Borrowers pay over the odds for mortgage insurance

Borrowers availing of the Government’s Rebuilding Ireland Home Loan (RIHL) are paying over the odds for mortgage protection insurance, making the loans far more expensive than originally thought.

One borrower, who didn’t wish to be named, said the high premium was making the loan – designed to help lower-­paid workers – unaffordable for him and his partner.

“We were delighted to get approval for the loan as it meant we could get an affordable mortgage, or so we thought. But we are tied into one mortgage protection provider who is charging 0.55pc of the loan amount, which works out at an extra €132 per month, up to 10 times more expensive than other providers; this makes the affordable mortgage almost unaffordable for us.”

A quotation for more comprehensive cover than that provided by the local authority policy would typically cost the same couple €74.68 with Royal London and €80.30 with Friends First. For a single person it would be just €46.01.

The Consumer Credit Act 1995 bans banks from forcing customers to use a particular insurer, but local authorities are exempt. Instead, they have a “group'”policy, underwritten by Generali, which charges 0.55pc of the decreasing loan balance to all borrowers.

The higher premiums could cost up to €18,000 extra over the term of the loan, according to broker Mike Knightson of KM Financial.

“A single person who is a non-smoker is getting crucified on this premium,” he said. “It’s scandalous. And if you miss a payment there’s a 1pc penalty charged also.”

Quotes from a range of companies show borrowers could save thousands by taking out their own life insurance, even with expensive serious illness cover built in, which pays off the loan in full if the borrower contracts a specified condition like cancer or suffers a stroke, unlike the mandatory policy which only provides cover to subsidise the loan repayments in the event of disability for a limited period.

“There is an opt-out clause for the local authority product if you have a pre-existing medical condition; you can get your own cover instead,” Mr Knightson added.

“Some people might be better off doing so as traditional policies remain in place for the full term, whereas this product can be reviewed after just three years. In fact, adverse health could see you better off financially as the Generali policy really only represents good value for older smokers.”

A spokesperson for the Government scheme said: “The local authority Mortgage Protection Insurance (MPI) is designed to provide an appropriate level of insurance cover to those who wish to avail of the RIHL.

“Standard MPI products are individually priced, based on a member’s age, amongst other factors, whereas the local authority MPI scheme is a group arrangement, offering a single group rate per €1,000 sum assured to all participants in the scheme.

“The scheme also provides other benefits over standard MPI products. These include the payment of mortgage repayments if there is a valid claim as a result of disability, an additional payment of €3,000 in the event of a member’s death, separate to life cover, and members are also covered for death up to age 75 rather than 65 as is the case under standard MPI cover.”

An RIHL typically offers up to €288,000 for those earning under €50,000 at advantageous fixed rates of 2pc-2.3pc for terms up to 30 years. Funding of €200m for the scheme for three years has been exhausted after only 12 months, with further funding now being sought.

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