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Analysing the UK’s £433bn mortgage cover gap – Brumhead

by: Dan Brumhead, affinity partnership and distribution – relationship manager at Beagle Street
  • 18/09/2023
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Analysing the UK’s £433bn mortgage cover gap – Brumhead
Over two million UK households are unprotected by life insurance should the tragedy of an unexpected death occur – with a combined value of £433bn in mortgage debt

This is according to research in a snapshot report, which compares current mortgaged home-value-at-risk with mortgage holders who do not have life insurance. Describing the potential liability for homeowners should a breadwinner die unexpectedly as the ‘mortgage cover gap’, the study combines official data on average house prices, mean mortgage penetration, average loan to value (LTV) and recent intelligence on life insurance take-up, to analyse the big picture of coverage in the UK today.  

Another impact perspective considered by the report is mortgage affordability, where average salaries and average mortgage outgoings are compared. In this calculation, with the picture varying considerably across the UK, Londoners came out as being most at risk from an affordability crisis.

This is because, despite higher wages in the capital, house prices are so inflated and disproportionately high mortgage costs tip the balance towards higher outgoings.  


Rising expenses 

Meanwhile, the cost of living for the whole country keeps rising.  

Energy, fuel, travel, holidays, and even the costs of childcare continue to fluctuate or rise, with the Organization for Economic Cooperation and Development’s data showing that in 2021 the UK had among the highest childcare costs as a percentage of the average wage. 

As costs keep rising, it seems that many households are making the choice to put life insurance at the bottom of a very long list of other expenses. The reasons for this are varied, from a lack of trust in insurers to questions about relevance and difficulties with the actual process of applying, but whatever the motive, the result ends up the same: the mortgage cover gap.  

The possibility of future instability, such as the loss of a loved one and therefore a second income, could tip a precarious financial balance beyond recovery. As such, the gap underscores an urgent need within the industry to raise awareness and educate homeowners about the importance of financially safeguarding themselves and their families. 

In fact, the good news is that it is those people where the impact of a premature, uninsured death could be most devastating – families with young children – who are often the least costly to insure. Typically, a young person with a family can expect to obtain life cover of £200,000+ for around £10/month* which is equivalent to taking on a basic mobile phone contract or foregoing a visit to the cinema. 

This report reveals the sheer scale of financial exposure where mortgage holders have not taken out life insurance to cover their mortgage debt, with regional estimates to illustrate the variation of risk across the country.  

In a world where excess deaths remain high and cost-of-living pressures are rising, social stakeholders and the insurance industry can use the data to consider additional ways of increasing awareness of the benefits of life insurance. 

* based on a 30-year-old non-smoker, £225,000 decreasing term cover for 20 years, and not on an interest-only mortgage

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