Cover for job loss exacts a high price

FROM today, if you are made redundant, fall ill or have an accident that prevents you from working and earning, you could lose you home before the Government comes to the rescue.

Previously, the Income Support you claimed would have relieved some of the financial hardship of not being in work, but not any more. Existing borrowers will have to wait two months before they get anything, new borrowers will get no help for nine months. Many borrowers will not be able to wait that long.

Repossession now awaits those who cannot afford to repay their mortgages through no fault of their own.

Borrowers drawing down mortgage funds from now on have been told that it will be their responsibility to meet interest payments for the first nine months after losing their jobs. In last autumn's Budget, the Chancellor, Kenneth Clarke, explained that the taxpayer had "picked up the interest bill too readily in too many cases".

As a result, lenders are unlikely to provide mortgage finance unless some form of in- come protection insurance is taken out. It is likely to become another compulsory insurance along with buildings and contents and some form of life assurance. Those owning properties must be wondering where the soaring costs of home ownership will end.

Lenders are furious by the new proposals. John Wrigles- worth, general manager at Bradford & Bingley Building Society, says: "We believe the proposed curtailment of Income Support is totally and utterly wrong. It can't help the housing market, which needs these measures like it needs a hole in the head.

"With limited Government help, unemployed borrowers will have to rely on their lenders' support. And despite lenders' continuing efforts to help borrowers, many people will be turfed out of their homes."

All lenders believe the new rules will have a damaging effect on an already precarious housing market. An official for the UK's largest lender, the Halifax, says: "We found this a very surprising move by a Government which we thought backed home ownership. It can only force people into rented accommodation, because if they lose their jobs there, benefit will be paid from day one."

The cost of this insurance could take a considerable chunk out of the household budget every year. The table below shows how much the UK's largest 12 lenders charge borrowers who take out their standard mortgage protection policies. The premiums quoted cover home owners in the event of accident, sickness and unemployment. Also shown is how long the cover lasts as well as the deferment period - the length of time you will have to wait before payment is made following a claim.

If your monthly mortgage repayments amount to pounds 500, you can see that this insurance would cost you pounds 15 if you are with NatWest, or pounds 36.85 with the National & Provincial Building Society. More expensive policies are offered by Nationwide Building Society and Cheltenham & Gloucester, which calculate premiums according to every pounds 1,000 of loan rather than pounds 100 of monthly cover required. But however they calculate it, it is clearly an expense hard-pressed home owners can do without.

Nevertheless, it looks as though income protection insurance will become a must for home owners. But at least one lender however is offering the insurance free of charge. The Skipton Building Society is giving its borrowers free mortgage protection insurance after the changes to income support come into effect.

Skipton, the UK's 16th largest building society, is to cover 90 per cent of its 55,000 borrowers on a block policy, which will meet their mortgage repayments if they lose their jobs.

David Charlton, assistant general manager of the society, says: "If this move means we make smaller profits in one year, so be it. We are offering better value for our members and that is the point of being a mutual organisation."

Other lenders are still looking at ways to cover the gap left by the income support changes.

The cost of cover

How much the UK's largest 12 lenders charge borrowers on their standard mortgage protection policy. All figures quoted provide cover in the event of accident, sickness and unemployment.

Lender Cost: pounds 100 of Length of Deferment

monthly cover cover

Nationwide BS 0.58p for every 24 months 90 days

pounds 1,000 of loan

Cheltenham & Gloucester 0.50p for every 12 mths 60 days

pounds 1,000 of loan

NatWest Mort Services pounds 3.00 12 mths 30 days

Halifax/Leeds pounds 4.98 12 mths 30 days

Alliance & Leicester BS pounds 5.00 12 mths 30 days

Woolwich BS pounds 5.25 12 mths 60 days

Barclays Bank pounds 5.50 12 mths 30 days

Britannia BS pounds 6.00 12 mths 60 days

TSB pounds 6.30 12 mths 90 days

Bradford & Bingley BS pounds 6.75 12 mths 30 days

Abbey National pounds 6.84 12 mths 12 weeks

National & Provincial pounds 7.37 12 mths 30 days

The new proposals

From 1 October, borrowers who qualify for Income Support will receive:

Existing borrowers

Nothing for two months, half payments* for next 4 months, full payments thereafter

New borrowers

Nothing for nine months, full payments* thereafter

*Interest payments on loans up to a maximum of pounds 100,000 (a reduction from pounds 125,000) will be calculated according to a national average interest rate.

Exclusions

Typical exclusions from private mortgage payment protection insurance:

q First 30 days out of work.

q Unemployment occurring within 90 days of taking out the insurance (and a new home loan).

q After a year of continuous unemployment.

q If not in continuous work for the year prior to claiming.

q Voluntary redundancy.

q Unemployment at the end of a fixed-term contract.

q Unemployment that is a recurrent feature of a job.