imperative that when an intermediary is advising a client for the first time, or is arranging a remortgage, that they make sure they have insurance in place that will keep the roof over their head should they fall upon tough times and find themselves unable to make repayments because of accident, sickness or unemployment. Every broker should be doing this in every case. The splash made by the last


government around the measures it put in place to help people stay in their homes including reducing the waiting period for Income Support for Mortgage Interest to 13 weeks and increasing the upper ceiling to £200,000, could lead many people into a false sense of security that the State will take care of them.


Besides the fact that it is highly debatable that the new government can afford such a scheme it is becoming apparent that some government inspired initiatives in this area have been subject to the law of unintended consequences.


Forbearance I am thinking here where the government has demanded of lenders a degree of ‘forbearance’ before going down the road of repossession to those customers in arrears. This has usually meant a six month moratorium has been imposed. Now, after studying the effects of compliance with this directives, many lenders are coming to the conclusion that this is simply making their customers worse off by loading on even more debt. Some are now preparing to write to those customers who still retain some equity in the property and advising them that selling up would be their best course of action.


This may be right for a few of their customers, but it strikes me that the biggest beneficiary will be the lender as this course of action means they will always recoup the full loan, so


protecting the bottom line of their business.


What the vast majority of customers want is to stay in their own homes. Being unemployed is stressful enough without having to worry about losing your home. It is clear that the only way a client can be certain of keeping the roof over their heads is through self insurance, and that means Mortgage Payment Protection Insurance (MPPI).


mppI


MPPI continues to be tarnished by association with the wider PPI marketplace and the battering it has received in the press. Many will be aware that the Financial Services Authority (FSA) forced all MPPI insurers to refund the price increases that were imposed last year as it felt the policy wording surrounding such a move was unclear and therefore unfair to the policyholder.


That was a tough call to make and


a more difficult for insurers to bear but it does not disguise the fact that the underlying reasons for pushing through premium price rises have not, and will not for the foreseeable future, dissipate. Namely, a significant increase in the number of claims and at the same time, a considerable increase in the duration of those claims. In fact, it is to the insurers’ credit that they postponed enforcing any increase for so long in such a rapidly declining market. It remains to be seen for how much longer they can financially continue taking such a benign approach to underwriting this business. The phoney war came to a swift and terrible end with the invasion of France and the low countries which ultimately led to the heroic evacuation of the British


Expeditionary Force at Dunkirk. Countries are already falling in the economic recession – Greece, Spain and Ireland – while Germany is frantically trying to put together a rescue package to save the euro.


The UK can expect to see a swift end to the phoney recession now that the general election is out of the way. Severe austerity measures are in the pipeline that will detrimentally impact on all of us. Prime Minister David Cameron knows this and has already adopted a bunker attitude together with language that suggests that he is an economic wartime leader claiming to have inherited a crisis that we must all now act to resolve.


Many brokers’ clients could turn out to be casualties in this economic war. They have a duty to their customers to make sure that they are best equipped to deal with the battles that lie ahead. They need protection that only insurance can provide. The first rule for anyone caught up in a wartime engagement is to seek cover. The same is true in the economic fire fight that awaits. n


mortgage introducer JULY 2010 39


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