PPI Must Shore Up Finances if Borrowing on the Up Says Burgess

News that Lloyds is to close all of its Cheltenham 's38; Gloucester branches with a loss of 3,660 jobs serves to underline the importance of having a policy that will pay your monthly bills should you be made redundant says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses.

She says: As lending increases, there are predictions we are through the recession, but I don'st believe we are out of the woods yet and borrowers need to be cautious and make sure they can meet their bill commitments if their circumstances change. More money may be passing hands, but this does not mean people'ss jobs are more secure than they were six months ago and neither does it suggest they can continue to repay their debts if they fall on hard times.

Retiring Monetary Policy Committee member and leading economist David Blanchflower recently predicted that at least a million more people will lose their jobs before unemployment peaks in the UK - he estimates around 100,000 people are set to lose their jobs every month until the end of the year.

The Centre of Economic Business Research says one in 56 businesses will fail this year - up 59% from the 22,600 last year - and there are expectations this will increase to one in 50, or 39,000, next year.

The doom and gloom is not restricted to business - a survey undertaken by Abbey reveals the amount saved every month continues to decrease. In Q1 this year, savers put away an average of 's163;163 per month, in Q2 it was 's163;120. The biggest fall is when compared to last year - the lender found people are now saving 's163;315 less per month.

Sara-Ann comments: This is not surprising given the huge increases in food, fuel, utility and other costs - there'ss simply less spare cash to go round. Everyone wants the economy to pick up and increased lending will kick-start it, but I do not want to see people suffer financially because they have taken out a loan and not thought through the long term implications of what would happen if their salary was interrupted and they were unable to make their repayments.

According to the Council of Mortgage Lenders there are 11.7 million mortgages in the UK, with loans worth over 's163;1.1 trillion. However, statistics from the Association of British Insurers suggest very few borrowers who lose their jobs are drawing monthly tax free payments from their PPI - a policy that pays a pre-determined sum for up to a year should accident, sickness or unemployment occur.

At the end of January this year, 32,077 unemployment claims were received. Although this is a 203% increase on the number of claims in 2008 (10,581) it represents a fraction of people with loans.

Arrears and repossessions are rising dramatically which suggests very few people have a financial safety net in the form of a PPI policy or savings to fall back on, Sara-Ann continues. I therefore urge anyone taking out a loan - particularly a mortgage - to consider PPI. I suspect the low take up is due to the poor reputation of providers in this sector - but not all should be tarred with the same brush. Borrowers do not have to take out the policy their credit provider recommends, it is not a condition of the loan, and there are plenty of low-cost, good-quality policies available from standalone firms.

The Council of Mortgage Lenders indicates repossessions were 51% higher in the first quarter this year than in 2008 and predicts, along with Citizens Advice and Shelter that over half a million people will fall behind with their mortgage payments this year. A figure Sara-Ann believes could be reduced if PPI was automatically included with mortgage offers.

She concludes: New house purchase mortgage approvals are up 41% - whilst this is good news, I wonder how many first time buyers have a financial safety net in place. Buying the house is one thing - but keeping it is another. Fewer arrears and repossessions would occur if people were given a policy - in the long term it would save lenders millions and stabilise their sector as the risk of default would be minimal, plus it would address the low take-up, protecting more borrowers, reducing their financial stress and keeping a roof over their heads.

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