Your home is one of the largest purchases you’ll ever make. But have you made sure you can continue to make mortgage payments even if the unexpected happens?
You’ve probably taken out insurance to protect against something happening to your new home; say a fire or items being stolen. However, many people overlook the need to protect themselves and their ability to continue meeting the financial commitment they’ve just taken.
For many households, a mortgage is their largest expense leaving their bank each month. What would happen if you couldn’t pay it? Falling into arrears will have an impact on your credit score and if you’re unable to pay, it could lead to the lender repossessing your house. Repossession is a last resort, but it does happen.
You may think falling behind on repayments isn’t something that will happen to you. To have secured a mortgage in the first place, you’ll have proved that you can meet this cost, after all. But circumstances can change:
- Could you meet financial commitments if you were to become injured or too ill to work for an extended period?
- How would the diagnosis of a critical illness affect your ability to work?
- Would your family be able to maintain repayments if the main income earner passed away?
It’s not something anyone wants to think about. However, taking some time to put a safety net in place at the point of buying your home could provide you with some security.
Falling into arrears with your mortgage lender not only affects your short-term financial security but can do for many years to come; missed payments can stay on your credit report for at least six years.
Homebuyers leaving themselves financially vulnerable
Despite financial protection being an important consideration, many homebuyers aren’t discussing the products with their mortgage broker or are choosing not to take a policy out.
This is despite the facts that 42% of homeowners could only cover essential bills for up to two months if their household lost its primary income. A further 30% could only extend to six months. As a result, an unexpected accident or illness could leave families in a financially vulnerable position.
The research from Canada Life also found:
- 13% of homebuyers who purchased their mortgage via a broker did not discuss their protection needs
- This increased to 20% among those aged over 55, despite this age group being the most likely to suffer from health concerns
- Of those that did not discuss protection, 28% did not go on to make a purchase, leaving them unprotected as a result
Natalie Summerson, Head of Sales for Individual Protection at Canada Life, said: “Buying a house is the biggest financial obligation many of us will take on in our lifetime. It’s an obvious moment to pause and consider your protection needs.
“Nobody wants to run into financial difficulty, but homeowners should have a plan to continue paying their mortgage if something happens to their main source of income. Relying on savings isn’t viable for many, and certainly isn’t good for financial resilience.”
Why aren’t homebuyers purchasing protection?
There are many reasons why homebuyers may choose not to purchase a protection product. In some cases, this may be the right decision for them, but in others, it means they’re left financially vulnerable.
The most common reasons highlighted in the research were:
- I can’t afford the premiums: In total 44% of people without financial protection indicated that the cost was the key reason they didn’t take out a policy. However, premiums are often lower than expected and if you work with a financial adviser or mortgage broker, they’ll be able to secure you a better deal. Often, it’s a price worth paying when you consider the security it offers.
- I don’t think I’ll ever need them: 18% of people didn’t think they would ever need to fall back on a financial protection product. We all hope an accident or illness won’t happen to us, but extended periods of leave happen more than you think. If you’d struggle if you weren’t earning an income for three months, it’s something you should consider. Similarly, 23% stated they didn’t see the value in them, suggesting they thought there wouldn’t be a circumstance in which they’d have to make a claim.
- I never got around to it: When you’re purchasing a house, you can feel like you’ve got a thousand jobs to do. It’s easy to see why 14% intended to purchase protection but simply never got around to it. But the next time you think about it might not be until you need it, by which time it’s too late. Set some time to make reviewing policies and taking out the right one for you a priority. This is an area we can help with.
If you’d like to discuss protection in the context of your family and financial situation, please get in touch with us.