HML. Homeloan Management Ltd

Recently the Association of British Insurers (ABI) announced that the agreement between insurers and lenders, whereby the insurer alerts the lender if their borrower does not have buildings insurance, is coming to an end.

There's no getting around it, this is a blow for lenders. First of all, they have no way of knowing if their customers are covered. If a property was lost to a fire for example, and there was no buildings insurance in place, the lender would be looking at a loss as the borrower would be unlikely to be able to repay the rest of the mortgage.  Furthermore, lenders with a contingency insurance policy in place could face rising premiums because there is a higher chance of a lender claiming on their policy due to knowledge gap caused by the ABI's decision.

Unfortunately, if some borrowers are not prompted, they can forget to arrange or renew their policies and this announcement places onus on the borrower to prove their level of cover. Implicating a new in-house system to check every customer's level of cover would take time and can leave lenders exposed.

It shouldn't be the responsibility of the lender to organise their customer's insurance, but arguably they stand to lose as just as much should a loss occur, so HML's Lender Insurance Service takes this into account by passing insurance costs to customers who do not comply with the terms of their mortgage and prove that adequate buildings insurance is in place.

It is too early to say what the costs of this change will be for lenders in cash terms for their insurance premiums, but it is certain that insurers will continue to look to lenders to cover their risks.

HML is currently helping several clients reach their borrowers as a matter of urgency to plug any gaps in information through a series of mailings. And while it is possible that the ABI goes back on this statement in the near future, it makes little sense to be exposed to potential losses in the meantime.