Income protection and the mortgage: a match made in heaven?

Wednesday, 29th April, 2015

Property values are increasing, mortgages are getting bigger and repayment terms are getting longer.

This isn’t a surprise to most people. It’s been happening for years. But with higher value mortgages and longer payback periods comes a higher risk of defaulting in the unfortunate event whereby homeowners are unable to work due to illness.

As both a mortgage adviser and insurance broker, Complete Mortgages is not only responsible for helping clients to find a mortgage but also create the perfect premium and provide complete cover, from critical illness to income protection. Linking both services together isn’t always a natural step, nor is it always relevant, however the topic of making income protection a condition of mortgage approval is increasingly being debated.

Currently, those applying for a mortgage will, whether they know it or not, undergo a degree of financial modelling to establish whether they can withstand the impact of a rise in interest rates. This is relatively straightforward and based more on what is likely to happen or, to a degree, predictable. What isn’t predictable, however, is illness. Anyone can become ill at any time however this doesn’t have any bearing on mortgage liability. It still needs to be paid back.

By making income protection a standard part of the mortgage process it would arguably be win-win for everyone involved. Homeowners would have that extra piece of mind, albeit with a slightly higher monthly outgoing, and lenders would minimise their risk even further. Of course, a higher number of income protection policies would lead to a higher number of claims, however this would be offset by the additional revenue the insurance companies would generate.

I’m sure that there are many who would support this idea. I’m also confident that many would object on the grounds that it removes choice and adds another layer of cost to what is already a large expense.

There are regularly calls for more responsible lending and tighter regulation of the financial services markets, particularly in the wake of the last recession. If effectively controlled and enforced, this approach could help increase the UK’s credentials when it comes to financial responsibility whilst simultaneously protecting the homeowner and the lender.

For more information on income protection or for mortgage advice, contact a member of the team on 01483 238280 or email