After the catastrophes of misselling pensions, endowments and payment protection insurance (PPI) that have resulted in banks, building societies and financial firms paying billions in compensation to millions of customers, home insurance looks like the next target for a challenge from consumers.
Santander is currently in the spotlight for allegedly making mortgage customers take out buildings insurance on new buy to lets and homes before they exchange contracts on the deal.
The strategy is odd because technically, home insurance customers are committed to pay a premium on cover for a property they do not own and cannot can never claim on – and some, if not all, of the money is lost if the deal falls through.
Banks and building societies have made money from customers for years over buildings insurance by levying a hefty ‘administration charge’ from those who make their own arrangements rather than take out the lender’s own cover.
“Perhaps unsurprisingly, home insurance deals from lenders tend to be incredibly bad value,” adds Which? Money’s James Daley. “We’d encourage homebuyers to shop around for their home insurance, no matter how difficult the lender makes it. If you give into the hard sell by your lender, you could end up paying hundreds of pounds more each year than you need to.”
Buildings insurance costs around £225 a year, according to a survey by the AA, and is rising by around 10% a year.
Although buildings insurance is not obligatory by law, mortgage lenders make having cover a condition of the loan, so any homeowner who breaches that agreement is technically breaking the loan contract.
Regardless of what a mortgage adviser says, consumers can arrange their own buildings insurance and any pressure or implication that granting the loan depends on buying the lender’s insurance is misselling.