COMMENT
The £10 Billion Mortgage Protection Racket!

Here's a tricky question: do you have an MPPI policy?

"Blimey, what on earth's that?" I hear you ask. Mortgage payment protection insurance is optional protection that covers your mortgage repayments if you can't work because of accident, sickness or unemployment. Hence, it's also known as ASU cover (not another three-letter acronym, please!).

So, fall ill, have an accident or lose your job and, after an excess period of up to sixty days, your trusty MPPI policy will start meeting your mortgage repayments. Usually, these monthly benefits continue for up to a year, but some policies extend claims for up to eighteen months or even two years.

Between about a third and half of new mortgage borrowers take out this cover, partly because government help with mortgage repayments is all but non-existent. However, the vast majority of these customers – perhaps nine out of ten or more – buy this cover from their mortgage lender.

And, of course, being big-hearted organisations, banks and building societies provide this cover at minimal cost, don't they? Fat chance! For the record, the only not-for-profit MPPI policy is sold by the small yet lovely Market Harborough BS (MHBS), which is based in Leicestershire. To provide ASU cover for a monthly mortgage repayment of £500, MHBS charges a trifling £12.50 a month, or £150 a year.

Now, let's take a look at how much the UK's fifteen biggest mortgage lenders charge (sit down first, because it's not a pretty sight!):

C&G's MPPI policy is the most expensive by miles, but it's very different to the others. It charges 50p per month per £1,000 borrowed, so I've assumed a £120,000 interest-only mortgage and an interest rate of 5%, which produces a monthly mortgage repayment of £500 and a monthly MPPI premium of £50. This policy covers monthly mortgage repayments, C&G home insurance premiums and the MPPI premium itself, plus it provides a monthly cash benefit of £3 per £1,000 advanced. In the above example, this cash benefit comes to £360 a month. So, the total monthly benefit in this example would be around £950, not £500, which explains why C&G's policy is the most expensive by far. Okay, so it's great cover when you claim, but most people don't. Hence, C&G are making huge profits at their borrowers' expense!

So, as you can see, mortgage lenders are massively over-charging their customers for MPPI. And note that although the MHBS policy is cheaper than all the rest, the cover on offer is no worse than other lender's, thanks to an industry "baseline" that lays down minimum product standards. Another problem is that mortgage advisers rarely check to make sure that this cover is suitable for customers, fail to ask questions about existing medical conditions (which usually aren't covered), and neglect to mention that redundancy cover is useless for self-employed customers. High-pressure selling, anyone?

But that's not the worst of it. Try checking lenders' websites for details of the cover on offer and the cost. They must be trying to keep it hidden, because I found nothing about MPPI on many leading lenders' websites, including Halifax (the biggest), Barclays/Woolwich, HSBC, Lloyds TSB/Cheltenham & Gloucester, Northern Rock and RBS/NatWest. This is appalling - perhaps lenders are simply too ashamed to reveal just how over-priced their MPPI policies are?

So, how much is this almighty rip-off costing us? Well, with around two million lender-sourced policies in force, each costing £200 a year too much, the great MPPI rip-off is costing homeowners around £400 million each year. Put another way, over the 25 years of their mortgages, these two million homeowners are being fleeced of ten billion pounds. So, if you've bought MPPI from your mortgage lender, you're paying two or three times as much for this cover as you would with a Best Buy. It's time to shop around, people!

You can find competitively priced MPPI from Helpupay, available through our Insurance centre. My Helpupay quote came out at £17 a month, or £204 a year - cheaper than all but MHBS! Other low-cost providers include Freeinsuranceuk.com and Paymentshield.co.uk. Alternatively, try contacting a few local brokers or search online. I guarantee that you'll save money by dumping your MPPI policy for a fairly priced substitute!

More: Take a look at the great deals in our Mortgage and Insurance centres.

Cliff owns shares in HBOS, the parent company of Halifax and Bank of Scotland.