Buying
your home - Guide
to Mortgages in England 
Buying
your home - Guide
to Mortgages in England
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Index |
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13. Rates
15. MIG / HLTV premium 16. Life cover
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Once you have made a decision to buy your own home, you need to draw up your monthly outgoings to ensure that you can afford the monthly mortgage payments. A mortgage is a long term investment for the future and for many it is the biggest investment they will make in their lifetime. Monthly payments on a mortgage can be cheaper than to rent and in the long term the value of the house can also increase providing a secure investment for the long term. Inability to maintain repayment of the mortgage loan will lead to the lender repossesing the property, subsequently it can also lead to affecting your credit worthiness with other credit providers.
There are several factors taken in to account when a lender decide how much they will lend. Primarily it is based on a multiple of the salary and can range from 3 to 4.25x an individual salary or 2.75 to 3x the joint salary . The lender may also take in to account any existing loans over a certain amount such as £1000 and over 12 months to run and will adjust (reduce) the level of lending accordingly.
There are Banks, Building Societies (still) and Centralised lenders. Over 90 major and minor lenders with 1000's of different mortgage schemes between them. Get a Decision in Principle ; Best Rates & Deals.
What the lenders look for are good repayers of their money. The primary way the banks and building societies make money is to use the money from the savers and lend it to borrowers at a higher rate than they are paying the savers. Mortgages are a major lending vehicle. However they also need to ensure that they will get their money back. To do this they have laid down certain criteria to ensure that the borrowers are credit worthy of the risk.
Credit Scoring is the primary way majority of high street lenders decide who is credit worthy. However, there are lenders that do not credit score. Those that do will use credit scoring before making a decision in principle to lend. Credit scoring is a set of criteria, although supposed to be objective it can differ from lender to lender. It takes in to account type of employment, stability in employment, income, existing borrowing, stability in residency, current credit history and loan repayments, and even existing pension arrangements. Those that do not credit score can be more flexible in their lending terms.
All lenders will do a credit search. This is primarily to establish that the borrower does not have any bad debts and have shown a history of maintaining repayments of any previous loans. Whenever anyone in the UK carry out a loan or credit transaction the information is supplied to one of two companies - Experian and Equifax. Lenders can use one or either of these companies to investigate a borrower's credit payment profile. Anyone can get their credit file from Experian and Equifax. Further information about obtaining your credit file, including the addresses please contact us. See also Mortgages for the credit impaired.
The lender's will ask for proof of income in several way. Majority will ask for 3 months payslips and a P60 and also a reference from the employer. Some will also ask for 3 or 6 months bank statements from first time buyers. Some are happy with an employer's reference only.
For many lenders minimum period of 1 year's employment is required whilst others will consider minimum of 6 months employment, that is not on a probationary basis. In general longer the history of employment or employment in a similar type of job, it is better for the credit score.
For the self employed it is usually based on the net profit, certain personal drawing are also taken in to account as part of income. see Self Certified mortgages for the self employed.
Problems for the Self employed
For a status mortgage for the self-employed many lenders will require one,two or three year's accounts. The income multiples for the self employed are based on the net profit. Some lenders will also take in to account certain personal drawings at their discretion. It is a predicament for the self employed as many lenders are strict in their interpretation of drawings and may disregard many outgoings that are considered routine for the employed. Therefore levels of loans on status basis for the self employed can be limited as multiples are based on the net profit only. Main way to overcome this problem is with a self-certified or a non status mortgage- see below.
Self certified literally means that the client is allowed to certify their own income in return for taking a higher risk with the borrowing through putting higher deposit towards the purchase. At present self certified lending is available for lending up to 90% LTV. The greater the deposit better the range of self certified schemes available, but the rates are not always as good as status mortgages. These types of mortgages are most suitable for the self employed or the salaried who may have more than one employment, commission, bonuses etc as many lenders will take in to account only part of a second income when deciding borrowing levels.
With self-certified loans although you are allowed to declare your income, if self-employed the lender may also require a statement from your accountant to certify the ability to repay the loan. However there are lenders who will omit this requirement. You may also require to have been self employed for a minimum of one year.
With true non-status mortgages absolutely no income details need to be given. Minimum deposit needed is 20% of the value of the property. If employed the employer will be required to confirm permanency of employment.
Credit searches are carried out strictly for these types of loans and the application can be rejected for defaults or late payments of any existing or previous loans.
