Burgess Says Increased Lending Irresponsible Unless Free PPI Alongside Loans

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Payment Protection Insurance specialist Sara-Ann Burgess is lambasting the Government for urging lenders to increase their level of mortgage funding. She calls Minsters actions irresponsible and inappropriate during these recession-hit times and says more lending will only encourage greater numbers of people to sink deeper into debt.

Sara-Ann Burgess, MD Burgesses

It's widely recognised that borrowers and lenders alike currently do not have the appetite to take on financial risks so why ask them to do so? CML figures show that one in 53 mortgages were in arrears of three months or more in 2008 and I know PPI can help halt that slide - it's inextricably linked to a loan and provides a win, win scenario for all involved.

Payment Protection Insurance specialist Sara-Ann Burgess is lambasting the Government for urging lenders to increase their level of mortgage funding. She calls Minsters actions irresponsible and inappropriate during these recession-hit times and says more lending will only encourage greater numbers of people to sink deeper into debt.

Her rebuke comes at a time when the Treasury announced it was giving an extra £10bn of taxpayer's money to Northern Rock to help its mortgage availability. This boost will allow £5bn worth of new mortgages to be offered this year and up to £9bn in 2010.

The Government's encouraging other lenders to follow suit in a bid to kick-start the housing market, however Sara-Ann questions the wisdom of such a move: "Has common-sense been put on the back burner? Has the Government lost sight of what caused this recession in the first place? Lending to people who do not have the means to repay their debt should they lose their job is the key driver behind the soaring numbers of repossessions year upon year, and yet the Government wants to repeat past mistakes and lend to more people in an economic climate that's decisively shaky."

According to the Survey of English Housing at least 70% of the repossessions in the 1990s were because homeowners lost their income and Sara-Ann believes the Government should take note of these past statistics before undertaking new endeavours to reverse the economy's spiralling fortunes. She says: "A call for prudent lending is to be applauded, but it's mis-guided and too little too late. No matter how cautious lenders are, they will not be able to foresee who is going to be made redundant. No one has a crystal ball - will the optimistic borrower drawing a salary today become a jobless pessimist tomorrow? I predict these moves will store up greater problems and angst for lenders and borrowers in the future."

The Office of National Statistics reports that on average, 2,877 workers are being laid off every day and former Bank of England economist Danny Gabay says unemployment will rise to 4 million - 13% of the workforce - during the course of the recession. The Council of Mortgage Lenders predicts 75,000 homes will be repossessed this year - 200 a day or one every 10 minutes.

Sara-Ann continues: "Is it wise to encourage further lending at a time when savings - the main source of mortgage funds - are low due to meagre interest rates and borrowers are reticent because the job market is in turmoil? If the Government is going to put pressure on lenders to release more funds into the market, there needs to be a financial safety net in place that lessens lenders' losses and reduces the risk of mortgage arrears and potential repossessions due to job cuts.

"Payment Protection Insurance should be given, free of charge with every new mortgage - it will meet borrowers' repayments for up to a year if redundancy occurs, and so keep a roof over their heads, whilst safeguarding lenders interests by enabling them to recoup their losses from the insurer. Now this is common sense."

The Government has a target of 75% of the population to become homeowners, but Sara-Ann considers this to be reckless unless PPI is included in the loan equation. She concludes: "You can't encourage people to borrow in an uncertain job market unless you provide a mechanism that pays their mortgages should redundancy occur. It's like taking to the trapeze without a safety net.

"It's widely recognised that borrowers and lenders alike currently do not have the appetite to take on financial risks so why ask them to do so? CML figures show that one in 53 mortgages were in arrears of three months or more in 2008 and I know PPI can help halt that slide - it's inextricably linked to a loan and provides a win, win scenario for all involved."

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