"In an ideal world, life insurance as a minimum would be made a mandatory requirement, but the problem is that not everyone is eligible for cover."
Brokers are divided on whether protection, specifically life insurance and income protection, should be made mandatory for anyone with a mortgage.
Speaking to Newspage, some said it absolutely should be, while others said it will discriminate against those with health issues, preventing them from getting on the property ladder. Others said it will be hard and time-consuming for lenders to police, and could even result in fraud, while some suggested it could lead to misselling scandals and even profiteering from banks.
Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management, said: “It is totally irresponsible to take out the biggest debt of your life and not have protection in place to ensure it is paid upon your death, or that you can afford the repayments in the event you are off work due to sickness.”
Eatenton's views were shared by Austyn Johnson, founder at Mortgages for Actors: “Should life cover and income protection be made mandatory? 100% yes. This is something that has bugged me for years. Giving tens or hundreds of thousands of pounds of debt to people with a family without protection is mental. If mandatory, can you imagine the amount of houses and families that will not be repossessed and put on the street? I can see a fair amount of fraud with the income protection, though, so it will need to be monitored closely.”
Craig Fish, managing director at Lodestone, was also firmly in the yes camp: "Yes, it should be mandatory. It used to be many moons ago and the sooner the regulator changes its stance on this, the better. There are far too many occasions where we see the detrimental effects of people not having adequate protection in place, and it seems to be a regular feature now to see GoFundMe pages set up for those who weren't adequately protected. If it's factored into affordability calculations, that would be better, and if a customer refuses to take protection then the mortgage shouldn't be granted. We have to determine affordability to obtain a mortgage so therefore it's common sense to ensure affordability continues for the duration of that mortgage."
But others pointed out some of the issues with making life cover and income protection mandatory.
Ben Tadd, director of Lucra Mortgages, observed: “In an ideal world, life insurance as a minimum would be made a mandatory requirement, but the problem is that not everyone is eligible for cover. The financial implications that death or long-term illness can cause are obviously huge, and many of these problems would be avoided if protection was a prerequisite to obtaining a mortgage. But it would be unfair and borderline discriminatory to say that some people can’t buy a property with a mortgage due to their medical history.”
Ranald Mitchell, director of Charwin Private Clients, agreed: "Conditional insurance has been out of favour for a long time and the problems with mandatory life insurance or income protection lie with individual health status. With this in mind, if a mortgage applicant was not insurable due to BMI or pre-existing health conditions, they would be denied the mortgage. Hardly seems fair and would arguably be discriminatory."
Scott Taylor-Barr, director of Barnsdale Financial Management, was also unconvinced: “Back in the dark ages of mortgages, many lenders did make having life insurance a condition of the mortgage. However, it does create several issues. For starters, some may not get cover, so should this preclude them from getting a mortgage? For others, cover could be obtained but at a hugely increased cost from standard rates, making the total cost of the mortgage and cover too great. Both of these issues create inequality in the housing market, only allowing those with good health or deep pockets to get onto the property ladder. The other issue is cost. Monitoring that the required policies are of a high enough quality and remain in place increases costs for lenders, and this cost would be passed onto borrowers in the form of higher rates or fees. Given these issues, I'm not convinced that compulsory cover is the way forward.”
Meanwhile, David Robinson, co-founder and wealth manager at Wildcat Law, said making insurance mandatory on mortgages had the potential to trigger a PPI scandal: “The pros are financial security for those that require it. This is especially true for people with young children. However, not every homeowner has a family or even beneficiaries. Some homeowners would be happy to downsize if they were unable to work. Misselling would be a massive risk, and not just through deliberate bad advice. Using computer-based questionnaires always leaves room for errors and this is the approach most banks would take. PPI anyone? The problem with any blanket approach like this is that there will be a number of people who don't require the cover, or even worse who can't benefit from it.”
But for Bob Singh of Chess Mortgages, families without cover risk severe financial hardship: "Without cover, a family unit is unlikely to survive the shock of losing a breadwinner or them being off work sick long term. This can often mean severe hardship and having to rely on the state for support, placing a burden on the taxpayer and the lender having a non-performing loan on their books. Lenders should be placing greater emphasis on protection and factoring this in."
Lastly, Dave Corbett, head of protection at Protection 1st, warned that banks could see it as a way to make a quick buck: “This is a really tricky one to address as if it is made mandatory the banks won't be able to resist profiteering from it and then it becomes open to abuse. I think the onus remains on the protection community to educate people, highlight the risk of inaction and keep professionalising an industry tarnished by call centres, cold calling and poor practices. We could also do with some help from our regulator in terms of making it harder for some of these call centres to exist and also to get help from the providers in terms of product simplification.”
