A key requirement of the MMR when it was brought in last April was supposedly to stress test every mortgage applicant’s ability to pay their mortgage, but in this respect the MMR fell seriously short.
The new rules demand that every adviser and lender diligently looks at whether a borrower can pay their mortgage at this point in time and if rates rise. What it does not cater for is the other inevitable consequence that a significant proportion of the people taking out a mortgage will at some point either become ill or lose their job.
What sort of stress testing looks at interest rates going up to 5 per cent but does not look at whether a family can stay in their house if they have a life changing event such as a job loss or serious illness? Is it too much to ask that we as an industry should make it a condition of the stress test to record how long a family could maintain their mortgage payments without the bread winner’s income?
When I first started running Pink Network four years ago a senior person within Pink told me our job was no more than to act as a middle man for the brokers and that it was not our job to get involved with the sales. That person no longer works for Pink and I guess I never took that enlightening piece of advice on board.
Our journey over the last four years has seen huge change both in the market but also how we, the network, have engaged with our clients, the advisers. While it is fair to say a proportion of our advisers are happy to keep to themselves, the vast majority have engaged with us and challenged both us and themselves to improve.
As we enter 2015, it would be easy to sit back and continue to manage what we already have built, but my challenge is to ask the question: “Are we really making sure clients have the very best of the advice we have to offer?”
The fact is I do not think that most mortgage advisers are giving full advice. Before everyone gets on the defensive I will explain: Mortgage broking is a skill and it is now second nature to just about everyone who has been in the job for some time, yet why is it so difficult to master the skills required for selling protection?
I would go so far as to say that 30 per cent of clients are not even aware that there is a type of insurance that would continue paying the mortgage for them and their family if the breadwinner was made redundant or had a long-term illness. They will be even less aware that, in most cases, this could be accommodated in their original budget.
I also believe that around 75 per cent of advisers have no idea how long their clients get paid if they are off sick from work and I doubt if more than 5 per cent of advisers have a clue as to whether their self-employed clients have taken out their own policy.
If you are one of the minority, congratulations, you understand the art of looking after your clients. If you are in the majority you can take comfort that you can hide in the pack and the client does not know what they do not know, right?
But what would happen if someone decided to change that status quo? If a network said: “sorry, that is not good enough anymore”. What happens if best practice in a network is that every client needs to bring in their employment contract to a mortgage meeting, the part of the contract that shows what they get paid if they are off from work?
All of a sudden it would become standard policy for a quote for income protection, critical illness and life assurance to be worked out every time a broker held a mortgage meeting with a client. The quote should be within the client’s budget to safeguard the family against such an eventuality.
The same applies to the self employed; they either bring an existing policy or receive a quote. Whether they take a policy or not will be up to them. I am not suggesting we fall back into the bad old days of PPI conditional selling, what I am saying is every client should get the best of you not just part of your sales process.
If the client does not accept your advice then that is up to them and they have to live with the potential consequences. Just make sure it is in writing so you are covered for that day when inevitably someone comes knocking at your door.