Mortgage offer and insurance

[JulieF]

Am I correct in thinking that a mortgage company can no longer make it a condition of their offer that you take out their contents and buildings insurance.

My brother is buying a house and already has insurance but the mortage company say they will withdraw their offer unless he takes out their insurance.

I think you are right about that but your brother should ask his soliciters about it, they should know how best to approach this

Depends on the small print of the mortgage deal - some preferential rates are conditional on in house insurance. Also, if the bank/building society have gone outside of their normal lending criteria to make the offer, they can place any conditions on the offer they like. Usually, this is to protect their position and their lending, eg income protection, life insurance etc. IME, this is often in house insurance(b&c)

I don't know, but when we had our house insurance tied to our mortgage the lender arranged for it to be taken over twelve months with our mortgage payments 'for convenience', the added it to our mortgage debt and charged us interest on it! We spotted it and got the overpayment taken off our mortgage, but I suspect a lot of people never notice. Anyone with this arrangement should double-check the amount they should be paying.

shouldn't have to take their insurance. We have been offered it each time we've taken out a new mortgage with each different mortgage company but we've just kept saying no until they stopped offering it and we've never been hit by a penalty. Mortgage company may well be able to require that you have insurance but I don't think they can force you to take out theirs. You could check with the Financial services authority (regulator for these companies).

Solicitor says they can't do this, but small print says it is necessary to get this rate. The thing is he already has insurance as my parents paid cash for the house to prevent him losing it whilst his mortage went through (builders had him on a deadline)

I think the solicitor should write them a threatening letter. If they are doing something illegal then they should be held to account.

What about trying a different mortgage co?

If a borrower believes that a term in a mortgage agreement may be unfair, they can ask the Office of Fair Trading or the Consumers' Association to determine whether or not the clause complies with the Unfair Terms in Consumer Contracts Regulations 1999. Unfair terms can include a requirement to buy a particular insurance policy when taking out a mortgage.

Perhaps your brother could contact the OFT or CA to query this before accepting the offer.

its not illegal, the mortgage company can make any insurance conditional if they are offering a special rate - if your brother doesn't like the conditions, he can apply for another mortgage that is condition free. He could also keep the existing b&c insurance until exchange of contracts and then start the lenders policy then, cancelling it after completion. Lender could then ask for the mortgage monies to be repaid, but they rarely do - he'd just get a couple of rude letters. Also watch for any arrangement fees for insurance being added to the loan, and therefore interest charged on it forever.

Message withdrawn

Yes, you are right Orinoco. Mortgages became regulated financial products late last year, good for the client, stacks of paperwork for the lender to go through to ensure compliance and yes again I guess you are too? Found cemap much harder than APFC!

Thanks, I bet he got this document but to be honest paperwork isn't his strong point though grrr at the IFA for not pointing it out.

He is on a really tight timescale so needs to complete very quickly which is part of the problem.