A protection policy should remain a key consideration for homeowners despite the Government's pledge to provide extra help for mortgage holders who lose their jobs, financial research firm Defaqto says.
The Department for Work & Pensions (DWP) today said it was reforming the Income Support for Mortgage Interest (ISMI) system.
From April next year, the benefit will cover the interest on the first £175,000 of the mortgage after 13 weeks of unemployment, the DWP says. Currently it will only cover the first £100,000 and does not kick in until after 39 weeks.
Brian Brown, head of insight at Defaqto, says while the reform represents good news for homeowners, it may be a mistake for them to ignore the benefits of some protection policies, such as mortgage payment protection insurance (MPPI).
“There is still the issue though of how you would survive if you lost your job,” he says. “You will still need to repay the mortgage for the first 13 weeks of unemployment, and after that ISMI only covers the interest on the mortgage.
“Although your house is more likely to be safe in future, you still need to consider how you will pay all those other bills as well.”
Brown says an obvious remedy is MPPI but points out recent “very bad press” may put some consumers off. He says homeowners may want to consider Short-Term Income Protection (STIP).
“There are a number of companies selling STIP policies,” he adds. “They work very much like an MPPI policy but allow you to insure a proportion of your income, rather than just a mortgage.”
But Brown says homeowners will be delighted with today’s development. “This is very good news,” he says. “In the current climate there is a good chance that an individual not able to pay their mortgage because they lost their job is likely to have their house repossessed long before the government assistance cuts in.
“From next April they will be eligible for more support, and after only three months.”
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