What are Home Insurance Bundling and Tie-ins?
With the mortgage market being as competitive as it is, lenders often look to new ways of ‘luring’ new customers in. Often, this is achieved by way of offering reduced interest rates and creating what seem to be great deals, at first glance. However, these mortgage lenders are not losing money, they make up for the low interest rates elsewhere in the deal, often through techniques known as home insurance bundling and tie-ins.
What is bundling?
Home insurance bundling involves the use of compulsory purchases to force the consumer into purchasing their insurance policies as part of a package with the mortgage product. Generally, these policies are highly over-priced to ensure that the lender will recover the losses they make from low interest rates offered in the mortgage. In the end, the consumer is more out of pocket than they would have been if they’d gone with a higher interest rate mortgage and separate home insurance.
What are tie-ins?
Similar to bundling, home insurance tie-ins are not compulsory, but come with large penalties when you refuse them. Basically, it is a form of high-pressure sales, in which your lender tells you to take out their home insurance products or face fines.
Avoid at all costs
If your mortgage lender uses either method to pressure you into purchasing their home insurance and/or contents insurance policies, along with your mortgage product, it is time to become buyer aware. The cheaper mortgage may look the best deal, but in most cases if it comes with bundled or tied-in insurance, in the long term, it is going to cost you more.
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