New research shows that 60% of home-buyers have some form of insurance to provide help if they were unable to keep paying their mortgage. But the understanding of exposure to risk is patchy and poorly understood, says the Council of Mortgage Lenders.

One of the most common types of cover is mortgage payment protection insurance (MPPI) and figures published this week by lenders and insurers show that almost one million MPPI policies were sold or provided free in 2003. In total, 36% of all new loans advanced last year were protected by MPPI.

Although some borrowers who take out MPPI eventually allow their policy to lapse, the figures show continuing progress in the overall number of mortgages that are protected by insurance. By the end of 2003, 25.6% of the UK's 11.5 million mortgages were covered by MPPI, an increase on the 23.5% of mortgages that were protected in the first half of the year. The figures also show that the average cost of MPPI continues to fall. At £4.95 per £100 of mortgage payments, MPPI is now almost 12% cheaper than it was six years ago.

The new research shows that borrowers have a range of different insurance policies to help with mortgage payments, including MPPI, critical illness cover, permanent health insurance and unemployment insurance. In total, 60% of borrowers have private insurance. The research also shows that state help, employee benefits and their own savings provide protection for borrowers.

But a key fact finding from the research is that protection for borrowers is partial. Many are covered against some risks, but not others. And many do not have a clear understanding of their exposure to risk. There are gaps in the current system of support, which is complex and often requires borrowers to piece together help from a variety of sources. Some risks, like the breakdown of relationships, are not adequately covered.

Commenting on the new data, the CML's deputy director-general Peter Williams said:

"The new figures on take-up of MPPI are encouraging and show that the industry's initiative to make home-ownership more sustainable is continuing to make progress.”

“But the research also shows that we need to pursue a wider range of objectives - a simpler system of support, better knowledge among consumers about their exposure to risk, better protection during the nine-month qualifying period for state support and incentives for borrowers to protect themselves through a combination of insurance, savings and overpayments on flexible mortgages.”

"Although the Government is already contributing to the industry's initiative, there is clearly much more it might do. It could target information about tax credits more effectively at home-owners. And it could acknowledge aspirations to home-ownership by introducing a tax credit, available to all households in work, irrespective of tenure.”