There is a lot of talk about the impact the MMR will have on the market and whether lenders and brokers will be ready in time, but there is a key element missing – and in this respect my first impression is that the MMR just does not go far enough.
Two key FCA principles are that: ‘Every decision is in the best interests of their customers’ and that ‘Where consumers receive advice the advice is suitable and takes account of their circumstances’.
In all the conversations I’ve had with lenders and advisers, their interpretation of stress testing is making sure the client can still pay their mortgage when interest rates rise, but this surely does not go anywhere near far enough.
Every borrower is also at risk of becoming ill or losing their job, which arguably would have a significant impact on their ability to pay their mortgage. For this reason surely every stress test should assess the affordability of a mortgage, not only while the client is employed and healthy, but also in the event that they should suffer an illness or any other event which reduces their income.
It is really not enough just to make sure that a borrower has life cover. Every client deserves to be put in an informed position regarding all of their protection needs, including income protection, critical illness and buildings and contents cover. They can only do this if their adviser has had a serious conversation with them about it.
Let’s face facts: most brokers have the temptation to see a new mortgage client rather than see an existing client about their protection needs and most brokers would still not, on a daily basis offer the full protection range that they have available to them. It is my view that MMR should have made it mandatory for every broker to also discuss all aspects of protection with every borrower.
It is also something that lenders should take seriously, as it’s too easy to put all the onus of selling protection on to the adviser. It is the lender that will end up with the arrears when the borrower cannot pay and potentially in the position of repossessing a borrower’s home. According to Macmillan 18% of people struggle to keep up mortgage payments following diagnosis of cancer and 6% go on to lose their home through repossession, therefore surely lenders have some moral responsibility to ensure that a client could stay in their home if they should fall ill?
The selling of protection should be incorporated into every sales process. It is not right that it should be left to chance and to whether an adviser feels they have time or not or feels it is too difficult or not. Every borrower should be made aware of the different events that could cause them to lose their home and the options available to them to be able to keep it.