To personally discuss or obtain futher information about SELF CERTIFIED mortgages please contact us.
Mortgages for the credit
impaired. 
Two types of clients fall into this category. Those with minor credit problems and those who are severely credit impaired in the eyes of the lender.
For example, minor credit problems are not paying domestic bills and credit cards in time, but lenders do not like habitual late payers.
Not fully repaying a credit card or any other loan can be considered as a major credit problem. Any defaults or County court judgments (CCJs) put by any credit authority can also cause problems when obtaining a mortgage, unless there is a very good reason for them. However, any default or CCJ over £1000 is considered a serious problem.
Some lenders will disregard small defaults or CCJs such as up to £200, but any credit problem registered by a major financial institution such as a bank or a credit card company can mean instant rejection.
How far in the past the credit problem was and when it was paid is also a major point. There are major high street lenders willing to lend as long as the credit problem was satisfied over 3 years ago and the client has shown a clear track record since.
However, for those with credit problems everything is not lost. There are several lenders who are willing to lend money for the credit impaired as long as they match up other criteria such as steady employment. The interest charged for these loans are higher than average high street lenders, nevertheless it allows the credit impaired to borrow for mortgage purposes. They may also require higher than average deposit as it lowers the lenders risk.
These lenders will consider borrowers with credit defaults and CCJs up to £10,000. (Mortgage schemes for the credit impaired.)
An important consideration is that, if you are looking to buy a home but have credit problems it may still be better to obtain the mortgage even at an inferior rate. Because you will be able to remortgage to a major lender at better rate in the future once a track record of timely mortgage payments are established and there no new credit problems are created.
Those who think or have credit defaults can check their credit rating by writing to two credit reference agencies. These are Experian (formerly CCN) and Equifax. You need to forward £2.00 as fees to each agency. Further information about remedying your credit record, including the addresses please contact us.
There are only two basic ways of repaying a mortgage or any other loan.
Capital & interest mortgages and Interest only mortgages.
1. Capital & Interest - these are commonly known as repayment mortgages, where both the capital owed to the lender and the interest on the outstanding loan is paid at the same time.
2.Interest only mortgages - With this type, only the interest on the loan is paid to the lender, whilst a saving plan (repayment vehicle) is set up to repay the whole of the loan at the end of the term - graph 2. The most common type of repayment vehicle is endowment, however a PEP/ISA, pension or another investment can also be used.
Many people find it difficult to understand the basics of the two methods. So we will try to explain the concept in simple terms. This is not exactly how the mortgages work but the concept is similar.
Say you borrow £10 from a lender to be repayed over 10 years
at an interest rate of 10%. Whatever the method you will need to
repay in total £11.00 at the end of the 10 years. If you select
to pay by capital repayment method you will have to pay £1.10
every year for 10 years.
Now if you repay by interest only method you will just pay interest to the lender annually. But at the end of 10 years or the term you need to repay the whole of the loan by a lump sum.
Graph 2 : Principle of how an interest only loan will work
Putting it another way the capital part that you are supposed to pay yearly, is invest somewhere else with the hope that the investment will return more than the loan, compared to if you have just given the money to the lender - Graph 3. Whatever is left over after repaying the loan, it is yours to keep. However, if the investment returns less than expected you will need to find the shorfall to pay the lender. Here the investment return will depend on how you invest and what type of risk you are prepared to take.
Graph 3 : How the growth rate of the Investment Plan can effect
the final outcome.
TYPES OF REPAYMENT
VEHICLES - for interest only mortgages
Endowments : these are the
most common or most popular type of repayment vehicle at present.
However, as the knowledge of financial products improves within the
general public more and more sophisticated and adventurous solutions
are used.
Graph 4 : Principle of the Repayment
Vehicle
An endowment is a simple saving plan. Where the client's money is invested on various investment elements (usually stocks & shares) with the aim for the investment to grow sufficiently over the term of the plan to repay the mortgage loan. Number of companies offering this type of savings plans have declined steadily since the heydey of the 80's. Theres are many elements that needs to be considered e.g. investment rate, funds, level of payments etc. A good Independent Financial Advisor should be able to provide you with all the relevant information to help you to make your decision.
ISA mortgages are what used to be PEP MORTGAGES. The principle of an ISA mortgage is identical to an endowment mortgage- graph 2. Monthly savings are carried out in to an investment plan, here it is an ISA, with the aim of buildng up an investment to repay the loan at the end of the term - graph 4.
