Mortgage Payment Protection Insurance (MPPI) was ‘caught in the crossfire' of the PPI scandal. With the market contracting to a handful of providers, Fiona Murphy asks, does MPPI still have a place for consumers?
For Mason, however, the fact he does not sell such products are informed by his client base, the vast majority of which are self-employed or have been working in roles for many years, such as in the NHS, where they are likely to receive significant redundancy benefits.
It’s apparent that where MPPI could fill the gap is for people in less secure jobs, first-time buyers, or even those who have not taken their first steps onto the property ladder, as some products are allowing consumers to protect rent commitments, not just mortgage repayments.
Jones says: “People frequently forget about the needs of people in the rental sector, which is growing. This sort of product is so important to them. This is a group of people with largely little or no contact with financial advisers. For people who are looking to move into the rental market as the housing market has stalled over the past few years, this is exactly the sort of product that would work for them.
“They don’t need life cover, they don’t have large debt as such for their dependants, but their dependents are relying upon them to retain the income they have got as they’re relying on them to pay the rent. Not many people are in the fortunate situation of having enough liquid savings for a 6 month buffer [if they were made unemployed]. It doesn’t have to be an interruption of employment to have a huge income on your lifestyle.
“The impact of losing your income is possibly greater than the impact on someone with a mortgage. People with a mortgage tend to have a bit longer, particularly if you build up some equity, whereas if you stop paying your rent, security of tenure is not great.”
However, even traditional MPPI can have far-reaching benefits that an adviser should take into account for their clients. One such feature is how the policies interact with means-tested welfare benefits.
Kirwan explains: “I think they do have a place because they meet a genuine customer need in protecting peoples’ mortgages against both sickness and unemployment. They have another advantage in that MPPI policies are not counted as income for means tested welfare benefits.
“That can be quite important because if you have a product that is counted as income and you are entitled to means tested benefits if you lose your job or too ill, in some cases the insurance you buy is substituting what you would have from the state not adding to it.
“If you bought £100 of insurance a month, but you only ended up with a net £50, that raises the question, is that value for money?
“Whereas MPPI up to the value of your mortgage is exempted from the means test. I think it has a place but it’s not the only product people can use to protect their mortgage.”
Conclusion
The jury may still be out on these products and the market is dwindling. However, it’s clear that advisers should be looking more closely on how consumers protect their mortgage or their lifestyles should they suffer periods of unemployment or sickness.
Whether it be through the use of MPPI, a similar product or even income protection, advisers must bear in the mind the chance of real consumer detriment if they do not have a buffer to help them through redundancy.
