Mortgages and cheap home insurance may not be linked

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Wednesday 9th May 2007

Mortgages and cheap home insurance may not go hand in hand, it has been suggested.

Sainsburys Bank urges consumers to shop around for products such as home insurance and mortgages in the light of the increasing cost of living.

Figures published by the financial services provider show the annual cost of running a home is now £11,035, 12 per cent higher than in 2004-05.

Robert OMay, home insurance manager at Sainsburys Bank, says: "Its becoming more expensive to run a home, which makes it all the more important for homeowners to shop around to make sure they are getting the very best deals available."

Financial services provider More Than suggests that buyers seeking mortgages are generally required to take out building insurance cover for their property.

However, the firm adds that choosing a policy from the mortgage provider itself may not present the best option.

"It usually makes sense to shop around to ensure you get the best home insurance cover at the most competitive price," More Than states.

Meanwhile, broker John Charcol warns that some providers make their own policies a compulsory part of their mortgages.

"The Department of Trade and Industry has criticised lenders for making compulsory insurance a condition of a mortgage offer," the company notes.

John Charcol advises that some lenders "get around this" by quoting two interest rates, with borrowers who take building and contents insurance from the provider receiving a discount of about 0.25 per cent on their repayments.

Among the insurers offering a discount to homeowners taking policies alongside mortgages is Direct Line.

However, rather than providing a lower interest rate, the firm instead provides its customers with a discount of 20 per cent on their insurance premiums, whether they are existing policyholders or switch to a Direct Line policy within 12 months of obtaining their mortgage.

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