A major difference with an ISA is that the dividends from equity investment recieve 10% tax credit (used to be 20% for PEP) and ISAs are more flexible than endowments with access to the fund at anytime. However the ISA mortgages may mean higher monthly outgoings as life cover to protect the mortgage needs to be taken separately, compared to being bolted on to endowments at a lower cost.
Another disadvantage is that under current legislation ISAs are meant to have a lifetime of 10 years only. Therefore it is unclear what the options would be subsequently for those who has ISA mortgages.
The principle here is also identical to an endowment mortgage - graph 2. These types of mortgages are only suitable for certain types of people i.e. those who are eligible for personal pension /stakeholder schemes. The financial services act specifies that it is best advice for anyone with the possibility of joining a company pension scheme is to join the employer's scheme.
Personal pensions are like any other long-term investments in that you save into a scheme regularly or through a lump sum and the saving is invested for you in a variety of financial instruments just as with an endowment plan - graph 4. At the end of the term or at the selected retirement date the investment can be taken out in several defined ways.
However there are also several big differences. The real big difference is that the investment is carried out in a tax free environment. For every pound you save the government will refund an extra amount equal to the rate of tax you pay. Which is 23% or 23p in todays terms. Therefore in savings terms to save £100 with any other saving plan you actually need to save £100, but with a pension you only need to save £77. Therefore the mortgage payments will be subsidised by the tax rebate.
Pensions are also the most flexible of saving plans. they can be increased, decreased or suspended at any time. But the level of contributions are limited.
The way the PP mortgage work is quite simple. Anyone who has a personal pension has 3 primary choices when they come take the investment at retirement. They can take 100% of the investment fund as an annuity or a pension (whether it is monthly or annually) , they can differ the annuity with the option to take a loan from the fund or they can take 75% of the fund as an annuity and 25% as tax free lump sum. With a pension mortgage the tax free lump sum or part is used to repay the loan.
However, there are disadvantages.
1. Monthly payments with a pension mortgage is much higher than with
any other as the fund that needs to be built is 4 times the mortgage
loan.
2. Lacks flexibility as money can only be withdrawn between age 50
and 70.
3. The tax free lump sum that is intended to be used for retirement
will be used up in mortgage payments.
4. In the event of joining an employer's pension will require
contributions to a personal pension to be stopped ( unless being self
employed at the same time).
5. The investment may not return the required level as with
endowments.
ADVANTAGES AND DISADVANTAGES OF REPAYMENT MORTGAGES & INTEREST ONLY (ENDOWMENT TYPE) MORTGAGES
Advantages of Capital & Interest (Repayment) mortgages.
1. Guaranteed to pay off the mortgage over the term - giving peace
of mind.
2. Capital is reduced with time. Therefore, more capital will
available for the deposit when moving house. However, no significant
reduction in the loan will be seen in the initial years. It will take
up to 17 / 18 years before 50% reduction of the loan can be seen.
3. Total interest paid to the lender over the whole term will be
lower.
4. Separate Whole of life policy can be used thus saving money in the
long term.
Disadvantages
1.On average people in the UK move every 4 -6 years. To maintain
the monthly payments at equivalent levels to an existing mortgage,
there is the temptation to keep the mortgage term to previous level
thus extending the term of the loan at each move.
2. May require new life policy at a higher cost at each move due to
increased age and/or illness.
3. Loss of existing life cover premium in the case of term assurance
policies.
4. In the event of been unable to work due to a long term illness or
redundancy the government will repay interest part of the loan only
and therefore need to keep paying the capital part of the loan from
own resources.
Advantages of Interest Only (commonly called Endowment) mortgages
1. Flexibility when moving house. The saving plan can be taken
with the house move and topped up to achieve an increased target or
even a different type of plan can be set up to suit new
circumstances.
2. Generally lower total monthly payments at high interest rates.
3. Possible attainment of the target before the term allowing the
mortgage to be repaid early thus saving on interest payments n the
latter years or higher than required returns at maturity.
Advantages specific to endowments
1. Waiver of premium benefit during long term illnesses on
endowment will pay the premium of the plan thus ensuing that with the
payment of interest by social security no extra capital needed to
repay the mortgage.
2. Cheap life cover & low cost critical illness protection.
3. New types of endowments where up to 95% of the premium will be
invested from day 1. It is projected that in the event of cancelling
the policy in the short term there will be no financial loss.
