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Lenders should make IP an ‘essential part of taking out a mortgage’

Lenders should insist that borrowers have protection in place to ensure they can continue to pay their mortgage if they become unable to work because of illness, say experts.

Presently, the Bank of England’s Financial Policy Committee insists that lenders check to ensure borrowers can withstand an increase in interest rates.

But Pink director Mark Graves (pictured) feels lenders should also check if the borrower has an income protection policy in place during the application process.

Writing in this week’s Mortgage Strategy, he says: “We are obliged to stress test whether borrowers could afford their repayments if interest rates were to rise. But, unfortunately, before this rate rise happens, within a year or so a notable number of people are likely to be affected by serious ill health.

“There surely has to come a time when IP becomes an essential part of taking out a mortgage, in the same way that lenders used to insist that a borrower had a life assurance policy assigned to their mortgage.

“This ought to become a ‘win-win-win’ situation – for the borrower, the lender and the Government.”

Mortgage Intelligence managing director Sally Laker says: “It would strike me as prudent that lenders should be looking at covering unforeseen circumstances. 

“I think it is the next step lenders need to look at – how they protect their arrears positions – and it is a case of what can be put in place to cover that. Income protection is something that would be a very good place to start.”

Graves is not the only person in recent times to offer solutions to increase the take-up of protection. Last month, Association of Mortgage Intermediaries chief executive Robert Sinclair called on lenders to offer cheaper rates for borrowers with protection in place because they are less likely to get behind on their repayments.

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  • Random Bloke 16th April 2015 at 1:59 pm

    Its ideal for those advisors who can’t sell, they can just force people to buy something they neither want or need.
    in other words, what utterly self-serving garbage.

  • David Smith 15th April 2015 at 1:16 pm

    I quite agree with this proposal. My only concern that it may open the doors again for the claims firms. Over the past few years I have received a number of claims from PPI firms trying to claim against a monthly premium ASU policy. Although no claims were successful there is still the inconvenience of having to investigate the claim and report the issue to my PI Insurers.

    In addition, could a lender be accused of applying unfair practice and not treating customers fairly by offering a beneficial interest rate conditional upon taking out such a protection policy.

  • Jon Hoar 15th April 2015 at 12:53 pm

    Total Nonsense. Is this April 1st ?? So many scenarios are not appropriate for IP. Get real. Are you seriously suggesting we restrict on this basis . Jon Hoar. Certus.

  • Chris Hulme 15th April 2015 at 12:33 pm

    Nice idea if was enforceable but not only is conditional selling not TCF but it wont take much for a client to complete the mortgage one day and cancel the IP policy the next. Enforced protection is not the way forward. Encourage clients to take protection and you’re onto a more stable heading.
    The other issue you face is that for clients whose current health conditions prevent them from obtaining affordable terms (if at all) would prevent adverse lives from taking mortgages. Again, far from TCF.

    In an ideal world, clients would protect themselves from ills and adverse events, but this isn’t an ideal world. Yes, clients need to accept they are responsible for the contractual agreement they are committing to. They are adults of sound mind and have the freedom of choice to protect themselves or face the consequences. We can only advise.

    Such propositions needs more thought and consideration but yes, something may need to be done.

  • Carl McGovern 15th April 2015 at 12:33 pm

    I have recently had to deal with a client who suffered a heart attack around 3 years ago and is uninsurable. I also have a family member who has cancer and she is also uninsurable. Should I let them know that they both may be unable to get a Mortgage in the future, is this ridiculous rule comes in?

  • John Tidswell 15th April 2015 at 12:30 pm

    This is nonsense, clients are adults they must make their own decision on whether they take out an Income protection policy or life cover. We of course always recommend they consider taking out a policy to protect their income and life etc. But what about those clients that are unable to take out a policy due to the nature of their job, their health or their BMI which is becoming a real issue. We don’t live in a nanny state!

  • John Lacy 15th April 2015 at 12:30 pm

    Sounds like conditional selling to me–I thought we’d had enough of HSBC doing this for years without the rest of us queuing up to join in—I suspect that Mr Graves and Ms Laker are looking at their bottom line rather than the practicalities of the situation