Protection review

Worries around finances may affect mortgage market

Kevin Carr

Xxxxxxxxxx Protection review xxxxxxxxxxxxxxxx, CEO and MD, xxxxxxxxxxxxxxxx Carr Consulting & Communications

ONS has just released the news that house prices increased on an annual basis by 9.8 per cent in March. On the face of it, this may seem positive news, but this is down from an increase of 11.3 per cent in February, and there is an expectation that this downward trend will continue in the coming months.

Looking at the new LifeSearch Health, Wealth and Happiness index, it’s clear that Brits are becoming increasingly worried about their finances, and these fears are a significant factor in the cooling of the housing market.

Almost three-quarters (72 per cent) expect to be financially worse off this year. On average they believe they will be more than £3,000 out of pocket. This equates to over £250 a month, a substantial amount of money that is likely to force people to think carefully and decide where best to spend their money and what to cut back on.

The survey shows there is a rising fear about finances – 41 per cent fear rising bills, 24 per cent fear lack of savings, and 16 per cent fear not being able to pay their bills. This is not a climate in which people will make quick, bold decisions. They will be thinking about what will benefit them and their families in the long run.

The uncertainty around rising prices, the war in Ukraine, and the general economic outlook is making people think twice about committing to large purchases, such as moving house or buying a new car. Thirteen per cent of all UK adults said they had put off big expenditures in the last year, with this number rising to 19 per cent among those aged 35 to 44. This is particularly true for those at the lower end of the pay scale. More than a quarter (28 per cent) of those earning £20,001 to £30,000 a year have delayed making these big purchasing decisions.

It’s likely that this will affect the bottom end of the housing market most in the coming months, with potentially fewer first-time buyers willing to take the plunge on buying a home. In turn, this is likely to have a knock-on effect higher up the property ladder, with fewer people looking to move upwards.

PROTECTING WHAT MATTERS MOST

This gloomy picture around finances is also reflected in the happiness and health levels in the index, which are at their lowest levels in a decade. The pandemic has had a massive impact on British life, with many people feeling worse off than they did before. The bullish feelings shown in the 2021 survey have evaporated, replaced with a sense of uncertainty about the future.

The pandemic revealed the fragility of our health. It showed that anyone, no matter how fit and healthy, could be struck down with an illness that could seriously affect their way of life. This seems to have particularly hit home with the younger generation, with six per cent of 18- to 34-year-olds considering taking out life insurance and income protection in 2021.

These numbers may seem small, but they are significantly higher than in the past. With a squeeze on finances already happening for many, people are thinking carefully about how and where they spend their money to protect themselves and their families.

More and more, they will be looking to mortgage lenders for support and reassurance – first around how they can best protect their payments from rising interest rates, and then regarding how they can protect themselves.

NEWS ROUND-UP

• Legal & General paid out almost £800mn in individual protection claims during 2021, benefiting 16,890 customers. • According to new research from

CIExpert, 67 per cent of mortgage and protection advisers will continue to conduct more than half of their client meetings virtually this year, while around one in five (22 per cent) noted that they would carry out all client meetings online, despite the removal of

COVID-19 restrictions. • Aviva’s protection and health business posted a 10 per cent increase in sales to £696mn in Q1 2022, up from £630mn in the same period last year. • Shepherds Friendly has launched a simplified application process for income protection as part of a wider strategy to offer a more streamlined application process to advisers. • Aegon UK has launched a new adviser dashboard that brings together all protection applications in one online platform. M I

New blood is the way forward

Xxxxxxxxxx Mike Allison

xxxxxxxxxxxxxxxx, Head of protection, xxxxxxxxxxxxxxxx Paradigm Mortgage Services

It’s no secret that the UK has an ageing population and workforce, and from a new set of data released by the ONS in May for Q1 2022, we can also see a rise across the board of those in work.

Sterling benefited from surprisingly positive data released in the middle of May, with unemployment and wage figures both surpassing expectations, painting a more positive picture for the British economy than had been expected. The number of UK workers on payrolls continued to hit new highs, rising by 121,000 between March and April to 29.5 million.

Mortgage advising, like all business sectors, will be forced to adapt to the impact of this changing demographic. More older people are working, but are obviously liable to retire. In a past survey, Aviva found that 61 per cent of adults are not keen on the prospect of longer working lives.

What, then, can be done for the exit-seekers? Directors of adviser firms, already skewed towards the older generation, are in a constant conundrum – “When do I retire, and what do I do with my business?”

Most advisers imagine they will build up a business with a bank of clients and that, when they are ready to exit, their book will have some sort of value. The difficulty comes in determining that value. Thought processes range from “It will be worth a multiple of annual income” to “It won’t be worth anything as people buy people and therefore all you are selling is goodwill”.

The complexity comes in the fact that mortgage advisory firms are highly transactional, earning fees upon successfully sourcing mortgage products for customers. Revenue by nature isn’t recurring, nor is it anchored to an easily measurable metric as it is for other financial service businesses.

Transactional businesses struggle to generate the kinds of ‘sticky’ clients who become firmly attached to the value of a business. The oft-used example for comparison is a wealth management firm – counting assets under management is one easily measurable metric, and clients also tend to be in search of long-term advice rather than one-off deals.

Retaining clients over a long period of time and being able to prove that income is not an easy task, but there are tools on the market, such as Dashly, proving that long-term income is definitely doable. However, to continue the success of a mortgage business, it is the people and their relative knowledge of the market they operate in that are important.

Increasingly, firms are looking to recruit young people from outside the industry, either to train them on mortgage/protection helpdesks or bring them in to start distributing relatively simple products to meet client needs.

In the case of GI, as an example, taking an average premium of around £350 for a household case, that will generate an income of approximately £100. Similarly, an average life premium of, say, £480 p.a. will generate almost £1,000.

The current average graduate salary in the UK is just over £24,000 according to the Graduate Outcomes report issued by HESA (Higher Education Statistics Agency) earlier in 2022. However, the same report stated a range starting at £16,000, depending on location.

Ultimately, the average figure is just that, an average – but it would not take too long for a well-trained graduate to start to add value to a business and more than cover costs even in the short term by distributing life and GI products.

By learning the process of factfinding, research, and report writing, an intelligent person is at least on the way to building a career.

We all know that creative thinking is needed to find a solution to the issue of retirements, but finding a model that works for the newcomer to the business and the business owner is key.

Under new Consumer Duty rules, it may well be that life insurance advice as well as GI will become even bigger features of a mortgage sale, and to have someone in place as a specialist may be invaluable.

Although our industry does have its challenges, it also has its rewards when clients find their dream home and know they are protected in the event of accidents or worse.

People who choose something they are passionate about, or at least enjoy, work harder. Longer term, such people may want to take the step of moving into a leadership position in a business – so the earlier the succession planning starts the better.

Businesses such as Paradigm can help provide much-needed learning in a new recruit’s early days and keep that recruit on track throughout the first few months, saving the firm’s owner from having to spend all their time on training.

All in all, firm owners need to have a strategic plan in place if they want to seek an exit but keep the business a going concern. New blood is thus vital, so don’t wait too long to get your situation in order. After all, none of us is getting any younger. M I