A home insurance trap used by mortgage lenders is catching many homeowners in the UK, according to new research from Gocompare.com.
A survey of 2,000 adults by the comparison website found that a large number of homeowners mistakenly believe they have to purchase their mortgage lender’s insurance products.
Around 14% of homeowners have arranged their home insurance through their mortgage lender, while 30% of these households believe they had to arrange their insurance this way as a condition of their mortgage deal.
Based on there being 11.1m mortgages in the UK, 1.5m have organised their home insurance through their lender, with 466,200 households believing they were obliged to purchase their lender’s insurance products.
More worryingly, 6% were told by their lender that it was a mandatory purchase and 24% believe that switching their insurance would invalidate their mortgage.
Estate agents may also be trapping homebuyers, by allegedly telling buyers that they must use their mortgage broker to secure a purchase.
Gocompare.com’s Ben Wilson says: “We were shocked to find that so many people still think that their mortgage offer is conditional on buying their lender’s home insurance, and that a significant minority are essentially in a mortgage-linked insurance trap – believing that switching away from their lender’s insurance will invalidate their mortgage.
“We were also concerned that a handful of lenders could be exploiting their relationship with their customers by pushing them to buy their insurance cover.
Wilson explains: “If you have a mortgage on your home, then your lender will require you to protect your property with buildings insurance. But it’s up to you where you buy that cover from.
“While buying cover offered by your lender alongside your mortgage may seem an easy option, you might find you’re paying well over the odds. And over the lifetime of a mortgage, failing to regularly shop around for a good deal on home insurance could cost thousands in lost savings.”1
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