How to Protect Your Mortgage on a New Home

With the UK Budget announcement of additional government help for homeowners, now could be the time to start thinking about getting back on the housing ladder. With the extra £80m for shared equity schemes and Stamp Duty allowances to be held off for another year, Alistair Darling's Budget announcements are a clear indication of the government's intent to kick-start the housing market.

But in these difficult economic times how can you protect yourself if you are about to buy a new house?

Mortgage Protection Insurance (or MPPI as it is better known) is an insurance policy designed to cover your mortgage repayments if you cannot work or lose your job. Although some loans might insist you take MPPI as a condition of the policy, it is not compulsory. But if you are thinking about joining the millions of UK homeowners you should consider taking it out. Just because you are unable to work does not have to mean that you place your new home at risk or are driven into debt.

Good MPPI policies will not only help you cover your mortgage repayments but also help contribute toward:-

* Home improvement and/or car loans
* Important insurance premiums
* Credit card repayments
* Utility bills
* Food bills
* Fuel costs and more...

Most policies will have some kind of standard excess period you need to be out of work for (either through illness or redundancy), before they start paying out. Some providers will offer flexible excess periods and these will be reflected in your monthly premiums. Typically policies will pay out for 12 months as it is generally accepted that you will have found other employment or recovered from illness within that time.

It is always worth checking to make sure you understand the small print of any policy as in some cases MPPI will not pay out. For instance if you are off work because of a medical condition you knew about before taking out the policy or know you are going to be made redundant then you are unlikely to make a successful claim.

How much does MPPI cost?

Some homeowners take MPPI out at the same time as their mortgage as quite often the mortgage lender will sell you MPPI. However, it is not compulsory and there are some great savings to be made if you shop around and use one of the independent MPPI insurers. Money Saving Expert and the comparison websites are ideal for checking on the latest policy prices and best buys.

iProtect Insurance for example offers MPPI cover from as little as 69p per month for every £100 of benefit - based on a 25 year old with Accident and Sickness benefits and 180 day excess.

Making a claim

All policies should give you details for making a claim. Once you tell your provider that you're out of work and this is verified, your insurance payments should typically begin one month after you have been without a salary. It is worth noting that in many cases that payments are made directly to your mortgage lender, although from stand alone providers payments are usually made to the customer.

What other types of policies are available?
Income Protection Insurance is a good alternative to MPPI. It's designed to cover the cost of your outgoings if you are sick and cannot work for a long period of time.

If you are self-employed (regardless of whether or not you have a mortgage) Income Protection Insurance can often be a better policy, since it will protect your income and lifestyle if you are ill or have an accident. If you work for yourself and have a mortgage then it is even more important, since if you are unable to meet repayments, you could lose your home.

What can I do to reduce the risk of losing my new home?

* Always check the terms of which your employer pays sick pay. If you get cover after 30-days defer any income protection policy to pay out after that period.
* Be in a position where you have at least three months mortgage payments saved in a bank account should you need it
* Have some money available in a flexible savings account where you can get at it quickly if necessary
* Don't leave yourself unprotected.