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Mortgage article 14:Benefit reforms have weakened the housing safety net - CML research

3 April 2002

Extending the qualifying period for state help with mortgage payments has helped the Government cut spending on benefits but has weakened the safety net for home-owners, according to the first comprehensive study of the implications of the 1995 benefit reforms, just published by the CML.

The research warns that the full impact of the 1995 reforms - the most significant of which extended to 39 weeks the waiting period for entitlement to benefit help with mortgage interest - have yet to be tested by a significant economic downturn. But the researchers conclude that the benefit reforms are likely to lead to an increase in possessions should there be any significant rise in unemployment.

The reforms have allowed the Government to cut the annual cost of state help with mortgage interest payments from more than 1.2 billion in 1993 to less than 500 million in 2000, although this was achieved against a backdrop of declining unemployment. But one of the key arguments for the reforms - the Government's belief that the former benefit system was preventing the development of private insurance to cover mortgage payments - has been only partially borne out by events, the research shows.

Sales of mortgage payment protection insurance (MPPI) have been growing steadily since the CML and the Association of British Insurers began monitoring its take-up in 1998. But the researchers conclude that this has occurred largely because of better products, pricing and awareness, rather than as a result of the benefit cutbacks.

The research shows that sales of MPPI are fairly evenly spread among different occupational groups. Average take-up of MPPI was 29% for all groups of employees, and it was only slightly lower - at 26% - for unskilled workers.

The research also shows that, despite declining state support for borrowers in difficulty, lenders have not been more reluctant to lend to people who may be regarded as higher risks, such as those on fixed-term contracts or older employees. Instead, lenders have encouraged greater take-up of MPPI, changed their procedures for recovering arrears and used forbearance, usually allowing a period for borrowers to sort out their finances before beginning recovery action.

Commenting on the report's findings, the CML's Deputy Director General Peter Williams said: Next page



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