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The new relationship between protection and mortgage advice – Bryan

by: Steve Bryan, director of distribution and marketing, The Exeter
  • 24/03/2023
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The new relationship between protection and mortgage advice – Bryan
For many UK workers, recent months can be summed up in one word – challenging. The final quarter of 2022 was marked by inflation increases, rising interest rates, political turmoil, and a drop in mortgage approvals.

While there is still plenty of cause to be optimistic for the mortgage and protection markets, the reality is that many people have taken a substantial hit on their personal finances and are faced with a difficult situation as UK incomes are forecast to fall a further 3.8 per cent this year.

 

Mortgage approvals falling

It’s not surprising then that data from the FCA suggests some 570,000 homeowners are in danger of falling behind on mortgage payments, with approximately 200,000 households already in mortgage arrears. We’ve also seen a reduction in the number of monthly mortgage approvals, falling from 59,000 in October 2022 to 39,600 in January 2023.

A drop in mortgage approvals will have a knock-on effect in terms of mortgage protection sales for advisers. Mortgage protection is one of the most commonly sold forms of protection and offers a valuable lifeline for many consumers in case of the unexpected.

But it is not the only protection solution available to UK workers, and even as mortgage approvals fall, people are still in need of a safety net for other aspects of their finances. Advisers facing the new Consumer Duty requirements would do well to look further afield as ‘good consumer outcomes’ arguably includes provision for unexpected costs – whether through savings, easily accessible investments, protection or otherwise.

Our recent research on the health and financial fears of UK workers found that four in ten adults were saving less than £100 a month, with one in seven saving nothing at all. Many clients are struggling to build a ‘rainy day’ fund large enough to protect against mortgage insecurity, let alone large enough to also cover unexpected household bills and the rising costs for simple things such as food shopping and commuting.

Not to mention, to save money some clients will have opted to let their mortgage or income protection policies lapse, a gamble to save on monthly bills at the risk of an unexpected illness or injury hitting them when they don’t have a backup plan.

 

The role of income protection

Advisers and clients may have to look to alternative avenues to provide financial security and the benefits of income protection can often be overlooked. Whilst mortgage protection is usually taken out when a homeowner first gets their mortgage, income protection can be taken out at any point – offering both a chance for advisers to demonstrate their consideration of their clients’ financial safety nets, along with the requirements of the Consumer Duty.

Arguably every UK worker would benefit from a discussion about income protection. As a product, it has a much broader remit than a life insurance policy taken out to repay the debt owed on a mortgage and is relevant across the housing spectrum.

As shown by the recent drops in mortgage approvals, higher interest rates and a reduced capacity for savings are deterring many people from taking out a mortgage until conditions are more favourable. However, they still need to ensure their financial security and protect their main asset – their income.

 

Forming discussions

During challenging times, advisers are presented with an opportunity to play a positive role in their client’s financial needs. Fallback options have always been an integral part of financial conversations but they’re becoming more necessary than ever as financial security has become harder to ensure.

For advisers, this is a chance to reposition their support for clients, investigating new ways of ensuring that income and financial security are guaranteed in the face of new personal finance challenges.

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