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Sunday, 17 June, 2001, 11:57 GMT 12:57 UK
Insurance savings fail to materialise
Looking at options for household insurance could save money
Looking at options for household insurance could save money
by BBC business reporter Karen Hoggan

The practice known as bundling - where mortgage lenders used to penalise borrowers who didn't take out buildings insurance with them - has largely fallen by the wayside following years of consumer pressure.

Only a handful of small lenders still do it. But despite the fact that homeowners could switch around more easily, consumer groups say very few do, and they could be losing a lot of money as a result.

Katie Meller and David Newson are flathunting. It'll be their first home together and they'll need a mortgage. That means they'll have to have buildings insurance.

And there's no shortage of companies competing to sell it to them.

The AA - better known for its breakdown rescue service - is one of them. Its also a telephone insurance broker.

The say the benefits of shopping around have never been more clear.

"The direct insurers and the high street brokers, the intermediaries , the online insurers are all in that market and they're all offering very competitive deals so that's having the effect of driving the cost down or keeping the costs down," says Rebecca Hadley of AA Insurance.

Special deals

But some mortgage lenders are still trying to retain their home insurance business by offering special deals.

Abbey National is offering a special cash back to new mortgage customers if they buy its home insurance rather than any competitor's.

But until recently it - like other big lenders - used to impose penalty payments on borrowers who bought rival home insurance.

It dropped the practice three years ago.

"What we don't do is offer products on our mortgages where the home insurance is compulsory. What we believe is that our cover is good enough for customers to want to buy it and we want them to have a choice, we don't want to force them." says Janet Connor of Abbey National Insurance.

Increased competition?

Despite this increased competition in home insurance, around seventy per cent of borrowers still have buildings cover through their mortgage lenders.

Few people bother to switch although - consumer groups say by shopping around they could save hundreds of pounds.

"There are people now who perhaps were tied in a few years ago by their mortgage lender and aren't any more - but perhaps don't realise that they're not tied in any more or realise but aren't actually doing anything about it," says Melanie Green of the Consumers Association.

So whether you're moving house or renewing the insurance on your existing home - the message from consumer champions is make the effort to shop around - otherwise you could end up paying more than you need to.

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17 Dec 99 | Business
Crackdown on mortgage tie-ins
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