The ongoing cost of living crisis has taken its toll on the mortgage market.
The number of people who have no money left over at the end of the month has increased at an alarming rate, and this, combined with the mini budget of Liz Truss’s short-lived government, has caused ripple effects on the mortgage market that are still being felt to this day.
However, there are signs that these factors may have actually focused consumers’ mind on the needs of protecting their income.
And with growing numbers of people resigned to never getting on the housing ladder in the first place, industry professionals are also mindful of the need for more to be done to both increase awareness of protection products for renters and for more flexibility around these offerings.
Protecting income is now essential
“The cost of living crisis and higher interest rates have squeezed households budgets, making a regular monthly wage even more vital,” Alan Waddington, distribution director at Cirencester Friendly, tells Health & Protection.
“If these people were unable to work due to illness or injury they could be left in severe financial distress very quickly.
“With fewer people being able to save for a rainy day, products like income protection are even more essential.”
While more consumers can see the point of taking out income protection cover, the cooling mortgage market has inevitably had a knock-on effect on protection sales.
Jennifer Gilchrist, protection specialist at Royal London, says: “The health of the mortgage market has always played a key role in protection sales, so as the housing market has slowed, naturally, so have mortgage-related protection sales.”
Referrals and role of advisers
But of equal importance to these sales is whether protection has been referred by the mortgage broker.
Katy Davies, protection adviser, Hanbury Wealth, tells Health & Protection: “In my experience, if the mortgage broker dealing with the property purchase hasn’t sold or referred protection, it is likely to get lost among the other costs a customer has at that time and can be a cold and hard sell if protection hasn’t been a fluid and apparent part of the mortgage process.”
And it is clear while some customers appear to want to do it for themselves, the role of advisers remains crucial as Andy Philo, director of strategic partnerships at Vitality, points out.
“The trends indicate that a lot of people are spending time online looking at protection products, but people are continuing to rely on an adviser to discuss the options available and purchase through them,” Philo says.
“The value of advice remains very high for consumers, in particular around the right mortgage and protection product for their personal circumstances.”
Stronger remortgage market
While the purchase market may have been ravaged by the Truss mini Budget, Andy Walton, proposition director – protection at Mortgage Advice Bureau, reveals MAB has seen a much stronger remortgage and product transfer market.
“This meant that overall mortgage volume (taking into account mortgage types) remained strong,” he continues.
“As a business, we became more focused on protection conversations at the mortgage product end date.
“We found that if we engage customers in the right way (essentially, at the time that their mortgage deal comes to an end), they’re very receptive to reviewing their protection.
“Subsequently, we saw a 21% increase in protection sales in 2023.”
Protection performing extremely well
And according to Walton, protection is performing extremely well so far this year, with current levels up by 14% compared to 2023.
“We’re continuing to see similar trends regarding higher uptakes of income protection, higher average premiums, and very good overall customer engagement when protection is positioned correctly,” he adds.
“Seeing the purchase market improve, (protection tends to perform better against a purchase rather than a remortgage or product transfer) helps the overall penetration rate.”
But there is another factor at play here as according to Gilchrist, protection sales have by and large held up with more emphasis, partly due to Consumer Duty, on helping to support clients’ financial objectives and providing good protection outcomes.
“While a smaller volume of business has been written, the market is still robust with advisers continuing to recommend protection alongside a mortgage,” Gilchrist continues.
“Meeting customers’ needs when their disposable income is reduced can be tricky, but the flexibility of protection allows choice of different terms and cover amounts, to enable everyone to have some element or level of cover initially, which can be added to later.”
Focusing renters’ minds
And Waddington maintains the Truss mini budget may have actually focused minds on the need for income protection.
“The Truss mini budget thrust the issue into the headlines, becoming one of the hottest topics of 2023.
“For the first time in a decade people had to think much more seriously about the need to protect their mortgage payments, becoming much more open to a conversation about how to make this possible.
“Many advisers have taken the initiative, contacting their existing clients to discuss their protection needs.”
Need for education
Of course that need for protection insurance applies as much to the ever growing population of people who have given up on ever getting on the housing ladder.
And Davies adds there are lessons the whole housing market needs to learn here.
“We need to educate this market and the professionals and people involved in the whole renting market, including estate agents, landlords, brokers and hopefully a consciousness of the need here transpires through to the renters themselves to protect their income and families,” he says.
A further issue is the fact that knowledge and awareness of protection products for renters remains relatively low.
Daren Boys, protection portfolio distribution director at Aviva, says: “As an industry we are not making fast enough progress in raising awareness and consideration of individual protection for rental customers, and in particular income protection.
“We need to look at our routes to this market as it is largely untapped and represents a sizeable opportunity.”
Though this does not mean greater innovation in this area is not needed, according to Walton.
“Most solutions that are currently available in the protection market are long-term and fairly inflexible,” Walton says,
“However, the rental market requires a far higher degree of flexibility, as tenants will move much more frequently – with half of them aspiring to buy their own home, as opposed to living in rented.
“More innovation is needed in the protection market for people in rented accommodation, particularly around more short-term, flexible answers that are more relevant to their situation.
“There are products out there that can support tenants, and we need to make the most out of what we currently have until more innovation occurs in this market.
“We do need to drive change in this area, as rental is a growing market that is currently underserved from a protection advice perspective.”
Remaining optimistic
But looking ahead, Philo strikes an optimistic tone for the future prospects of this market.
“We remain optimistic about the future of the mortgage-related protection market, and the expected reduction in interest rates from the Bank of England later this year is likely to bring with it a boost to the mortgage industry,” Philo says.
“We know people want to own their own homes, and the life products available are there to ensure they can get the cover they need when they do purchase a property.”