Insurance “Tie Ins” / Bundling

What are Insurance “Tie Ins”?

The mortgage market is becoming increasingly competitive. Mortgage lenders lure you in with great sounding cut-price interest rates.

To make up for their “loss leader” they’ll try various ruses particularly getting you to buy their insurance policies. This is known as “bundling”.

But these home or mortgage payment protection policies will be overpriced and cost you a lot more than necessary .

Sometimes they’ll make out as if taking their policy is compulsory ie it’s a condition of your taking their cut-price rate.

Increasingly they’re charging a fee – often £25 – if you insure elsewhere. (This type of penalty is known as a “tie in”).

Even when compared to the savings you think you’re making on a “cheaper” mortgage, tie ins are unlikely to give you the best value.

Shop around and try to ignore compulsory insurance tie in scams, no matter how urgently you want the mortgage.

If you arrange insurance independently, differences of up to £150 a year on Buildings and Contents Insurance are commonplace. That’s £3,750 over a 25 year mortgage term.

If that money was going into your pension fund instead, the difference could be at least £10,000. Do your future self a favour…

Some say that the cheap looking mortgages are a deliberate way of luring people in to the insurance tie ins which is where the mortgage lender makes the real money.


Aren’t tie ins illegal now?

Nope not yet. The government have been making noises about it for some time but haven’t quite got round to it.

There’s a myth doing the rounds that tie ins are already illegal. It’s not true. (Funnily enough it seems that the people spreading this myth are the mortgage lenders and their agents. Of course this would be nothing to do with making people think they don’t have to bother shopping around…).

If you need clarification on this issue call the Financial Conduct Authority helpline on 0845 606 1234.


How to avoid being conned

The trick is to shop around.

Don’t worry about the fee the lender may say you’ll have to pay if you insure elsewhere. You’ll more than save it – and some insurers may even pay it for you.

The lenders know that most people won’t be fussed and will just take their insurance without shopping around.

If you do this it may well cost you more than you saved with the bargain interest rate. Even worse, once you’ve taken an overpriced insurance policy, you may well find that the price goes up and you can’t get out. You’ll have to pay through the nose.

Always get three quotes when buying any financial product.


Benefits of Tie Ins / Bundling

Having told you above about why to avoid insurance tie ins, bear in mind that some cheaper insurance policies may not give you the same level of cover as the more expensive ones.

Some would also say that it’s good to keep everything under one roof. If there’s a problem you only have one organisation to deal with… But then again, given the nature of large organisations, where departments seem to fight each other rather than co-operate, maybe not…

Some lenders also claim that their polices are “block policies” meaning all their borrowers pay the same regardless of where they live. But all you have to do is get a quote for your postcode and compare it.


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