Changes to the UK mortgage market present opportunities for you to engage with clients on a number of key financial issues, writes Andy Philo.
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The UK mortgage market is experiencing unparalleled change. With rising property prices, the uncertainty of interest rates and the introduction of the Mortgage Market Review (MMR) in April last year, the role of the financial adviser has never been more important.
About 75% of lending now goes through an adviser, as opposed to directly through a bank. It presents a huge opportunity for you to add value, ensure adequate protection, and forge strong client relationships.
One of the broadest market trends is the continued rise in house prices across the UK, driven chiefly by a lack of supply at the lower end of the market.
This has served to reinforce people’s appetite to spend money on property, either as a home or as an investment through buy to let, underlining property as a reliable place to invest.
Perhaps the most pivotal change was the introduction of the MMR, which has seen more stress-testing around lending, with a greater focus on affordability and sustainability.
It has put more pressure on borrowers to come up with higher deposits, and have a clearer understanding of their income and outgoings. It has not been without its consequences, with fewer first time buyers entering the market and some existing home owners unable to move up the property ladder.
It has also meant that some home owners have become trapped with their existing lender because they can’t switch deals, often stuck on higher rates. Some have seen the additional questions and assessment as an intrusion.
However, it also presents an opportunity to develop a more detailed knowledge of your clients’ finances to help them better manage their expenditure.
Rising interest rates
It is well documented that interest rates are expected to rise, with predictions that we are likely to see an increase in 2016.
This means a lot of home owners will be looking to remortgage to ensure that they secure the best fixed rate deals to lock in that certainty while rates are still low. I don’t expect rates to rise dramatically, but fixed-rate products do offer peace of mind.
For advisers, any savings made as a result of a move to a fixed rate can be used to ensure customers are well protected. After all, buying property is the biggest purchase people are ever likely to make. It is healthy for advisers to challenge clients around the policies they have in place, ensuring that they are covered adequately.
It is important to sit down with clients to re-examine their protection when remortgaging.
That doesn’t mean replacing the cover they have, but instead checking existing policies meet their changing needs. For example, have their circumstances changed?
They are likely to be increasing their borrowing so might need further product advice: can they use their existing protection policy, or do they need to take out an additional one to top it up? Advisers have a responsibility to point out how savings resulting from a remortgage can be used to fund new protection.
The Bank of Mum and Dad
Almost two-thirds of first-time buyers relied on the so-called ‘Bank of Mum and Dad’ before the Help to Buy scheme was implemented. That figure is now closer to half (45%), as first-time buyers seek ever-bigger deposits to buy property.
In London, for example, average house prices top £500,000, while across the UK they are £270,000, so a healthy deposit is needed. The opportunity lies in working closely with clients to work out how they can better manage their money to maintain their lifestyle, while at the same time ensuring that they are protected against any eventuality that might put their mortgage commitment at risk.
For a single first-time buyer, for example, one of the most important considerations is income protection (IP), and has to be the foundation of any financial planning advice process. People are 26 times more likely to be unable to work due to illness than they are to die before the age of 65, so protecting income has got to be a bigger priority than life cover.
This is something that could be addressed by making small changes to the sales process. We have seen that those advisers who talk about IP, explaining the value of the cover, and starting with it in the protection conversation are very successful in addressing client’s needs, and ultimately achieve a much higher average case size, which is good for them, too.
Having the conversation
A lot of clients are more aware than ever before of the different types of product on the market, particularly with the wealth of online information available. But as the mortgage market grows in complexity, there is no substitute for sitting down with a qualified adviser.
It is about helping clients to maintain their existing lifestyle while meeting their mortgage commitment, and offering protection in the event of a multitude of eventualities, including death. If you don’t offer this comprehensive level of advice, perhaps a competitor will?
Andy Philo is sales director, Vitality
Bill broadened to include insurable interest in cohabitants, group schemes and trusts
Thursday 4th October at The Hilton London Bankside
Early conversations about end-of-life care are crucial to ensure individuals living longer can make their own decisions, however right-to-die approaches vary all over the world
Group life, critical illness and income protection business bought from Munich Re