Mortgage Protection should not be compulsory

D

Dr Strangelove

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The bigger issue is the Consumer Credit Act 1995 which obliges almost all mortgage borrowers to take out a life insurance product and for the lender to sell them one.

This (I think) was framed as a kind of consumer protection measure. The logic was that the wife wouldn’t have a mortgage if her husband dropped dead leaving her without an income.

My own view is that the policy is long past its sell-by-date. Lending is inherently risky and lenders should be allowed to assess customers on their own terms. Lenders average out risk over thousands of loans and should be able to price accordingly without obliging people to take out life insurance products.

For example take a couple in their forties on an income of €75k each where one spouse had cancer three years ago. Couple wants to borrow €200k against a €1m property in a trade-up. It should be up to the lender to decide whether they should lend and on what terms. In this example the mortgage is serviceable on one spouse’s salary, and there is huge equity.

Lots of countries have perfectly functioning mortgage markets without this legislative obligation on borrowers and lenders.
 
Dr Strangelove said:
For example take a couple in their forties on an income of €75k each where one spouse had cancer three years ago. Couple wants to borrow €200k against a €1m property in a trade-up. It should be up to the lender to decide whether they should lend and on what terms. In this example the mortgage is serviceable on one spouse’s salary, and there is huge equity.
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But it is up to the lender, there is provision in the CCA for this very circumstance and the bank can accept a waiver of mort prot. Problem is there though it is at the bank's discretion and so if they won't give it then that's it. I normally don't have much good to say about Ulster Bank but they were great for giving waivers where warranted, if you met the criteria of the CCA you pretty much got it!
 
AIB kindly gave me a derogation for mortgage protection insurance as I am over 50. Cant understand why it is a legal requirement for the under 50's as ultimately the bank hold the deeds and have the right to go through the repossession procedure to recoup their money ! Seems like a double guarantee on a loan. Sure it's Ireland so it's probably "to be sure to be sure".
 
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Flybytheseat said:
Seems like a double guarantee on a load.
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I agree. People get sick and die pretty predictably so in practice this all averages out over a portfolio of thousands of loans.

What really matters for the health of a loan book is macro things like rates, house prices, and unemployment. None of which can be insured against.
 
DannyBoyD said:
Process to do so can take decades; insisting on insurance is far easier.
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I agree but this is inherent to mortgage lending in Ireland even to perfectly healthy people too.

I’m genuinely unsure as to whether lenders would insist on life insurance absent the CCR provisions.
 
The insurance is there for 2 reasons.

It protects the bank in certain cases, for example if the mortgage holder was killed in a fire and the house was destroyed in it also. In such a case, the value of the repossessed house may not cover the outstanding debt. More importantly, it also gives certainty to the bank, without the need, hassle and cost of perhaps evicting a widow(er) and kids and repossesing the property.

It protects the mortgage holder(s) where when perhaps the main breadwinner dies, then at least the surviving spouse and kids know they won't lose a roof over their head.

Removing it from a banks perspective will drive up the interest rate of mortgages since the bank has to factor this new risk in. I would imagine it could also have an impact on a bank's ability to borrow from the market since it's existing loans could be deemed to be of a higher risk thus impacting on the banks own credit rating. Therefore if the cost of money to the bank goes up, they will pass that on to a borrower
 
I don't see what is wrong with having to have mortgage protection. (I don't do very much life cover in my business, so I don't have a financial interest in this area).

- The bank wants to make sure their exposure is protected. Especially in a country where the repossession system can take decades. They also don't want to be in the media for kicking a grieving family out of their home.
- The premature death of a spouse is a highly traumatic event, especially if there are young children involved. Having the families biggest financial obligation paid off in full is a relief. The surviving spouse doesn't have to use savings to cover debt while they mourn and possibly take time off work.
- There is provision there for people to be exempted.
- Mortgage protection isn't expensive.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Peanuts20 said:
Removing it from a banks perspective will drive up the interest rate of mortgages since the bank has to factor this new risk in.
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I agree but this is a question of degree.

I mean if mortgage rates are 1 basis point higher is this a bad thing if people aren’t forced to purchase it?
 
I for one am happy to have mortgage protection, arranged my own didn't use the banks. I was buying and selling during covid, I over insured in cover and term, took out a policy early to cover myself from trying to take out a policy and risking having to declare having had covid and messing up my drawdown.

Also having watched my sister lose her husband prematurely, I can absolutely see the necessity for it, assuming of course it pays out. I have been on the other side and helped a friend secure a partial settlement due to non disclosure / getting dates wrong with smoking cessation records with several different doctors.
 
I agree that it a good thing for people to have to have it, if you didn't compel them then you can be sure the bulk of them wouldn't bother! But the exemptions that are provided for should simply be provided and not left up to the discretion of the bank especially for the likes of cancer survivors. I'd be more for compelling lenders to give the waiver where the customer meets the CCA requirements or alternatively banks work with insurance companies to provide some small measure of life cover to compromised lives. I don't think you can seriously expect fully risk based business like insurance to not be able to consider serious health issues.
 
Flybytheseat said:
As a vaper I disagree - close to €1000 a year. More than my annual gym subscription to a prestigious Dublin South Side gym to help me stop dying.
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I'm mortgage free but I don't think we ever paid more then €350 a year in the past. Out of curiosity, I put in a "makey up" request on Bonkers.ie and for 34 yr old non-smoker for €500k cover I was quoted €252 a year
 
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