I propose to take Questions Nos. 317 to 320, inclusive, together.
When a person applies for a mortgage loan to buy a home, the person will generally be required to take out mortgage protection insurance. In most cases, a lender is legally required under section 126 of the Consumer Credit Act 1995 to make sure that a mortgage applicant has mortgage protection insurance in place before granting a mortgage loan. This is an important statutory provision which is designed to protect the borrower's dependants and their home should the borrower die before the mortgage has been repaid. However, the Act also recognises that in certain cases such protection is not necessary or would be inappropriate and it provides for a number of limited exemptions to this statutory obligation where:
a. the house in respect of which the loan is made is, in the mortgage lender's opinion, not intended for use as the principal residence of the borrower or of his or her dependants;
b. loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally;
c. loans to persons who are over 50 years of age at the time the loan is approved;
d. loans to persons who, at the time the loan is made, have otherwise arranged life assurance, providing for payment of a sum, in the event of death, of not less than the amount of the estimated outstanding principal amount.
It is not necessary for a prospective mortgage borrower to seek or apply for an exemption from this statutory requirement as the Act makes clear that the legal requirement on mortgage lenders to arrange for mortgage protection insurance does not apply in such cases; also I do not think it would be desirable to be more proscriptive in legislation in regard to these statutory exemptions. If a prospective borrower is of the view that a particular lender is taking an unduly restrictive approach to these statutory exemptions then it will be possible for the borrower to utilise the complaints process as provided for in Chapter 10 of the Consumer Protection Code and if that process does not resolve the matter then a complaint can be made to the statutory and independent Financial Services and Pensions Ombudsman.
However, it may also be the case that, in circumstances where there is no specific statutory obligation on a mortgage lender to arrange for mortgage protection insurance in association with a housing loan, an individual mortgage lender may, as a matter of its own commercial policy, require a mortgage borrower to put in place such an insurance policy as a condition for obtaining mortgage credit. That would be a commercial decision as opposed to a statutory requirement for an individual mortgage lender and it is not possible for me to instruct lenders on their commercial lending policies or their commercial decisions on any individual mortgage application, including the insurance and other security they require either in respect of the borrower or the secured property in relation to a mortgage loan.
In the same way it is not possible for me interfere with the decisions insurance companies may make on applications for life insurance cover or direct such companies to provide cover to specific individuals. That is also a commercial matter and decision for individual insurers to make in line with their own risk policies and analysis. However, if a mortgage lender requires a consumer to hold a policy of insurance related to a housing loan, the lender is obliged to accept a policy selected by the consumer provided that such a policy has a level of guarantee equivalent to the amount that would be required to repay the outstanding credit or to insure the value of the security. Also in relation to the impact of COVID-19 on insurance, the Central Bank expects that the insurance industry will play its part in protecting its customers during this difficult time and it expects that firms will consider the customer impact when making decisions and to engage with customers in an open, fair and transparent manner.
If a person is not satisfied with the way a regulated mortgage provider or insurance provider has dealt with them in relation to an application for a mortgage or for life insurance, or they believe that the regulated entity is not following the requirements of the Central Bank’s codes and regulations or other financial services law, including the requirement for the regulated entity to act with due skill, care and diligence in the best interest of its customers, the consumer can also complain directly to the regulated entity and, if not satisfied with the response from the regulated entity, the consumer can refer the complaint to the independent Financial Services and Pensions Ombudsman.
In relation to mortgage refusals, the Central Bank has indicated that it does not receive or hold data regarding the number of mortgage applications declined by regulated mortgage lenders or the reasons why applications are refused. However, the Consumer Protection Code provides that where a personal consumer's formal application for credit is turned down by a regulated entity, the entity must clearly outline to the personal consumer why the credit was not approved. Also the regulated entity must offer to provide the reasons, on paper or another durable medium, to the personal consumer.
