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Mortgage Approval Rise Borrowers Urged to Shop Around for aBetter...

News that lenders are beginning to loosen their purse strings and offer an increasing number of mortgages is good news for the economy, but people must not be tempted to commit to large monthly repayments unless they have the means to continue those payments in the event of redundancy, warns Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses(http://www.burgesses.com).

Her advice follows feedback from the British Bankers's Association that approvals for house purchases rose to 31,162 in May - up 15.8% on the previous month and continuing a six month upward trend.

As funds become more freely accessible, the repayment costs for fixed rate mortgages - a favourite with first time buyers - appears to be increasing in line with demand. BBA Statistics Director David Dooks says High Street banks and building societies are relaxing their lending constraints and offering mortgages to people who do not have large deposits. To counter this, they'sre raising the cost of their fixed rate deals.

In the space of a week homeowners can expect to pay 's163;180 a year extra for a two year fixed rate and 's163;219 for a three year deal. It is the prospect of having to find more cash to get a foot on the housing ladder that concerns Sara-Ann.

She comments: It'ss great that more people are getting their mortgages approved, but with higher fixed rate costs and lower interest rate returns on savings, there will be less spare cash to spend on vital products such as PPI. Anyone taking out a loan must consider the 'swhat if's factor and have in place a mechanism that will maintain their monthly repayments should their salary become interrupted due to accident, sickness or unemployment.

With such high levels of job insecurity, PPI is growing in popularity. However, the majority of borrowers opt to take out the PPI that'ss offered by their lender which means they'sll be paying over the odds for cover that can be sourced cheaper elsewhere.

According to the Council of Mortgage Lenders, 73% of all PPI is sold via lenders, despite independent research confirming that policies offered by standalone firms are four times cheaper for mortgage, five times for income and 10 times for loan protection.

The Organisation for Economic Co-operation and Development predicts 0% growth for the UK in 2010 and with more job losses on the horizon, Sara-Ann is warning borrowers not to become complacent and commit all their cash to a mortgage without having some form of financial safety net in place.

She continues: In a rush to secure a fixed rate deal, people may overlook PPI, calling it an unnecessary expense. Those who do buy cover tend to purchase from their credit provider, in the mistaken belief that it is a condition of the loan.But this isn'st true - earlier this year the Competition Commission said it will ban lenders from pushing their PPI cover at the time a loan is taken out and it was no surprise to find lenders crying foul - worried at the prospect of losing a huge income stream.

PPI pays a pre-agreed monthly tax free sum to the claimant for up to a year if their salary is interrupted and independents such as British Insurance (http://www.britishinsurance.com) offer back to day one cover and a range of support services and benefits.

Sara-Ann concludes: Unemployment claims on these policies are growing month by month, indicating it has a vital role to play in helping people repay their debts during times of hardship. An increase in mortgage offers will result in lenders trying harder to push their products so I urge borrowers to be prudent, consider whether they need this cover to prop-up their finances and shop around for a better deal.

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