Very expensive AH MPP (Mortgage Protection Policy)? Alternatives costs 5 times less!

tevion · 17 Dec 2010

ajapale said:
Hi tevion,

Could you reproduce here the exact correspondance you had with the Ombudsman.

In otherwords the exact wording of the complaint and the exact wording of his response.

Which ombudsman was it?

aj

Letter i sent to ombudsman@ombudsman.gov.ie

I would like to switch my mortgage protection policy, but SDCC wont let me, and insist I cant.
I am currently paying 60 euro per month to the council for mortgage protection, but I can get an adequately similar policy for 10 euro per month, (600% difference) so this is having an adverse impact on my financial situation.

Having checked my mortgage agreement, it is clear that I couldnt have got the mortgage unless I took out that particular mortgage protection policy at the time of the application.

However,

1. The contract does not state that I must keep that particular mortgage protection policy for the duration of the mortgage, nor the fact that it is 'compulsary' for the duration of the mortgage.
2. The mortgage protection policy document itself, makes reference to the temination date, as being a date where the obligations are assigned or transferred by the Borrower to a third party.

Looking at both documents, there is no evidence of the mortgage protection scheme being contractually 'compulsary' so I feel I should be free to switch the policy to a third party.

This is what I am trying to do, I am trying to transfer the obligation to a third party, ie to a different mortgage protection provider.

This practice of not allowing a borrower to switch mortgage protection is illegal under the Consumer Credit Act 1995.
There is specific legislation that applies when purchasing a mortgage and mortgage protection from a commercial lender, that prohibits the linking of services, which is the Consumer Credit Act 1995 – and in particular Section 127.
However, local authority mortgages/loans are not subject to Section 127 of the Consumer Credit Act 1995.

Although, local mortgages are not subject to the Act, I feel that it is very unfair that they can keep a borrower bound to one particular policy, especially when it is highly over priced and is having an impact on my financial situation, and more importantly, the fact that this condition was not written into the mortgage contract or mortgage protection policy.

I can scan and email a copy of the mortgage agreement and mortgage protection policy if required.

I shortly got a written reply, basically stating that they are not in breach of any regulations....

I think part of the problem is that it was discussed in the Dail at some stage, but they took the easy option, by doing nothing.

[broken link removed]

The Mortgage Protection Scheme for local authority loans has applied to all house purchase loans approved by local authorities on or after 1 July 1986. Under the scheme, the cost of mortgage protection insurance is met by way of an additional charge, currently 0.598%, to the rate of interest charged on individual loans. One of the conditions of the scheme, which is a group policy, is that it is obligatory for all local authority borrowers who meet the eligibility criteria to join. Altering this condition would have a negative impact on the scheme and increase the cost for all existing borrowers.

ajapale · 17 Dec 2010

Thanks Tevion,

So your complaint to the ombudsman ( ombudsman@ombudsman.gov.ie) is that you are not allowed switch mortgage protection policy to a different provider. This seems to be a sensible and reasonable complaint.

What was the exact written response from the ombudsman?

aj

tevion · 17 Dec 2010

ajapale said:
Thanks Tevion,

So your complaint to the ombudsman ( ombudsman@ombudsman.gov.ie) is that you are not allowed switch mortgage protection policy to a different provider. This seems to be a sensible and reasonable complaint.

What was the exact written response from the ombudsman?

aj

Yes that was my complaint exactly.
I think I binned the letter with anger at the time, which was only a few months ago, but basically they stated that they had a lot of similiar complaints, but the general consensus is that the local authorities are not in breach of any regulations, so they cant investigate the matter any further.

Brooklyn · 18 Dec 2010

The reply I got from the Ombudsman was that, although this would be a breach of competition rules in the case of a private mortgage lender, they were willing to allow it for local authorities in order to ensure that the overall AH scheme could continue to function smoothly. Totally unsatisfactory.

ericsson · 19 Dec 2010

Tevion,

Sorry about taking so long to reply I am only after seeing your PM's now, never check them sorry

Fraid I dont have any success to tell you, I, an advisor from Canada Life and my solicitor all contacted the Department of the Environment in relation to it and we all got sent from Billy to Jack and fobbed off.... long and the short of it seems to be it cannot be done. In the end following a million phone calls and unreturned calls I have given up! I agree that it is definately a case to be taken and surely it would be successful. Anyone else with any experience?