4. In the event of a long term illness the DSS will repay the
interest on the loan after 9 months whilst the waiver of premium
benefit, if taken, will pay the endowment premium.
Disadvantages
1. The major disadvantage is that maturity value may fall short of
the target.
2. No reduction in the money owed over the term of the loan.
3. Traditional endowments where up front charges may mean very little
of the premium invested up to 4 - 5 years.
4. Negative equity. This can affect interest only mortgages than
repayment loans. If the house price falls the loan may be higher than
the value of the property. However, negative equity only becomes a
problem if houses are bought at a boom where the borrow pays over the
odds for a property. Many lenders are willing to lend up to 125% for
a new mortgage for those suffering from negative equity.
Repayment or interest only mortgage ?
There are advantages and disadvantages for both types - see above. Each type can be suitable for specific individuals and under specific circumstances. Below are certain situations to consider. There is no advice given, but different options to consider when deciding which is the most suitable mortgage payment method.
Some of the situations to consider are as follows. Those nearing retirement may need the guarantee that the mortgage will be paid off before retirement therefore for house mover near retirement a repayment loan may be most suited.
The problem for those buying property for the first time later in life is that, time to repay the loan is limited, as most lenders will limit the term of the mortgage to the retirement age. For the employed this is usually age 65.
If you require the mortgage term not to extend beyond the retirement age an interest only loan with a repayment vehicle (ISA, Endowment) may be more suitable, as it is most likely that you may not stay at the same property for the rest of your life. In the event of a subsequent house-move the same plan can be used without having to keep extending the mortgage term beyond retirement. Those who require to extend the term beyond retirement age will require to show ability to repay after retirement, such as through a guaranteed pension or other investment. If ability to repay can be shown the term can be extended even up to the age of 80.
With older buyers monthly payments can also be higher due to the cost of life cover being higher. Therefore the type of loan may depend on existing financial arrangements, affordability, future plans and employment prospects.
For young FTBs in their 20s to 30s, if affordability is not a problem and are looking to repay the loan early, a repayment loan may be the most suitable.
Mid range i.e. 30s to 40s is a tricky age. Most in this age range have settled jobs and may have the ability to even pay additional payments to the loan. In this situation a repayment type can be considered. There is also the guarantee that the mortgage will be completed before retirement. If however those who may be expected to move property in the future will need to consider that with a repayment loan the term of the loan may need to be extended with each house move. An interest only mortgage with a repayment vehicle (ISA, Endowment) will allow the mortgage to repaid before retirement irrespective of the number of house moves made.
Over 60s and retired - There are certain lenders that will lend to clients from this age group. The important consideration to the lenders is the ability to repay the loan. If the client is able to provide proof of ability to repay the loan, such as through a pension provision or a guaranteed investment income these lenders will consider mortgages for this age group.
It is best to consider all your options after discussing with a professional independent advisor.
Another factor that affects the rates is the amount of deposit. Higher the deposit better the rates available and also less the interest that you will repay the lender over the term.
The main types of rates are fixed, discounted and cashbacks. Others include capped and collared and stepped. When considering the rate certain things need to be taken in to account. Mortgage interest rates are one of the main weapons the government uses to control the economy, such as the inflation. If people are spending too much money on consumer goods putting the rates will reduce the money available for spending.
The rate is expected to go up in the short term and settle down. The rate may also be influenced by when the government decided to join the ERM. In the event Britain has to match German interest rates which are much lower.
Where the rate is fixed for a certain period (the rate control period), which could be anytime from few months to the whole term. Most popular are 2, 3 and 5 year terms. Lender's will offer rates according to their expectation of future movements in the bank lending rates and also to compete with other lenders. The advantage of a fixed rate is that it allows you to budget for the term of the loan as the monthly outgoing will be fixed - Graph 5. However, it is important to look out for redemption penalty clauses. Many lenders will also make it compulsory for the borrower to stay with them at the standard variable rate when the rate control period is over for another short time. If any part of the loan is redeemed within this period the lender will apply a redemption penalty e.g. additional payment which can be sometimes up to 6 months interest on the part of the loan redeemed.
However, there is considerable discussion regarding the validity of redemption penalties at present. It may be that the government may prohibit penalties in the future for certain types of loans.
Therefore, the lowest rates are not always the best deals. However, some lenders will guarantee that they will offer a new fixed rate at end of the rate control period. With the competitive nature of the lending market, many schemes are now available without additional tie in periods. When making a decision about fixed rates it is important to match the rate with the rate control period and the redemption penalty.
