A new type of insurance has just been launched, which aims to protect borrowers against rising mortgage interest rates.
The insurance from MarketGuard, is aimed at the 5.9 million borrowers who have a variable rate mortgage, and who may be concerned about interest rates rising.
The policy gives some peace of mind that if interest rates climb by more than a pre agreed level, then the policyholder won’t have to find the extra monthly cost, as the policy will pay it direct to their bank account.
The policyholder takes insurance against the Bank of England Base Rate climbing by more than 1%-2.5% from it’s level at the outset of the policy (currently 5%). The lower the increase selected, then the higher the premium. For example, if a 2% limit is chosen, then the policyholder has to fund any increase in monthly mortgage repayments as a result of Bank Base Rate (BBR) rising to 7%. However, if BBR increases by more than 2% then any further increase in repayments is covered by the policy. The benefit is tax free, and is paid without the policyholder having to make a claim.
The policy has a two year term which can be maintained by adding a further 12 months of cover every year, with the single premium being paid at outset. Premiums can start from the equivalent of £15 per month (based on a repayment mortgage of £100,000).
With any type of insurance it is important that you read the small print, and understand exactly what it will cost and under what circumstances the policy will pay. One important point to note is that it’s not only any changes to BBR that are important, as the policy requires that the mortgage lender also increases their standard variable rate (SVR), by the same margin. While it is unlikely that the lender will not pass on any BBR increase in full, any additional hike the lender may make in their SVR will not be included.