Q: With protection sales through mortgage advisers said to have slipped since the upturn in the mortgage market, how has the Mortgage Market Review affected business volume?
A: Unfortunately, early indications are while the MMR may have achieved some of its objectives, it may have also had unintended consequences.
Our most recent data analysis indicates the MMR has increased the number of advisers requesting protection quotes. This makes sense as advisers will always look to their duty of care to ensure the customer’s ability to maintain payments, regardless of future circumstances, including events like illness or death.
Our perception is that the MMR has seen advisers adapting their processes to comply with the regulations and, importantly, the spirit of what the MMR is looking to achieve, namely to ensure customers have the ability to pay their mortgages when beset by a change in circumstance.
However, according to our latest adviser research, the unfortunate consequence of the MMR is its financial requirements may, in the case of some clients,’ completely prohibit protecting against the risks associated with death or ill health.
Our research asked if intermediaries had seen any increase in lenders wanting a relevant protection policy in place alongside the mortgage? Just 2% said they had.
We asked if advisers believed a discussion about protection should be made mandatory as part of any revisions to the MMR. The vast majority said it should. Less than 5% disagreed.
Finally, we asked if the new affordability checks were providing greater or less financial flexibility for cash strapped borrowers with respect to the purchase of protection. Universally, 96% thought post-MMR borrowers had less flexibility.
Our research and broader conversations with advisers concludes while life assurance and critical illness do not feature in the MMR, the overriding principles of the MMR and lenders responsibilities’ regarding whether the ‘customer can afford the loan’ and the requirement ‘to verify the customer’s income’, will mean the consequences of ill health or accidents should be given equal prominence to the loss of an income through redundancy.
It is still early days, but we believe the MMR will be a force for good; but mortgage advisers will also drive further change as a result.
At this stage I can only comment anecdotally on some of the changes I have seen. An interesting case in point is the increase in the number of advisers looking to find cover for more complex protection cases.
For older home buyers where finances are less of an issue, the MMR will stimulate questions regarding other risks. This is where the MMR missed the opportunity, in not addressing the individuals whose health might be the biggest risk factor. We also believe advisers will choose to outsource the management of these cases.
Treating customers fairly is more than a box ticking exercise. While an unintended consequence of the MMR might be too many customers will not have protection policies in place due to affordability, the converse effect will be advisers will want to do the right thing and ensure the best possible service to all those of all ages with the widest conditions. The technology, and the rewards, are there to help them.