A significant number of homeowners could be overpaying for their home insurance because they bought a policy from their mortgage provider, instead of searching for the best deal.
Almost a third of homeowners have taken out an insurance policy through their mortgage provider at the time of their house purchase, according to research by Compare the Market.
When asked about their reason for this, 29 per cent of homeowners said it seemed the ‘easiest option’ at the time.
In the survey, 15 per cent of homeowners said they didn’t shop around for home insurance
Although some did shop around for a better deal, nearly a fifth said they were penalised or charged a fee for buying a policy that was not from the mortgage lender.
Roughly one in ten felt pressured into taking an insurance policy to secure the mortgage, and 14 per cent felt forced by the lender to take out insurance with a specific provider.
However, 15 per cent of homeowners admitted to simply accepting the policy offered to them without shopping around for alternative options.
‘Although cross-selling rarely means you’ll end up with the best deal, many home buyers still take out insurance with their mortgage provider even though cheaper deals can be found elsewhere,’ said Chris King, head of home insurance at Compare The Market.
‘Some consider it the path of least resistance, but others feel pressured into doing so.
‘Buying a house is considered one of life’s most stressful and expensive events – and many homeowners are likely to choose the quickest and easiest route.’
Are mortgage lenders really penalising borrowers over home insurance?
Mortgage lenders often offer insurance policies. However, a borrower should never feel obligated to agree to it, and there should not be any pressure on them to do so.
‘In branch, lenders might have targets around selling internal insurance policies, and this may be why people sometimes feel pressured,’ said Chris Sykes, mortgage consultant at Private Finance.
‘However, I’ve never heard anyone be penalised or charged any additional fees for not taking on insurance via the bank they are mortgaged through.
‘If people were being penalised then this would be something we as brokers would surely need to take into consideration when making a mortgage recommendation.’
Lenders including TSB and Nationwide have said that they do not place any pressure on borrowers to buy home insurance, nor impose any financial penalty for arranging insurance elsewhere.
‘Virtually all mortgage providers in the UK also offer a home insurance product.
‘This has historically been because it has been a condition of your mortgage agreement to have a buildings insurance policy in place,’ said Darren Black, head of general insurance at Nationwide Building Society.
‘Our home insurance is available through our mortgage consultants, however there is absolutely no expectation of purchase – in fact many of our mortgage members do hold their insurance with other providers.
‘There is also no financial impact on the mortgage if the borrower gets their insurance elsewhere, and we don’t offer an incentive to take home Insurance with us as part of a mortgage application.’
How much could be saved by shopping around?
Those surveyed were paying an average of £418 for buildings and contents cover with their current provider.
It was also found that, on average, homeowners last decided to switch providers more than three and a half years ago, whilst over one in ten said they had never switched their home insurance provider.
According to Compare the Market, the average annual cost of a buildings and contents insurance policy is £147 meaning there are considerable savings to be had by shopping around.
King said: ‘Those who go with their mortgage provider’s recommendation and then renew with the same provider year after year, they could be paying far more than they need to.’
‘As our data shows, shopping around online could save a household more than a hundred pounds.
‘When many households are feeling the squeeze, this could be a good time to work out where you can cut costs by switching household bills.’
Buildings insurance covers the building itself should the home suffer damage, for example by fire or flood.
For leaseholders, this insurance is often covered within the service charge by the management agency, although it is always worth checking with your solicitor what areas of the building you are responsible for insuring.
Contents insurance helps cover the cost and damage of personal possessions and items such as TVs, laptops and furniture.
The Compare the Market research surveyed 2,000 homeowners.
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