Regulation provides 'major barrier' to insurance sales - BSA

It noted that a joined up approach to the way insurance products work could benefit both mortgage borrowers and provide greater financial security to lenders.

Speaking at the Protect trade body meeting, Paul Broadhead, head of policy at the BSA, revealed concern's about restrictions currently constraining mutual lenders.

"From speaking to our members about feedback they are getting from consumers, we think regulatory intervention has provided a major barrier to the take up of insurance," he said.

"We want to make sure insurance works for lenders and consumers. Lenders should be able to include whether or not insurance is in place when underwriting that mortgage but at the moment they don't have any right to do so.

"Clearly, if someone's taken the sensible steps to protect themselves in the event of illness or whatever it might be, that means the probability of the person defaulting is reduced and that really ought to be reflected in better pricing for the customer," he added.

The FSA is currently finalising the mortgage market review (MMR), but Broadhead criticised some of the regulator's thinking about its impact on those borrowers taking out protection.

"The other challenge is on the MMR which so far has said you can only afford the mortgage based on your net disposable income after everything that goes out," Broadhead continued.

"So if somebody takes out protection that means they can borrow less. The calculation the lender has to do is, does the borrower take out this insurance which means you can borrow X, or if you don't want to do that you can take your chances and actually borrow more.

"And that is a pretty flawed approach from the regulator," he added.

The BSA is currently working on a report focusing on a joined up approach between the government and private sector to ensure greater protection for mortgage borrowers and lenders.

It plans to release the report during party conference season this autumn.