Thursday 12 December 2019

Banks ‘selling wrong kind of mortgage cover’

The Central Bank has been called on to tackle the issue of consumers being sold the wrong type of mortgage protection insurance
The Central Bank has been called on to tackle the issue of consumers being sold the wrong type of mortgage protection insurance

Charlie Westo, Personal Finance Editor

Banks have been accused of selling homeowners the wrong type of mortgage protection insurance in a bid to boost their fee income.

Broker body PIBA said homeowners are overpaying by up to €70 a year because they have had expensive mortgage protection insurance sold to them.

The banks have defended their sales practices.

Rachel Doyle of PIBA said: “Banks continue to sell inappropriate mortgage protection policies to consumers, despite recent mis-selling controversies.”

The association alleged banks are actively selling “level-term” mortgage protection insurance.

This is an expensive form of insurance as it keeps the insured amount level throughout the term. So, even though half the mortgage may be paid off after a number of years, cover would still be provided for the initial amount drawn down. If the mortgage holder dies, then the mortgage is paid off and any extra cash goes to the dependents.

She claimed this was been sold “inappropriately to unsuspecting consumers” and she called on the Central Bank to tackle the issue.

A cheaper option is a standard mortgage protection policy that covers capital and interest on the mortgage, in the event of death. The amount covered decreases in line with the reducing mortgage debt.

Ms Doyle said level-term cover may be necessary where there are dependents and the borrower wants to provide for them in the event of death.


But mortgage holders often have other life cover from their job or as a separate policy.

“In these situations it would most likely render level-term mortgage protection unnecessary and excessive.”

She said typically for a female non-smoker with a €250,000 mortgage over a 35-year term, the lowest premium for a level-term protection policy would be €20.41 per month compared with €14.73 for a mortgage protection policy.

This difference of €5.68 per month adds up to €68 a year. Over a 35-year period the extra cost would be almost €2,400.

A spokeswoman for the Central Bank said the Consumer Protection Code imposes “knowing the customer” and suitability requirements which all regulated entities must stick to.

A spokesman for the Irish Banking Federation (IBF) said banks were committed to providing solutions which meet the needs of customers.

“The priority for many customers is to ensure, that in the event of their untimely death, their mortgage is fully paid off – the majority of customers appear to choose this option.

“Other customers choose a solution which allows for some additional funds over and above the value of the mortgage to provide a financial cushion for their family. Ultimately, this is a choice which is made by the customer reflecting their individual needs and circumstances.”

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