 Unemployment insurance for mortgage borrowers: is it viable and does it cover those most in need?Gwilym Pryce and Margaret Keoghan European Journal of Housing Policy, 2002, vol. 2, issue 1, 87-114 Abstract: One of the principal downside risks of financial deregulation is the possible deleterious effect it may have on the incidence of mortgage arrears and possessions. Successive UK governments have enthusiastically pursued both financial deregulation and the promotion of private mortgage payment protection insurance (MPPI) as the primary safety net for mortgage borrowers. As such, the UK is an important test case for other European countries considering either or both avenues of policy. With this motivation, we review the mortgage payment protection insurance (MPPI) debate in the UK and examine whether mortgage borrowers who choose to remain uninsured do so because they are in the most stable forms of employment and/or have sufficient financial resources to cover periods of unemployment, or because their employment risks are not covered by MPPI and/or they cannot afford the premium. These are important questions because if affordability proves to be a key driver of take-up, then private mortgage insurance is fundamentally flawed as an antidote to the risks that follow from financial deregulation. Family Resources Survey data are used to examine the characteristics of the uninsured which are then compared to data on employment stability in an attempt to identify those groups of mortgage borrowers most at risk. Income and savings of the uninsured are also examined to establish whether borrowers consider personal financial resources to be substitute for insurance. We find that neither those in the riskiest categories of employment, nor those with the least financial resources, have the highest rates of MPPI take-up. We also find a surprisingly large variation in the take-up across household types. In particular, we find that households with a greater number of children relative to adults have significantly lower MPPI take-up rates. These findings provide evidence that affordability is an important driver of MPPI take-up, for whilst there is no obvious reason why having more children reduces the default risk of a household, it is clear that the number of children will have a direct effect on the ratio of outgoings to earnings and hence on a household's ability to afford MPPI. Inability of certain borrowers to afford MPPI may explain why the highest risk groups do not have the highest levels of take-up. The corollary of our results is that MPPI is not viable as a widespread safety net for mortgage borrowers, and so the assumption that private mortgage insurance can be a substitute for stateprovided protection is fundamentally flawed. Date: 2002 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjhp:v:2:y:2002:i:1:p:87-114 Ordering information: This journal article can be ordered from DOI: 10.1080/14616710110120595 Access Statistics for this article European Journal of Housing Policy is currently edited by Mark Stephens More articles in European Journal of Housing Policy from Taylor and Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.