As a nation, it’s fair to say that we’re pretty obsessed with bricks and mortar. From early childhood, we’re almost programmed to work towards the dream of owning a home. Whether that’s a house for the family or a city pad, it doesn’t really matter; renting doesn’t sit too comfortably with many.
So in that context it’s good to see the housing market on the way up again. It may not be good news for everyone that prices are beginning to rise at a rapid rate, particularly first-time buyers, but the increased availability of mortgages will be welcome for many would-be homebuyers or movers.
It’s also very good news for mortgage advisers who have endured a tough few years. Harsher lending criteria, a shortage of supply in the housing market and a move from lenders away from advised distribution has hindered many, so it’s nice to see times changing.
This upward trend has other impacts too. Buying a home is one of the key triggers to accessing wider financial planning for many people. We’re not necessarily a nation that meticulously plots our way through the financial aspect of our lives. Instead we tend to live for the day, coping with events as and when they happen.
But taking on real or extra financial responsibility for the first time is one of the few occasions when this mindset can change. It’s an opportunity that frankly is too good to miss for financial advisers of all specialisms.
What’s the opportunity?
With the extra responsibility and financial burden that a mortgage brings, comes a heightened awareness of risk; a realisation and acceptance that bad things do happen and if they do, it may leave a massive mortgage to pay with a reduced or no income. That’s where protection comes in. There are three scenarios that can be covered; death, serious illness and forced periods of being unable to work. Historically, the view has been that as mortgage sales increased; so would protection, but in recent years this hasn’t necessarily been the case.
The lost link
Why? Well, it may be down to complexity. As mortgages have become more and more complex to arrange, you can understand why specialism and focus has taken precedence over wider advice. But is this the right way? I’m not so sure.
Firstly, it means that customers are treated in a more transactional, one-dimensional way “they are simply after one thing, so that’s what I’ll deliver and nothing more.”
Sure, this allows focus, but does it miss the point? Shouldn’t advisers be striving for a happy customer and one who is happy not only to come back for more, but also likely to recommend their services to friends and family? Word of mouth remains the strongest form of recommendation.
But secondly, it means we are at risk of selling customers short. Simply, there are no bigger financial decisions or burdens taken on by most people during their lives, so to simply ignore the possibility that ill health or death will place them in a financial catastrophe seems very wrong.
Protection, and particularly income protection, remains vastly undersold, which means the market has massive potential. Equally, the competition for leads and referrals has never been tougher; it probably costs more to acquire a customer than ever before.
Even with the best planning, home buying is complex and mortgages go wrong. So even though mortgages may be an adviser’s core specialism, advice could go further by giving customers the full picture. Who knows, it could be the start of a relationship that last years, rather than weeks.
Surely one of the keys to success is to make sure that the time and cost involved in arranging protection doesn’t come as a shock. To make sure this isn’t the case, advisers should set the scene early, getting would-be borrowers to appreciate that their affordability calculations need to include their essential protection insurance costs. Okay, so it may not be as appealing as the house purchase itself, but it doesn’t make it any less important.
If it’s too much for advisers and their clients to cover protection in detail whilst arranging the mortgage, they could arrange a six-month review and tackle it then.
Not only will this give them the chance to settle under a new financial regime and adjust to a new level of expenditure, but clients come back to the decision fresh, with a clear mind and perhaps an even greater appreciation of what’s at stake and the risks of not protecting their finances. Most businesses would love to find a reason to strengthen their relationships with customers.
In summary, few would argue that the link between mortgages and protection is strong, yet it doesn’t always work out this way in practice. However, overcoming this issue may not be as difficult as it may seem. If advisers view protection as an opportunity to enhance the advice they offer, rather than simply an addition or hindrance to their core advice; it’s not just their businesses that will benefit, their customers will too.