Graph 5: How a changing Standard Variable would affect a fixed rate of 6.25% and a discounted rate of 1% from the standard variable.
Where the rate will follow the standard variable rate at a discount - Graph 5. Therefore the rate will fluctuate with the changes in the bank base rates. These rates will also have rate control periods and additional tie in periods with applicable redemption penalties.
The advantage of discounted rates is that for an equivalent rate control period the discount will make the actual rate lower than with a similar fixed rate mortgage. However it does not take in to account future changes in rates and if rate rises you may end with monthly payments much higher than the original payments. On the other hand if the rate falls you will be at an advantage compared to a fixed rate.
A proper cashback is where the lender will repay to the borrower anything upwards of 1% of the value of the loan on completion of the mortgage. Higher the cashback less flexible the loan will be, and many lenders will offer large cashbacks with variable interest rates only. The attraction of cashbacks to some borrowers is that the cashback can be used to substitute part or whole of the deposit giving them extra funds for house moving. A cashback can be thought of as the benefit of a discount or a fixed rate given up front.
Disadvantage of cashbacks is that other than been on the variable rate, the lender will tie you to them for a number of years at the variable rate. Any repayment or withdrawal from the loan will be met with a demand for a proportion or whole of the cashback to repaid.
Some of the cashback deals promoted are not real cashbacks. Many will refund small cash sums as part of a package to attract borrower, whilst other lenders will instead provide free valuations, refund of valuation or solicitor's fees.
This is exactly what it means. The pay rate is capped so that irrespective of what happen to the rate you would not pay above a certain rate.
A collared rate means the pay rate would not fall below a certain rate. These types of rates are rare, but can be offered on their own or combined.
Stepped Rates
Where the rate be staggered upwardly or downwardly yearly for a limited period.
These are offered with and without high deposits or equity. The rate is normally the variable rate although some fixed or discount rates may also be available. The lender would allow some of the equity to be borrowed as a loan through a cheque account.
The advantage is that any part of the loan that is paid will reduce the monthly interest payments. These are best suitable for self employed as it gives them flexibility to stagger repayment of the loan and also allows to borrow money on standard residential mortgage rates which is the cheapest way to borrow.
MORTGAGE INDEMNITY GUARANTEE PREMIUM
Also known as Higher Loan to Value Fee. Although known by several different terms depending on the lender this is an insurance that is paid by you for the benefit of the lender. The premiums can vary considerably thus affecting the APR of the loan. In the event of the property being repossessed and the lender has to sell the property at value less than the loan, this insurance will rebate the lender for the difference. However this does not prevent the lender from registering you for bad credit affecting your future borrowing.
The insurance is not charged for the whole of the loan, only on
borrowing above a certain level. Majority of the lender's will only
apply MIG insurance for any additional borrowing over 75%, however
some will only charge at a higher level (90%) and some even do not
charge for FTB's. The rate charged will differ from lender to
lender.
e.g.. For a £ 100,000 loan from My Way Building Society. Your
deposit is 10% or £10,000. The lender will charge MIG at 7% for
any borrowing over 75% and up to 90%.
Therefore the MIG premium will be :
£90,000 - 75,000 = £15,000
Therefore MIG = £15,000 x 7% = £1,050
Most lenders will allow you to add MIG to the loan. However it means that you will pay interest for whole term, while others allows it to be paid up front or over 3 years only. Paying MIG once does not preclude you from paying it again when you move or remortgage.
Why do you need life cover ? Most lenders will ask a life policy to be assigned to them. The main reason for this is that in the event the borrower is to die, the life policy will repay the loan to the lender leaving the property to the surviving members of the family.
The primary interest of the lender is to recover the loan in the event the borrower dies. They have no interest in the possession of the property.
A life policy must be in force before the deeds are exchanged as the buyer is responsible for the property after that day. Some lenders no longer ask a policy to be assigned to them, but they require notification by the solicitor that a life policy do exist. Therefore it is better to have all the paperwork regarding life cover to be sorted out in advance. However, you do not need to put the policy on risk until the exchange of contracts.
There are many forms of life protection policies. The basic policy is Death only, where in the event of life assured dying the policy will pay out a lump sum equal to the mortgage amount. The basic policy can be combined with other benefits such as critical illness protection, waiver of premium and index linking. Some providers will include some of the benefits such as WOP, as standard in the basic policy.
