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Protection market ready for shake-up, says Toni Smith

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Before rates rise at last, communicate with clients to ensure they understand their protection policy, as well as its value

The protection market is ready for a shake-up. With Mark Carney stating that a rate rise is all but necessary, advisers need to act quickly to review what customers can and can’t afford.

Homeowners are spending roughly 35 per cent of their household income on mortgage repayments, which is affordable with rates currently so low. But it is roughly 15 per cent more than borrowers typically spent 10 to 15 years ago. As such, the importance of protecting that debt is even more important than it was then.

A rate rise is close. The recent 5-3 vote by the Bank of England’s policymakers was the closest for a rate rise since 2007, and it comes with inflation near a four-year high of 2.9 per cent. Although good mortgage advisers factor in affordability should there be any shocks, tightened affordability criteria mean some believe they can sell a mortgage only without the added cost of protection – despite the risks of not having cover being clear.

Time and time again we hear stories of households that, unfortunately, cannot survive financially when they have lost their income through unforeseen circumstances. In fact, 10.6 million households – more than 60 per cent of working families – would see their income fall by more than a third if the main earner had to stop work because of ill health. In addition, according to the ABI, one million workers a year find themselves unable to work due to a serious illness or injury.

When the worst happens, protection puts money into a client’s hands, helping to support them through difficult circumstances. So, before rates rise at last, communicate with clients to ensure they understand their policy, as well as its value, so that the plans in place continue to meet changing needs. Revisit those who are sitting on SVRs and save them money, which can be spent on protecting their debt.

With the cost of living rising and the cost of monthly mortgage repayments set to increase, the moral obligation to keep your clients protected has never been stronger.

Toni Smith is sales operations director at First Complete and Pink

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