Time to think outside the box for protection as house prices surge

As house prices surge to a 15-year high, buyers are being reminded of the consequences of failing to address the growing ‘protection gap’ by seeking bespoke advice.

Halifax’s latest House Price Index has shown a further 1.4% increase in February, taking the average price of a UK property to £282,753, representing growth of 2.3% for the quarter and 11.0% for the year.

While ‘Generation Rent’ are increasingly turning to ‘Generation Buy’, it is important to bear in mind the consequences of things not being as rosy as they may currently be.

Contractors should mind the “protection gap” as house prices rise

“With a perfect storm of historically low mortgage rates and high average contract rates, many of our clients are finding now a great time to buy, either for the first time, or to move up the ladder” says Andy McBride, director of Cleerly. “While it is great that lenders are appreciating the earning potential of the nations Contractors, it shouldn’t be overlooked that there are indeed two sides to every coin, and the impact on a family of something happening can be catastrophic.”

“With average prices increasing month by month, the average mortgage figure is rising in turn, leaving an even greater debt behind should anything happen to your income stream.”

The UK’s protection shortfall, dubbed the ‘Protection Gap’ is currently around half of all mortgages, meaning if income stopped overnight, half of all homeowners would be left to fend for themselves to maintain their mortgage payments.

“Protection is a historically ignored issue, as naturally people don’t like to imagine what can go wrong, when all is well” says Simon James, Protection Specialist at Cleerly. “People budget for mortgages, bills, lifestyle spending and even new luxuries in future, but fail to address the very foundation of all of this – your income.”

Avoiding a costly mistake in the event of death or serious illness

Many buyers wrongly believe that there would be a grace period should they pass away or be unable to maintain the mortgage, or even that their remaining spouse can continue to live in the property and pay the mortgage. This however, can prove a costly misjudgement – any lender is only interested in recouping the money lent in order to buy the house, so if you passed away or stopped paying the mortgage, they would repossess, even if, on paper, your spouse may think they can afford to pay it.

“It is actually incredibly complex for the remaining family members to stay in a property if the main income earner passes away, as they would need to in effect satisfy the lenders affordability checks now based on just one income, the surviving persons income, which in most cases will never be enough for a mortgage based on a contractors income” continues James.

“Similar to the mortgage market, there are actually a plethora of options that can plug the gap and ensure that during what is naturally a stressful time, your family don’t need to worry about the roof above their head.”

“If you had a machine in the corner of the room that was pumping out £50 notes, you would insure it, so why not your own income? Act in haste, repent at leisure. Don’t be blind to the possibility that the worst can happen, seek specialist advice.”

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