Insurance plat protects from effects of rising interest rates

A new-style insurance product to protect homeowners from rising interest rates has been launched.

MarketGuard believes its Interest Rate Insurance policy is the first of its kind.

The product covers people with a variable rate or tracker mortgage against interest rate rises, and starts paying out automatically once policyholders' mortgage rate rises above a set level.

People can opt for the cover to kick in after interest rates rise by between 1% and 2.5% above current base rates. Premiums for the insurance for a typical £100,000 mortgage are around £17 a month for cover beginning after base rates rise by 2%, although prices will vary according to interest rate expectations.

There is no cap on the amount that the policy will pay out, ensuring it covers the full increase in mortgage payments whatever rates rise to, and the money is automatically transferred to the holders' bank account, without them needing to claim.

The product is taken out on a two-year term, and it is fully portable if people switch home or lender. There are also no redemption penalties or exit fees.

The group estimates that there are around seven and a half million people who are either currently on a variable rate mortgage, or are due to come to the end of a fixed rate deal this year.

It said the product could also be taken out by people who are nearing the end of a fixed rate loan to cover them when they switch on to their lenders' standard variable rate.

Chris Taylor, chief executive of MarketGuard, said: "Today's borrowers are highly indebted and have massively overstretched to get on the housing ladder. Our research reveals that even the slightest increase in the Bank of England's interest rate could tip people over the edge. Currently there is only one way for individuals to protect themselves from rising interest rates - through a fixed rate mortgage.

"We've changed that with the launch of this product which we believe will help bring some stability to people who are either on a variable rate mortgage or coming to the end of their current fixed rate with no way of remortgaging onto another deal because of withdrawal of products and tightening lending criteria or the prohibitive cost of remortgaging."