Mortgage lender penalty if I change insurer!?

golddustmedia

Hi,

I feel our mortgage lender is being a bit unfair on this one.

We've got a long term fixed rate mortgage (another 7 years to run) at 4.99%.

Our buildings and contents insurance is supplied by the lender at £35 per month which is very expensive at £420 a year, considering shopping elsewhere we can get it closer to £10 a month. However if we don't get our insurance from the mortgage lender they increase the interest rate on the mortgage by at least 0.24%.

Whats worse is that the insurance is actually underwritten by Aviva who when we use a comparison site offer insurance for well under £200 a year, so why does it cost over £400 when it forms part of the mortgage!?

There is a huge exit fee on the mortgage so remortgaging isn't really an option and the mortgage lender wants to apply all sorts of extra charges if we want to change anything.

For example we currently let out my old home but have considered moving into my old home and letting out this one instead, but then the mortgage lender again wants to up the mortgage rate by 1%.

It feels like we're being forced into not selling and not letting the house whilst at the same time paying over the odds for insurance cover.

Can anything be done?

Meeper

1. They were the terms and conditions when you took the mortgage out.
2. Any policy which claims to cover Buildings and Contents for £10 a month won't be worth the paper it's written on.
3. Why do people focus so much on the cheapest options for insurances? The point of an insurance is so that it's there when you need it. I'd much rather go with a company who I knew was going to be there if it meant paying more. That may or may not be the case here - just saying!
4. They were the terms and conditions when you took the mortgage out.

golddustmedia

The point being the insurance is supplied by Aviva but the same Aviva policy can be bought directly from Aviva for half the price.

Buildings & contents insurance in our area isn't expensive (it's not London!) so if all the main insurers such as More Than, Direct Line, L&V etc etc are all around £200 why would the mortgage lenders insurer be over £400? The building they're insuring isn't any different and nor is the cover on offer.

Meeper

Let me try to explain:

The Aviva insurance that you have isn't Aviva insurance. It's the lender's insurance which has Aviva as the underwriter. Aviva are not responsible for the pricing of the policy over and above the price that they quote it to the mortgage lender, who then add their margin on top and re-sell it to you.

Had you not taken this product from the lender in the first place, would they have increased the interest rate at the start? I suspect so if they are saying that they will increase it now. So, do your sums. Would a reduction in price of £200 per year be better or worse than a 0.24% interest-rate increase? If better, do that. If worse, stay as you are.

As to changing your property from personal residence into rental property, it is a higher risk area and you would likely have been paying a higher rate for a rental mortgage from the start. Changing your property into this style will generally incur a charge to reflect the added risk, which in your case is 1%. Them's the breaks.