Following a study of the implications of the 1995 benefit reforms, the CML has warned that the full impact of the 1995 reforms – of which the most significant was the decision to extend the waiting period for entitlement to benefit help with mortgage interest to 39 weeks – have yet to be tested by a significant economic downturn. And consequently the research concluded that the benefit reforms are likely to lead to an upturn in possessions if there was any significant rise in unemployment.
The government has managed to slash the annual cost of state help with mortgage interest payments from more than £1.2 billion in 1993 to less than £500 million in 2000. But, despite its expectation that the former benefit system was holding back the growth of private insurance to protect mortgage payments, this has not really materialised.
Despite an increase in sales of mortgage payment protection insurance (MPPI), the CML and the Association of British Insurers believe that this has occurred largely because of better products, pricing and awareness, and not due to the benefit cutbacks.
The research found that the average take-up of MPPI was 29 per cent for all groups of employees, and it was only slightly lower for unskilled workers at 26 per cent.
Peter Williams, deputy director general of the CML, said: "This research is the first proper study of the impact of the 1995 benefit reforms and sheds light on the existing gaps in support for home-owners. It also looks at the full range of options and challenges for the Government, lenders and insurers to create an adequate safety net.
"Some poorer home-owners may not be able to afford insurance and are not entitled to the Housing Benefit that is available to tenants, including those in work. The introduction of a housing tax credit would remove a bias that means that home-owners on low incomes are treated less favourably by the state than tenants. Equally, although it is right to put the onus on borrowers to protect themselves, not all events are insurable. That is why the Government, lenders and insurers must continue to work together to create fully sustainable home-ownership."