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.