Advisers have branded a move by lenders to include protection premiums in affordability checks under the mortgage market review as “illogical”.
Santander, Nationwide, Virgin Money and Newcastle Building Society have said items such as life cover premiums, pension contributions and student loan repayments will be included when assessing a borrower’s affordability. Other lenders are expected to follow suit ahead of the introduction of the MMR next month.
Research carried out by Largemortgageloans.com looked at the effect life cover, pension contributions and student loan repayments can have on the amount consumers can borrow.
The company based its research on two borrowers each employed on £50,000 salaries, with no children, no debt except for a student loan, average household expenditure, with a good credit score and who are taking a 25-year repayment mortgage.
It found someone without life cover, a pension and a student loan would be eligible for a £500,000 loan from Santander but someone who had a life policy, pension and student loan would get only £444,918.
London & Country sales director Michael Aldridge says: “Reducing the amount a person can borrow on account of their protection policy payments seems a bit ridiculous. If the worst should happen and the borrower is too ill to work, these policies are what they will fall back on to ensure they can in fact afford their mortgage. This creates an extra obstacle for advisers to sell protection.”
Highclere Financial Services director Alan Lakey says: “This seems totally illogical. The last thing we need is to discourage people from taking out protection. As for pension contributions, these are flexible, so common sense would dictate that clients are able to alter their contributions to ensure they can afford the mortgage they need.”