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Should brokers refuse to proceed with a mortgage if the client cannot afford protection?

by: John Phillips, group operations director at Just Mortgages and Spicerhaart
  • 27/02/2018
  • 0
Should brokers refuse to proceed with a mortgage if the client cannot afford protection?
Around 14.5m adults have a mortgage but only half have protection, which means there are more than 7m people in the UK at risk of losing their homes if something were to happen to the main breadwinner.

 

As all brokers know, when a client is taking out a mortgage, most lenders will insist they have buildings insurance in place to protect the property.

Yet they do not insist the borrower takes out insurance to protect the income that will pay that mortgage.

Most brokers will always approach the subject of protection, and fully explain the risks of not having any insurance in place to their clients.

However, if once they have explained the risks, the client still decides they don’t want to buy any protection, there is not much the broker can do.

As long as they pass the lenders’ affordability tests, they will be approved for the loan.

I appreciate it is the borrower’s choice whether or not they take out insurance, but it is concerning that a fifth admit they have no idea how they would cover their mortgage payments if something were to happen to their income.

Where a client has decided not to take out protection because they would rather get a bigger loan or spend the cash on something other than insurance they don’t think they need, that’s one thing.

But if the client admits they are not going to take out protection because they can’t afford it, should the broker go through with the mortgage application at all?

If a borrower has pushed themselves to their financial limit in order to afford their mortgage, and there is no wiggle room, not even for protection, refusing to go through with the loan could be the most responsible thing to do.

Obviously, no broker wants to be in that situation, but you wouldn’t go through with an application where you knew the borrower was going to struggle to make the repayments.

So should you go through with an application where you know the client would be in serious trouble if anything were to happen to their income?

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