Paul Broadhead of the Building Society Association lays out his plan to revive the mortgage market to Paul Robertson.
Also, the ceiling of a £100,000 mortgage increased to £200,000.
In addition, they saw the introduction of the Mortgage Rescue Scheme and the Homeowner Mortgage Support Scheme.
Broadhead said: “I think it led people to believe, coming straight on the back of the government’s bank recapitalisation, ‘If I get into payment difficulty now, obviously they’re going to look after me as well.’ That perhaps has given people a disincentive for taking out protection themselves.
“What we’ve seen since the coalition government is a reduction in the amount of SMI that’s payable, the closure of the Homeowner Mortgage Support Scheme, and a more localised approach to mortgage rescue, with less central government support. What government needs is private industry to step up to the plate and make sure consumers have that protection available.
“It’s vital brokers can advise people when protection is appropriate for them, and that the insurance industry reacts and develops products that gives consumers confidence that these are going to be the products that pay out.”
The BSA has, however, identified a disincentive for mortgage shoppers to consider protection too early.
The FSA is concerned over mortgage affordability – moving away from borrowing on salary multiples.
The regulator wants mortgages to be underwritten on net disposable income.
“So,” explained Broadhead,
“the challenge we face is if somebody does the prudent thing and takes out protection, they then go to the mortgage lender and can borrow less, so the FSA needs to square that circle.
“The point I make is if somebody takes out a protection, – more of a lifestyle protection, so it’s not just about the mortgage payment – clearly they are a better credit risk because they’ve protected themselves.
So, even if the worst happens in that situation, they still have the ability to pay the mortgage.
“If we got more penetration of protection at that level, and the FSA could square in its regulation, there’s no reason why customers couldn’t be rewarded for taking that payment protection because they’re a better credit risk for the lender.”
That’s a fairly logical and seductive argument for any adviser. If it resulted in the public getting a better mortgage, it might think of protection in a better light.
The BSA is currently working on a report focusing on a co-operative approach between the government and private sector over increasing protection for mortgage borrowers.
Broadhead concluded “What we need is for the lending industry, the insurance industry, the regulators and the consumer groups to start thinking a little bit outside the box because actually, if things are going to change, it’s going to be now when the market’s much smaller.
“If we can do that, then we will see benefits in the market.”
