What’s this – a mortgage product reviewed in Health Insurance Daily? Well yes, but only because one of its elements – mortgage waiver – offers an alternative way to get protection insurance type benefits.
This simple concept means that in certain circumstances (in this case involuntary unemployment) the lender will waive its usual mortgage repayment requirements for up to six months. So, Kim takes out a Family Mortgage and later loses her job due a downsizing of her department a year into her mortgage. She gets another job four months later, but in the meantime her regular mortgage payments stop, no mortgage interest is payable, yet her credit record is still intact.
Writing such protection as a waiver rather than insurance can have a number of advantages – there is no IPT (Insurance Premium Tax) payable, because there is no insurance policy; the benefit automatically goes up and down in line with mortgage payments; the lender may offer it ‘free’ (in effect the cost is built into the mortgage interest rate), and the benefit is simple to obtain and understand.
However, there are disadvantages too – only the monthly mortgage cost is covered; the self-employed are unlikely to benefit, and the benefit could be discontinued by the lender.
Family is the first UK mortgage lender to offer a first mortgage product with built-in waiver (although Peugeot and Citroen in the motor market, Hitachi Capital and some credit unions offer the concept on other loans).
What They Say
CEO Mark Bogard said: “Young adults even with high paying jobs are struggling to meet the cost of living, so they are either living in rented accommodation longer than ever before or are being forced to live at home. Thus they need help to get on the property ladder.”
What We Say
"The UK’s first mortgage waiver product is not quite as exciting as that phrase suggests – however, it could be the start of a new approach to protection from mortgage lenders. Family is a new brand [part of National Counties – one of the smaller societies but one that has a reputation for innovation] and is looking to differentiate itself from other mortgage lenders.
"This product includes the equivalent of six months ‘free’ unemployment insurance provided in the form of a waiver. In theory such waivers could also cover illness and disability risks, although this mortgage does not. One issue will be whether other lenders will follow Family’s lead and if so, how far they will develop the concept.
"It is interesting to see what Family’s lending criteria says on protection insurance too. It states: ‘There is no requirement to purchase life assurance or other protection products. However it is in the applicant’s interest to review their financial planning when taking out a new mortgage to ensure that they have adequate protection against the impact of involuntary unemployment, accident or ill-health. For joint applications the Family Building Society may need to consider whether the proposed mortgage is affordable should one applicant predecease the other.’
"Mortgage waiver is an interesting development and, for appropriate clients, may be a good solution for them [we offer no comment on the mortgage itself as that is beyond our brief]. We expect other mortgage lenders to follow suit and certainly, advisers will need to take into account such arrangements, how they work [although we were disappointed that full information was not available online, nor did the Society respond to our request for more information], and their benefits and restrictions. For most borrowers though, a mortgage waiver is almost certain to fall short of their full protection cover needs, while the media will be watching carefully [we hope!] to ensure that mortgage waivers do not go the same way that PPI [payment protection insurance] went – that was a good product for many but was often sold very badly and at an exorbitant cost.
"We shall watch developments with interest…"