Securing a mortgage, especially for the first-time buyer, is the fulfilment of an aspiration to live in your own home.
It is something that requires hard work to pay for, but provides a feeling of pride and status. And, of course, it puts a roof over your head.
However, given the current economic climate one could be forgiven for thinking that taking on a mortgage is a high-risk strategy riddled with potentially disastrous pitfalls for the unwary.
The global credit crunch is continuing to make getting loans and mortgages harder. There are increasing numbers falling behind with their payments. Repossessions have risen sharply. There are fears of negative equity if house prices fall.
Those who committed to mortgages of 125 per cent have been warned that, as interest rates rise, they risk never being able to make inroads into paying off their debts. And if the UK plummets into recession then those who borrowed more than five times their salary would be in severe financial difficulties if redundancy becomes a reality.
If all of these warnings being bandied about in the media at the moment weren’t worrying enough, every item of mortgage-related literature brings home the reality of it all, with the stark reminder that: ‘Your home may be repossessed if you do not keep up repayments on your mortgage’.
Scaremongering or setting out the facts?
The degree of media hype could almost be construed as scaremongering. But on the other hand it is simply setting out the fact that the world economy is changing and with that change comes a new set of risks that the customer and their advisers have to weigh up.
The protection market is often accused of scaremongering, especially when statistics are used to convince people of the need to consider buying critical illness cover. ‘Every year in the UK 91,000 men and 31,000 women will have a heart attack’ is a good example.
But again this information shouldn’t be seen as an attempt to scare but simply to provide some facts of a potential risk, so that clients and their advisers can make an informed decision about critical illness cover.
Indeed some statistics provide the reassurance that survival rates for such illnesses are increasing. According to heartstats.org death rates for heart, stroke and diseases of the circulatory system have fallen by over 39 per cent in the last 10 years.
Think about the consequences
Rather than worrying people, such facts should get borrowers thinking about the consequences of surviving an illness and what it might do to their ability to work and therefore pay for their mortgage.
Given that people fund their mortgages from their income, if they were to lose their job or be forced to take a long time off work due to sickness or disability, then that income could stop, along with their ability to pay their mortgage.
Similarly the death of the breadwinner could have a serious effect on the family finances and mortgage payments could become difficult to keep up with, putting the home into the risk zone.
Protection products like critical illness cover can remove this risk by ensuring that if things go wrong, money is still available to either pay off the outstanding mortgage or at least to meet the monthly payments.
Stop the warnings becoming a reality
With the mass of sometimes quite scary stories we read about the potential financial consequences of taking out a mortgage, there has never been a better time to include a discussion about protection with your clients.
Whether we’re experiencing a credit crunch, recession or boom, giving clients the facts they need to decide whether they want their homes protected may help repossession warnings that appear on mortgage literature from ever becoming a reality.
