The protection specialist says ‘auto-enrolment’ would cost lenders a fifth of what consumers pay for the cover and the additional insurance outlay could be recouped by adding it onto the APR at 0.009%.
This solution, says British Money, will address the protection gap issue and provide peace of mind for lenders and first time buyers that mortgage repayments will continue to be paid for up to a year if a salary goes due to unemployment, accident or sickness. The firm suggests less than 3% of new borrowers currently have mortgage protection.
Under the new Mortgage Market Review guidelines, lenders are required to assess likely changes to borrowers’ income and expenditure and stress test against higher interest rates, but not consider how borrowers will continue to make their repayments if a salary goes.
This is despite figures from Shelter showing 3.8million families are just one pay cheque away from losing their home and feedback from the Money Charity which says 1300 people a day reported they had been made redundant between December 2013 and February 2014 and 133 mortgage possession claims and 103 mortgage possession orders are issued daily.
The Financial Conduct Authority, in response to queries from British Money as to why lenders are not required to find out whether borrowers have the means or require a practical solution to safeguard such a huge financial commitment, comments ‘our rules do not otherwise prescribe or restrict firms’ exploration of customer circumstances, or consumers’ decisions to purchase additional protection’.
British Money Director Alexander Burgess concludes:
“Everyone appears concerned about the increasing protection gap in this country, but no one is actively addressing the issue. It’s time for lenders to take the initiative and demonstrate to customers they really are customer-focused. And if lenders do not offer income protection, then first time buyers should be lobbying their mortgage providers to do so.”
