Posted on 30 April 2014
With the arrival of the Mortgage Market Review (MMR) on the 26th April this seems like a good time to ponder one of the greatest anomalies in the whole home owning saga...... that of ‘protection’ or rather in most cases the lack of it.
Over the past decade we’ve seen all sorts of mis-selling scandals from endowments and pensions to Payment Protection Insurance (PPI) and an astronomical amount of money has been paid out in compensation. Lenders have introduced a raft of new lending criteria under the catch all term of “responsible lending”, with everything from loan to value’s and income multiples to interest only loans coming under scrutiny. Yet despite a mortgage being the biggest financial transaction most of us will be involved in, the importance of protection seems to have been lost.
Due to the PPI scandal, the concept of ‘protection’ has rather a bad name of late, but it’s interesting to note that whilst it’s the right thing to ask how a borrower intends to repay their loan, the same level of concern has never been applied to how the borrower would continue to pay the mortgage should they suffer a life changing event.
Currently there’s no requirement for a formal, documented discussion over protecting a borrower against the potentially devastating financial hardship caused by unemployment, accident or illness as part of the mortgage process. So why is this vital area so left open to neglect? It’s a good question, which has led to insurance companies calling for mortgage protection to be made compulsory, and it’s difficult not to see their point. If the Financial Conduct Authority (FCA) says that lenders are now wholly responsible for the affordability of the mortgage, why is the level of protection the borrower has or needs never formally addressed?
Protection is a difficult subject to raise with borrowers. Discussing someone’s mortality is never easy, but it is a necessity, as none of us are immortal. It has become too simple for protection to be dismissed as “too expensive” or for the borrower to say “we’ll sell the house if something happens”, but how many of us have genuinely weighed the cost of Income Protection against the heartache of having to sell our home and uproot our family at a time of immense personal stress?
Many borrowers feel that as the mortgage is their top priority, protection often get’s bolted on at the end of the interview, and is rarely satisfactorily explained. Discussing this vital issue fully with your mortgage broker can make sure you make the right choices for you and family, and are protected if the worst should happen. Here at John Charcol we have researched the options and solely recommend Mortgage Protection specialists Legal and General. We can talk you through their options when discussing your mortgage. We want to make sure you not only find the right mortgage for you, but also that your home is protected should life throw you a curve ball.
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