to stop selling single premium policies earlier this year – a move that was criticised by many credit providers who foresaw a dramatic dip in profits. Financial research firm Datamonitor estimated that in 2007, single premium products accounted for 68% of a £5.5bn + market dominated by lenders.

Sara-Ann comments: “Credit providers have made vast profits out of PPI over the years and they do not want this income stream to end. Rather than lose out, they’re pressurising customers into buying cover at extortionate premiums at the time their loan is agreed. And it isn’t just in the area of PPI where lenders are fleecing customers and showing their true colours – they’re hiking up loan rates, contrary to Bank of England reductions, and plundering customers’ everyday accounts by increasing overdraft costs.”

Financial comparison firms Moneyfacts, Moneyextra and Moneysupermarket confirm this. Moneyfacts recently issued reports detailing how lenders are ignoring base rates and making their own rate adjustments in a bid to seize more cash from customers. It revealed how the unsecured personal loan rate for a person borrowing £5000 has jumped 44% in two years. The average rate in May 07 was 8.6% and it is now 12.4%.

Moneyextra highlighted how lenders have set their Standard Variable Rate at an average of 4.19% above the base rate of 0.5% - in the case of Cheltenham & Gloucester and Lloyds it is up to 5.99%. This time last year the average rate was 1.9%. It reported a third of those surveyed were unaware the average SVR is 8 times higher than the base rate and voiced concerns at customers misguided sense of loyalty towards lenders in trusting them to adjust rates in line with base rate settings.

Moneysupermarket scrutinised overdraft interest rates and found that lenders have been quick to increase the financial pressure on customers already in the red. Nationwide has hiked its Flexi Account overdraft costs from 9.9% in February last year to 18.9% in June this year and Barclays account holders will pay 19.3% from 8 June, as opposed to 15.6% last year. Lloyds, HSBC and NatWest customers will pay between 18.9 and 19.24%.

Sara-Ann continues: “It’s costing more to borrow money, at a time when the Bank of England is stabilising rates. Lenders are making customers pay more when they act in a financially responsible way and take out PPI and punishing them if they go overdrawn. People need all the financial support they can get, but they are being bled dry by the very institutions that caused the economic downturn in the first place.”

She concludes: “I urge disgruntled customers to vote with their feet and where they can, move their accounts elsewhere and search for more competitive loans. In the case of PPI, source cover from independent providers – they offer far superior benefits and cover and the premiums are cheaper.”

Standalone firm British Insurance has won more awards for its PPI portfolio and customer service than any other UK firm. Premiums are £3.40 per £100 of benefit for unemployment cover.

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.”