Biba has reacted with disappointment after the government quietly dropped its proposal to ban the selling of insurance products tied to mortgages.

The decision appears to reverse the government's previously hardline stance on the bundling of such products as mortgage indemnity guarantee (MIG) and accident, sickness and unemployment (ASU) insurance with mortgages. MIG has been branded an unfair deal by consumer groups because it protects the lender's interest in a property in the event of repossession, but not that of the borrower, who must pay the premiums.

Last summer, trade secretary Stephen Byers summoned mortgage lenders for a summit on the issue, at which he stated it was the government's aim to stamp out the “unfair” practice of tied insurance.

Biba said the broker body took “a very dim view” of the U-turn.

Biba chief executive Mike Williams said: “We are disappointed that the department of trade and industry (DTI) does not seem to think mortgage-tied insurance is the problem it was a year ago.”

Biba said it believed tied insurance products offered by lenders provided a poorer deal to consumers than broker-sold products.

A spokeswoman for the DTI said it considered legislative action was no longer needed because many high street lenders had abandoned tied insurance products.

She said: “At the time of the summit, the government felt consumers should be given greater choice over the sale of tied insurance products.

“Many lenders have since halted the sale of tie-ins and ministers feel that legislative action is no longer necessary.”