There are several factors that need to be taken into account when considering a life policy. An Independent Financial Advisor should be able to provide all the necessary information and also quotes from several providers. It should be remembered that cheapest is not always the best. The plan must correspond with your needs. Additional information about life cover or require a quote contact us.
TYPES OF LIFE PROTECTION PLANS.
Mortgage Protection / Reducing term assurance - Repayment loan only.
Also known as mortgage protection. The level of life cover is related to the loan. As the loan reduces the life cover also reduces. This is the cheapest type of life cover available. There is no investment element and thus there is no cash value at any time. May need to cancel policy at each move, however, some new policies has the renewable option at each housemove. Disadvantage is that does not cover other life protection needs of the family.
Summary : Cheapest, No Investment
element
Level Term assurance : Suitable for repayment, PEP and pension mortgages.
The level of life cover remain constant for the term of the policy. Cheap with higher than required life cover in the latter years, with the possibility of using the same policy when moving. In the event of death of the policy holder in the latter years the leftover goes to the family. Also no investment element and thus no value at any time.
Summary : Costlier than Decreasing Term, No
investment element.
Flexible Whole of Life :
Suitable for repayment, PEP and pension mortgages.
Where the life cover will remain level for the whole of the policy term or for a selected term. There is also an investment element to the policy, that is, part of the premium is invested which could built up to a substantial amount long term i.e.. 20 to 25. In the event you cancel the policy this fund will revert to you and this could be return up to 60% of the premium. However, it must be kept in mind that there will be no cash value in the initial years and the policy is designed as a long term life cover and not as a saving plan. The investment return will depend on the performance of the investment and there are no guarantees.
Whole of life policies are the most costly life cover, but the
best to have if you can afford it, as they are guaranteed to pay out
at some time even when you are 85. With term plans if you survive the
term there will be nothing back from the policy.
Summary : Most dearer, a long term plan, has
an investment element.
Critical illness Cover
With any of the life protection plans you can have the additional benefit of critical illness protection. With this benefit in the event of the life assured suffering one of the defined critical illnesses the total value of the life cover will be paid as a lump sum.
Typical critical illnesses covered are heart attack, cancer, stroke, permanent disability, coma, organ transplants, open heart surgery, etc. Majority of claims from this type of policies have been for heart attack and cancer which are the biggest killer diseases in the UK followed by stroke and permanent disability. The latter is a umbrella cover which will pay out if any serious illness or accident will prevent you from working ever again.
Most policies will have children's benefit including bacterial meningitis as an extra free benefit.
The primary cause of property being repossessed in this country is redundancy or loss of employment due to a long term illness. Being repossessed is apainful experience. It will also affect your credit rating for many years to come. Furthermore the payments that have been made to the lender will also disappear with the deposit.
Breakdown of most common illnesses that cause long term
unemployment.
In the event of a long term illness what help can you expect
from the state.
For new mortgagees there is no support from the state for the
first nine months. Even after this period the state will only pay the
interest part of the loan and you are expected to find funds for the
capital repayment, life cover and other mortgage related
outgoings.We recommend that you obtain adequate levels of cover to
protect you in the event of a long term sickness, accident or
unemployment.
A caveat regarding DSS interest payments are that it
is worked out at a rate designated by the government. Therefore for
those on variable rates or other rates above this rate may still have
a shortfall.
A hidden benefit of the much maligned endowment is that in the
event of a long term illness existing arrangements will cover most of
the payments i.e.. the DSS will pay the interest albeit at a selected
rate, the endowment premiums will be covered by Waiver of
premium.
Mortgage protection policies are basically income protection
insurance policies. These policies will provide a monthly payment or
an income in the event of being made redundant from work or not being
able to work due to a long term illness.
Most plans will pay after a initial deferred period of 1 to 3 months and provide an income for 12 to 24 months. The amount of protection is aimed towards mortgage costs and an additional amount to cover other basic neccesities.
A sophisticated approach to mortgage or income protection is to combine redundancy cover with a PHI (Permanent Health Insurance) plan. A PHI plan will pay out in the event of any illness that prevents you from carrying out your normal occupation. Furthermore the payment is not restricted to a short term and can continue as long as the illness last or up to the normal retirement age or the selected policy term.
For the greater benefits offered the combination of a PHI and a stand alone redundancy cover does not work out to be much more costly than a single redundancy / sickness benefit plan.