Survey shows customers are paying £2m a year for the practice of ‘bundling’ that was abandoned a decade ago. Building societies are forcing home buyers to take out their often high-priced in-house insurance policies – or face a penalty of as much as £45 if they shop around.
A survey by comparison site comparethemarket.com named Ipswich building society as the worst offender in a list of 18 lenders which charge home buyers if they choose to buy their buildings insurance at an alternative provider. The society charges £45, although in a statement it said that it plans to drop the charge later this year. Among other lenders, the biggest still continuing the practice is Skipton, which charges £25.
A Skipton spokesman said: “There is a charge we make to ensure that if someone buys their buildings insurance elsewhere, we need to check that the property is properly insured.”
But Simon McCulloch of comparethemarket.com said, based on the mortgage and re-mortgage market share of those lenders that impose a fee, consumers are collectively paying nearly £2m a year for these charges.
“These charges are essentially a tax on being financially proactive and prudent,” he said. “Shopping around for buildings and contents insurance saves a third of UK households more than £100, which could, for example, pay for your first six months broadband after you move house. But charges like these are designed to put people off doing this and, in many instances, to tie them into more expensive products.”
Tie-in or “bundled” insurances which were a condition of signing up for the cheapest home loans were highly controversial a decade ago, but were abandoned by the major lenders following threats of legislation to ban the practice. Lenders can no longer make a loan deal conditional upon taking out insurance, but can set a fee to check that the buyer has taken out cover.
At one point lenders were estimated to be earning £400m from lucrative commissions earned by selling insurance, although as long ago as 1993 Halifax ditched its requirement to buy its in-house insurance. Nationwide dropped its £25 fee in 1998, but smaller societies – such as the Marsden, Mansfield and Darlington continue with the practice today, according to the comparethemarket research.
A spokesman for the Ipswich said: “The society has recently conducted a review of the ‘own insurance’ mortgage fee. The result of this is that we intend to remove this fee for all applications from 1 September 2014.”