Mortgage blog: Why you might pay if you don’t take home insurance with your lender
If you have a mortgage, is your home insurance with your lender? If it isn't, you could be saving hundreds of pounds over the term of your home loan by taking cheaper insurance with another provider.
However, research from a leading newspaper has also found that you could be paying a fee of up to £45 for the privilege of getting a good deal on your cover. Mortgage companies are routinely charging fees to borrowers who elect to shop around for their insurance with homeowners paying a total of nearly £2m a year in fees.
Lenders charging up to £45 if you take your insurance elsewhere
A ‘mystery shopper' exercise by a leading price comparison website has found that tens of thousands of homeowners are being charged a fee for buying their building insurance from an insurer other than their mortgage provider.
The research found if you choose to shop around for the best value building insurance rather than just going with your mortgage provider you could be paying as much as £45 more in fees on your loan.
Building societies are the worst culprits for charging a fee with mutuals including the Dudley, Market Harborough, Newcastle, Cumberland, Skipton, Nottingham and Furness all charging £25 or more to borrowers who take their home insurance with another provider.
Some building societies justify the charge on the grounds that it pays to cover the risk that mortgage borrowers don't take out insurance elsewhere.
A spokesperson for the Market Harborough Building Society, which charges its customers £30 for choosing home insurance other than its own, said: "Homeowners who go with different insurers can simply stop paying their premium at any point and we won't know about it. That leaves the money of our society at risk if anything happens to the property.
"So we have to pay an insurer every year to cover that potential risk. We have calculated the cost of that insurance and the cost for each of our mortgage customers who choose a different insurer."
Charges a disincentive to shopping around for cover
With many lenders charging a fee to borrowers who want to shop around, Simon McCulloch from the website that carried out the research believes that the charge could be deterring homeowners from considering other providers for buildings cover. This is despite the fact that shopping around for buildings and contents insurance can save a third of UK households more than £100.
He said that these savings "would pay for your first six months broadband after you move house, but charges like these are designed to put people off doing this and, in many instances, to tie them into more expensive products. Some mortgage providers are effectively disincentivising consumers from doing the sensible thing and shopping around to save money."
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