Mortgage PPI

What is mortgage PPI?

Mortgage Payment Protection Insurance, or 'MPPI', is insurance designed to cover your mortgage payments in the event of sickness or redundancy.

Price-hike scandal

MPPI was the subject of its own scandal a couple of years ago, when the Financial Services Authority, or 'FSA', ordered mortgage lenders to pay back £60 million in refunds to borrowers, due to price hikes that were not properly disclosed. Firms also agreed to re-instate policies which had been cancelled as a result of the price hikes.

MPPI Mis-selling

MPPI was also part of the PPI mis-selling scandal.  Although MPPI is not, in itself, a bad product, it was often mis-sold by mortgage lenders to borrowers for whom it was inappropriate using various mis-selling practices.

Some of the most common mortgage PPI mis-selling practices included failing to explain that the policy was optional, or leading the borrower to believe that it was compulsory. In addition, the cost of the MPPI policy was rarely explained to borrowers separately from the overall mortgage quotation.

In many cases, lenders failed to discuss crucial aspects of the policy, such as the exclusions and limitations. MPPI was, therefore, sold to many borrowers for whom it was unsuitable. For example, self-employed and retired people, those working fewer than 16 hours per week, students and those with a pre-existing medical condition would all be excluded and ineligible to make a claim under the policy.

In relation to single premium MPPI, lenders frequently failed to explain that this would be added to the mortgage and that interest would be payable on the entire premium from the outset. Further, it was rarely divulged that there would not be a proportionate pro-rata refund of the MPPI premium if the mortgage was repaid early.

Second charge and secured loan MPPI

The FSA has had significant concerns in relation to second charge and secured loan PPI, especially single premium secured loan PPI. Mis-selling in this sector was rife. Until the collapse of the banks' legal challenge, there were high numbers of customer complaints, high rejection rates by firms and high overturn rates by the Financial Ombudsman Service (FOS).

If you have a secured loan or second charge mortgage, you should check whether it includes MPPI. The policy may well have been mis-sold, in which case you might be entitled to a full refund.

First charge regular premium MPPI

The amount of money involved in relation to a mortgage makes MPPI a more attractive proposition than other types of PPI. Those on a good salary might not need PPI for a relatively small personal loan if they can cover the loan repayments with savings or sick pay. However, MPPI might be a sensible option in relation to a mortgage for, say, £100,000. Further, the consequences of default on a mortgage are more severe than they are for other financial products. If you are unable to pay your mortgage, you might ultimately be facing a claim for repossession of your home, making MPPI a potentially attractive option.

The FSA has had fewer concerns in relation to regular premium first charge MPPI than it has had in relation to other types of PPI. There have been fewer complaints about MPPI than about other types of PPI. Further, a lower proportion of them have been rejected by firms but overturned by the Ombudsman.

Nevertheless, although there is a lower risk of mis-selling in the MPPI sector, this is not to say that the risk is low.  Mis-selling was still common in this sector and the FSA's handbook provisions apply equally to MPPI as to other types of PPI. If you have had MPPI alongside a first charge mortgage, you should check to see whether any of the mis-selling practices applied to your sale. You might be entitled to a full refund.

Compensation

You should bear in mind that MPPI was generally not as expensive as other types of PPI. This might affect the level of your compensation. For instance, it would not be uncommon for regular premium MPPI to cost as little as 1% of the monthly mortgage payment. If your mortgage payments were £800 per month and your MPPI premiums were £8 per months, your refund on a MPPI policy that had been running for five years would be £480. As with other types of PPI, however, you will also be entitled to claim interest in calculating your overall compensation. Check your MPPI policy or your mortgage statement to see how much you are paying for MPPI.

Legal representation

At Winston Solicitors LLP, we recognise that some people prefer to take on their mortgage lender or secured loan provider themselves. However, we offer full legal representation to those who prefer to go down this route. Contact us on 0845 009 6899 for a free, no obligation case assessment.