The mortgage market has come roaring back to life in recent months, with lenders and brokers reporting a surge in business. But although protection sales have been historically linked to mortgage sales, there has been a noticeable absence of a similar increase and advisers are warning that protection should not be overlooked for easy mortgage sales.
The Council of Mortgage Lenders says the total level of mortgage lending in July was up by 26 per cent compared with the previous year, while lending to first-time buyers is now at its highest since 2007.
This increase in mortgage lending has not just been seen over the past couple of months but has been steadily building from the beginning of the year, as lenders have taken advantage of the Government’s Funding for Lending scheme to offer increasingly competitive mortgage deals.
But so far there seems to be little knock-on effect on protection sales.
In recent weeks many life insurers have completed their financial reporting for the first half of 2013, and the results have not been encouraging for protection sales.
Ageas reported a 7.4 per cent drop in new annual premiums, from £17.1m in the first six months of 2012 to £15.8m in the first half of this year. Meanwhile, Royal London, which includes the brands Scottish Provident and Bright Grey, reported a 6 per cent fall in protection business, from £35m to £33m. Legal & General reported a 10 per cent drop, from £72m to £65m, while LV= experienced a 9 per cent fall, from £16.1m to £14.7m.
London and Country head of communications David Hollingworth says: “We mustn’t return to the approach we saw at the peak of the mortgage market in 2007, when it was a case of ‘if the client doesn’t want to look at protection, move on to the next one’.”
Master Adviser partner Roy McLoughlin says: “We would hope we have learned the lesson from what happened before, when everyone became obsessed with selling mortgages when that market was expanding, at the expense of protection.”
McLoughlin says the gender-pricing changes and the large amount of business written at the end of 2012 would be a contributor to protection sales appearing lower in the first part of this year, but that you would hope to see both markets increase together.
Hollingworth believes the type of mortgage business being written might be contributing to the divergence between the two markets.
He says: “We are seeing quite an increase in first-time buyer activity, and that is perhaps a section of the market not as likely to take out protection, as they may not have dependents and may not buy in to the idea as easily as someone with a family.”
And having scrimped and saved for a deposit, some buyers may be looking to keep expenditure down.
“The other factor that could lead to these figures and would mean there is no direct parallel would be the substantial increase in remortgage business. You may be looking at people who have got protection in place who are taking new mortgages,” says Hollingworth.
“With buy-to-let playing such a big part in the mortgage market, there is a massively reduced take-up in buy-to-let. You can’t always expect protection to run in direct parallel.”
But McLoughlin believes brokers should not assume affordability is a barrier.
He says: “Is that problem in the adviser’s head or in the client’s? For first-time buyers the premiums are going to be cheap as they will be relatively young. We should still be quoting anyway. We shouldn’t be saying ‘They are a bit stretched, they probably can’t afford it’.”
Recent research from Gocompare.com suggests as many as four in 10 people do not have sufficient life cover to repay their mortgage if they were to die.
McLoughlin says we need to be asking the question: “Why has everyone who has got a mortgage not got protection in place?”
Hollingworth says: “Mortgages should still be a major trigger for protection sales. Let’s hope it is not people reverting back to the attitude ‘We are busy on mortgages, so protection gets left in the background’.”
Protection not as expensive as clients think
Head of product development & technical support, Bright Grey
With a 30 per cent increase in first-time buyer mortgages over the past year, the housing market is going from strength to strength. But with so many mortgages being accepted, it is alarming to think the discussion about protection could take a back seat because advisers do not have time to discuss it.
And yet, taking out a mortgage is the biggest financial commitment most people will ever make. Surely they would want to protect that commitment by having a financial safety net in place, especially when you take into account the fact that the average deposit needed for a first-time buyer is £27,744.
That is a huge sum of money. And unless they have won the lottery or inherited a windfall, most first-time buyers will have spent years saving up to secure their own home. It would be awful to think that after all that they lose their dream home because they believed protection was an expensive luxury they could not afford.
The dilemma for most people is that money will be tight at the time of taking out a mortgage. However, they have never had a greater need for protection. How would they manage financially if they became critically ill? Many people are not aware that protection need not be expensive and there is something to suit all budgets.
The choice of simplified products is increasing and this gives more opportunities for advisers to target those younger clients who are about to set foot on the housing ladder. For someone under 40, for example, who is healthy and does not smoke, their premium could be as little as £5 a month. If taking out life or critical illness cover for the full amount of the mortgage is beyond a client’s budget, recommend they take out smaller amounts. They can always revisit their situation later.
It is fantastic news that the mortgage market is picking up but we must not let protection fall off the radar. More first-time buyers entering the housing market should mean more opportunities to sell protection. But with mortgages taking longer to place, protection sales are in danger of falling.
Given that this could be the first and in some cases the only time that people visit a financial adviser, it is essential that advisers introduce the need for protection into the conversation. Only then will clients be able to make an informed decision based on all the options and decide which protection product is right for them.