Ericsson

Brendan Burgess · 20 Dec 2010

I asked the Department of the Environment about it and got this reply. It seems reasonable to me. I had asked in my first post in this thread, how much the affordable house had cost. But of course, a more relevant questions would have been "what interest rate are you paying on your local authority loan?" .

Eddie Hobbs was referring to Affordable Housing loans which were drawn
down from the local authorities. Purchasers of Affordable Homes had the
option of obtaining loan finance from certain banks and building societies
or directly from the local authority. There was no obligation on
purchasers to obtain finance from the local authority. If purchasers
decided to draw down finance from the local authority, then they had to
take the mortgage protection insurance from the local authority.

The local authorities' Mortgage Protection Plan has applied, subject to
the terms of the Plan, to all house purchase loans approved by local
authorities on or after 1 July, 1986. The terms of the cover under the
Mortgage Protection Plan were negotiated by a sub-committee of the County
and City Managers Association, the Housing Finance Agency and a
representative of this Department. These terms are renegotiated
periodically by the Committee. The cost of the Mortgage Protection Plan is
met by way of an additional charge, currently 0.5615%, to the rate of
interest charged on individual loans. This scheme is currently
underwritten by Friends First Life Assurance Company and the scheme
administrators are Marsh Ireland. The annual amount due is recalculated
yearly based on the capital outstanding so the amount due for mortgage
protection is a reducing charge.

One of the conditions of the Plan, which is a group policy, is that it is
obligatory for all local authority borrowers who meet the eligibility
criteria to join the scheme. Altering this condition would have a negative
impact on the scheme and increase the cost for all existing borrowers.

With regard to the cost of cover, borrowers may find that the cover for
which they received quotations is not comparable with the local authority
scheme. The scheme provides that in the event of death of the principal
earner or his/her spouse the amount outstanding on the mortgage, excluding
arrears at the time of death, would be paid in full. In the case of
disability of the principal earner, the mortgage repayments are for the
period of disability. In this regard, it should be noted that the scheme
provides cover for the duration of the mortgage for accident or illness and
serious illness. A normal mortgage insurance product for disability covers
a maximum payable benefit period of twelve months only and does not provide
term cover.

More generally in relation to cost, I would point out that borrowers who
have existing loans with local authorities do have the option of redeeming
these loans and refinancing in the private sector and making alternative
mortgage and insurance protection arrangements. Clearly, such an option
would only be prudent where the total alternative package including loan
finance and mortgage insurance were comparable in terms of cost and in the
case of mortgage insurance the terms and conditions of the cover available.
It is worth noting that the base variable mortgage rate offered to
borrowers by local authorities is currently 2.25%, substantially below the
average of variable rates offered by private sector lenders.

tevion · 20 Dec 2010

Brendan Burgess said:
I asked the Department of the Environment about it and got this reply. It seems reasonable to me." .

There is nothing reasonable about the cost of the mortgage protection.
It probably seems reasonable to someone like yerself, that seems to have an issue with the affordable housing scheme.
I sense that you are one of the bitter ones about the scheme.
The interest rate, which is a seperate issue completely, and nothing got to do with this thread, quoted on yer extract is higher that that, that was probably an extract before the interest rates went up.

Brendan Burgess · 20 Dec 2010

Hi tevion

I don't see why yiz all think I am bitter.

In my experience, there is often an explanation for government policy. This thread was all one sided with people too quick to shout "rip-off".

The interest rate is very relevant. You signed up to a package. Cheap rate with a comprehensive group mortgage protection policy. You did not have to sign up for that package. Yiz could have got yer mortgage elsewhere and a different mortgage protection policy. In all group policies, some will pay less than average while some will pay more than average. You can't let those who pay more opt out.

As has been pointed out, yiz can switch your mortgages to another provider and pay the cheaper mortgage protection if yiz want to.

tevion · 20 Dec 2010

I know when I joined the scheme, if I wanted to avail of it, I didnt have any choice as regards the mortgage or the mortgage protection, it was take it or leave it, with the council themselves.
The interest rate, which certainly is a seperate issue, is a standard variable rate, much the same as what the banks charge, so there is no bargain to be had with that.

Brendan Burgess · 20 Dec 2010

Hi tevion

What interest rate are you paying at the moment? You say it's much the same as the standard variable rates from other institutions.

I understand that the rate is 2.75% from the Local Authority.

I think that the cheapest bank rate is 3% and PTSB's is 4.2%

If you have a mortgage of €200,000 , you are saving between €500 and €2,900

Very expensive AH MPP (Mortgage Protection Policy)? Alternatives costs 5 times less!

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