Taking out a longer-term mortgage has implications on insurance many ignore
Longer-term mortgages need different insurance
Tuesday, 24 Oct 2006 17:27
An increasing trend in favour of longer-term mortgages is changing insurance needs, new research shows.
Of the people who have bought their first home in the last 12 months, 40 per cent have taken out a mortgage for longer than the traditional 25 years, research from insurance specialist Bright Grey finds.
"Property prices in the UK have continued to rise and the traditional 20 to 25 year term mortgage is simply no longer affordable for many people," Bright Grey’s product director Roger Edwards said.
"Mortgage lenders are increasingly offering longer term mortgages and higher multiples to help people get into the property market and own their own home."
And this means insurance plans traditionally associated with mortgages - such as life insurance, critical illness cover, buildings and contents cover, and payment protection deals - need to change as well.
John Ahmed, marketing and communications director at advisers Home of Choice commented: "The demand for longer term protection plans has certainly been increasing, as more and more people are taking on longer term mortgage debt.
"Traditionally it's been life cover that's been available over the longer term.
"But for many people, critical illness cover is just as important as life cover, if not more so for those who have no dependants, which is the case for many first-time buyers.
"As sales of protection need to increase, it is correct that products become more flexible too."
There has also been a secondary effect of rising house prices, higher income multiples, and larger deposits on first-time buyers - a third of all new homeowners have seen their savings completely wiped out.
Given a situation where they have little or no savings to fall back on, Bright Grey's research reveals almost 50 per cent of first-time buyers see savings as their financial priority, compared with 40 per cent who put protection at the top of the list.
"Of course people want to replace savings that have been wiped out, but it seems that the vast majority of new homeowners are strapped for cash and don’t have any real savings power," Mr Edwards said.
"Which is why protection really should be the priority.
"Think how long it will take most people to save up even three month’s worth of mortgage payments, let alone a year or two’s worth of mortgage and living expenses to tide them over if they suffer an illness like cancer or a stroke and can’t work.
"It’s really tough for first-time buyers to get their foot onto the property ladder these days, so why risk having your new home slip away because you don’t have cover in place?"XXX