The ‘mortgage myth’ is alive and well, according to shocking new research, with nearly two thirds of homeowners being told they must have protection insurances in place.
Our latest survey* reveals that 60% percent of homeowners are told by mortgage providers that cover such as life insurance and income protection are required in order to get a mortgage. We’re now calling on providers to be clear and accurate about the home-buying process and to make sure customers are properly informed.
Our research showed that:
- One in three (33%) of those who bought life insurance when they took out a mortgage were told that it was a legal requirement, while a further third were told it was a necessary purchase to secure their home
- 35% of those quizzed said that they had bought the life insurance product offered by their mortgage provider or Independent Financial Advisor (IFA)
- 8% admitted not knowing they could shop around for life insurance when taking out a mortgage
- A further 51% who bought income protection insurance were told it was a mandatory requirement to get a mortgage
- 12% said they didn’t realise they could shop around for income protection cover
ActiveQuote head of partnerships and marketing Rod Jones said: “Our research highlights that there is still a lot of misinformation around what is required to get a mortgage, with one in five admitting they don’t even understand what life insurance and income protection cover them for.
“While it’s obviously advisable to protect yourself when you’re taking on such a big financial outgoing, it is not a legal or product requirement. What I find most worrying is that, when it comes to life insurance, 64% of those we asked aged between 18 and 24 were told that it was a must-have product. The only generation which came out as a higher percentage was the over-45s - where 80% were told they had to have life insurance.”
Income protection such as redundancy cover and mortgage protection insurance provide peace of mind that your mortgage or rent and household bills will be taken care of, should you be unable to work due to illness, an accident or involuntarily losing your job.
Life insurance policies are designed to provide a lump sum to your loved ones in the event of your death. Although life cover is not a legal requirement for homeowners, many bereaved partners do use it to pay off their mortgage, securing financial stability for their family.
Rod added: “Both life insurance and income protection are great products to buy to cover you when you are making such a large financial decision, but the fact that many customers don’t shop around or felt pressured to buy these products does not reflect well on the mortgage market in terms of ensuring customers are adequately informed about these products and the level of cover provided.
“These are products designed to take financial pressure off people, not to add to it. IFAs and mortgage providers need to stop selling these products as an add-on to their mortgage services and instead use them as a tool to safeguard the financial futures of their customers.
“The reality is that you need buildings insurance when you buy a home via a mortgage provider and your lender will insist on this, but as far as protection products are concerned, they are not mandatory or a legal requirement. Life insurance and income protection are both there for peace of mind when you have a mortgage, but should never be sold as a legal requirement.”
We recently reported that protection insurance payouts have reached record levels, with more than £5bn paid to bereaved families and ill or injured workers in 2018. If you’re in the process of taking out a mortgage, read our first-time home buyers' guide to make sure you have the right information.
* OnePoll conducted a survey of 2,000 randomly selected adults in January 2019, of which 30% were homeowners.