Posing as a potential customer Goodfellows’ Managing Director, Simon Burgess, 'phoned the top 25 mortgage providers by sales volume to obtain a mortgage with MPPI, which is designed to protect mortgage payments if you lose your job, fall ill or have an accident, which prevents you from working.
According to Goodfellows, the average cost of MPPI from the major lenders is £6 per £100, which is almost double that charged by independent providers. Lloyds TSB was the worst culprit with a premium of £7.70 per £100.
All 25 lenders failed to inform Mr Burgess that he could shop around for a better rate and save himself £3075 over the lifetime of his mortgage.
More shocking, only one lender asked about medical history or informed Mr Burgess that pre-existing medical conditions are automatically excluded from MPPI.
Furthermore, with very few exceptions, full MPPI which includes redundancy is not worth the paper it is written on for the self-employed or newly employed contract workers as it is almost impossible to claim. Notwithstanding this, not a single lender informed Mr Burgess that as a self-employed person it would be impossible for him to be made redundant.
The GISC is extremely concerned about MPPI. Its press spokeswoman said, "There is evidence that an awful lot of this insurance is sold to unwitting customers. They are being sold something they don’t want, which is morally wrong and bad business practice, and in many cases they are being sold loan protection insurance that is of no use – and that is fraud."
Mortgage lenders are unwilling to disclose how much they make from MPPI but with premiums exceeding £2 billion in the UK alone and with commissions and overiders to lenders exceeding 70% of premiums this equates to a profit of nearly £1.5 billion.
A Council of Mortgage Lenders spokesman defended its members and said that most purchasers of MPPI are happy and the relatively low take-up of MPPI was due to customer’s reliance on other types of insurance such as Critical Illness and Income Protection.
Mr Burgess, however, disagrees. He says, "People don’t take MPPI because it is expensive. Accordingly in order to preserve their profits lenders are willing to sell it at all costs and irrespective of its suitability and value for money. This is really disgraceful."
