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Brokers divided on whether protection should be mandatory for mortgage holders

ended 02. October 2023

Brokers are divided on whether protection should be made mandatory for anyone with a mortgage. 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 St. Albans-based Lifetime Wealth Management, was unequivocal: “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 Colchester-based 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 London-based mortgage broker 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."

Meanwhile, Steven Hargreaves, mortgage adviser at Leeds-based The Mortgage Co, was nonplussed by the way many people seem unable to get their priorities right: “I had a couple recently who spend £48 per month on insurance for their dog, but didn't want life insurance for themselves, which seems very short-sighted.”

But others pointed out some of the issues with making life cover and income protection mandatory. Ben Tadd, director of Bath and Chippenham-based 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 Norwich-based independent mortgage broker, 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 Leicester-based broker 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 London-based 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 Uxbridge-based mortgage broker, 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.”

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20 responses from the Newspage community

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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
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.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
Yes, they should. 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.
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Craig Fish
Director at Lodestone Mortgages
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.
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Dave Corbett
Head Of Protection at Protection 1st
This is a really tricky one to address as if it is made mandatory the banks won't be able to resist profiteering from this and it becomes open to abuse. I think the onus remains on the protection community to educate, 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.
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Ben Tadd
Director at Lucra Mortgages
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. The current system of free choice to consumers isn't perfect, far from it, but to go the other way and enforce all mortgage applicants to take cover, doesn't work practically. Having advice on life cover and income protection during the mortgage application journey from an expert, so that consumers are put in an educated position and can then make an informed decision at their own will, is perhaps the middle-ground option, and best current solution.
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Steven Hargreaves
Mortgage and Protection Adviser at The Mortgage Co
I have always thought protection should be mandatory, as I have seen many situations when a life event has occured and caused significant financial hardship. That said it would be difficult to make mandatory, if a client due to pre-existing health issues or BMI and was not able to secure protection, would we then decline them a mortgage? I certainly think more emphasis should be made on protecting a mortgage, upon death at the very least. I had a couple recently who spend £48 per month on insurance for their dog, but didn't want life assurance for themselves, which seems very short-sighted.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
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. There are, however, lots more things lenders could do to promote cover to borrowers and help increase take-up, which helps them as much as the borrower.
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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.
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David Robinson
Co-Founder at Wildcat Law
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.
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Bob Singh
Founder at Chess Mortgages
Having the right protection in place to protect your mortgage and family makes a lot of sense. After all it’s likely to be your most significant investment for the security of your family. Residential lenders have shied away from making cover mandatory due to their inability to enforce the continuity cover. Historically, lenders would take a legal charge on the policy or at the very least have their interest noted on the policy so they were alerted if the policy was cancelled. These days lenders are happy to leave the “advice” to the brokers and merely put a “recommendation” in the offer document. 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.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Whilst it is alarming how many mortgages and households are unprotected, I don’t think mortgage protection should be mandatory. Adults should have the freedom on protecting themselves or not and where they spend their money. However it should be mandatory to have advice on protection so any decision made is an informed one, with either acceptance terms for cover or a declaration saying they have received advice and decided against it supplied to the lender prior to completion. That still gives freedom of choice but ensures people are not being uninsured through lack of advice.
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Michelle Lawson
Director at Lawson Financial
In short, yes. Too many people 'expect' other people to help rather than take responsibility for themselves or think 'it won't happen to them'. If people are taking on the responsibility of a mortgage they should also take on the responsibility to ensure it is repaid and protected. This doesn't necessarily mean it should be with the lender, however, unless it can be demonstrated that their ability to claim/health/finance (e.g. extortionately high premiums due to health/age) dictates otherwise. The other argument is who polices it once the policy is taken out however annual checks could be carried out to ensure the policy held meets basic/minimum requirements.
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Justin Moy
Managing Director at EHF Mortgages
Many years ago it was mandatory to have mortgage protection with your mortgage, to ensure the very worst was at least covered and the mortgage repaid. Once removed, it becomes less important for many borrowers and they end up relying upon work provision, or the state, invariably having to sell their home without good cover. The availability of non-advised protection channels also presents similar issues, where inappropriate cover may be chosen and is ineffective for people's needs. Making it mandatory again will ensure the conversation starts, needs are addressed, and we don't hear of families in peril due to poor financial planning.
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Diarmuid Phoenix
Mortgage & Protection Adviser at Mint Wealth
Perhaps it should be made mandatory. Unfortunately, there are still a huge number of mortgages sold without adequate protection put in place. This can be partly put down to proc fees in certain regions being high enough that some lazy brokers don't feel as great a need to have the protection conversation. This is plain negligence. Making it compulsory is perhaps a bit heavy-handed, however lenders should be doing much more to make customers aware of the need for adequate protection. Brokers on the other hand should be factoring premiums for both mortgage and income protection (where appropriate) into the client's budget from the outset if lenders are not prepared to do more than they currently are.
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Simon Bridgland
Director at Charwin Private Clients
Cover cannot be made mandatory unless it is non-underwritten, but even then it's a no-no for me. Consideration cannot be given to enforcing protection on mortgage applications and potentially declining them for being unable to obtain suitable cover. Should it also happen if someone has cover postponed? We've all seen what conditional selling of insurance looks like — PPI anyone? Factoring in premiums of cover for affordability is a bit like factoring in the care of dependants without having any. Most mortgageors wear their big pants when they make important financial decisions and so if they choose to run the risk of financial ruin by not insuring then that's up to them. Any adviser with more than 5 minutes of experience will tell you, how awful things get for those without cover that have the wheels fall off. It's our role as advisers to coach our clients/customers to understand the risks and then choose to buy cover, not turn on the thumb screws.
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Mike Staton
Director at Staton Mortgages
My opinion on life insurance is, if you can't afford it then you can't afford a mortgage. What we have to remember is a mortgage and protection isn't one size fits all and that not all people's circumstances require certain protections. Also, some people may not be able to obtain protection for medical reasons, so making it a requirement could be discriminatory towards people who can not get protection for these reasons. If you can afford a mortgage, you have financial dependants and choose not to be protected, then I believe you are wreckless and probably shouldn't be getting a mortgage. Should you be forced to have it though? No.
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Adam Smith
Founder at Alfa Mortgages
In truth, it should be grouped alongside mandatory buildings insurance. This measure would provide significant assistance to clients precisely when they require it.
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Gareth Davies
Director at South Coast Mortgage Services
The protection gap in the UK is huge, but making life cover mandatory would be incredibly difficult to enforce in my opinion. Future regulation changes might reverse the decision and no doubt it would lead to all sorts of misselling and compensation claims.
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Graham Cox
Director at Bridging Hub
I think Income Protection for self-employed borrowers should be mandatory. Without the benefit of sick pay, they're particularly vulnerable to losing their home if unable to earn due to long-term illness or injury.
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Samuel Ewen
Managing Director at Rosehill Financial Services
While I strongly believe having sufficient protection is vitally important, I do not think it should be mandatory. A blanket approach doesn’t make sense. There’s no ‘one size fits all’ approach to protection. One person’s requirements can be completely different from the next person's. For example, someone with a large property portfolio, receiving a large amount of rent each month, is far less likely to require income protection than a first-time buyer with no sick pay benefits.