November 2019 | Protection

Steve Ellis: All in our debt

Steve Ellis is head of risk and protection at Premier Choice Group

We are all in the business of debt – mortgage brokers, healthcare intermediaries, IFAs.

Hopefully by selling protection, household or building insurance we are not putting people in debt – but ensuring they can avoid it should they hit the circumstances that would lead to a claim.

But when any of us take on a mortgage there’s one big debt issue right there. Ideally it is a manageable debt and if the lender has done the right job it will be.

And if the broker or their insurance intermediary contact has done their job right then the debt will not only be manageable but the mortgagee protected against it becoming unmanageable.

A reminder of why our jobs are important – and particularly our making sure we sell responsibly – comes from new statistics regarding debt from the StepChange Debt Charity; 29% of Brits expect their finances to get worse in the next year, while only 14% believe their financial situation will improve.

Of those expecting to be worse off, 38% cited uncertainty in the wider economy as the cause.

Of course, this is expectation and not reality – yet. But the charity cites 331,337 people contacting it for help with their debts in just the first six months of 2019, a record number.

The charity is ‘encouraging people who may be suffering in silence with their finances to get help by contacting them – it has a free and confidential online debt advice service.

Being open about debt is one of the key hurdles to getting advice; 38% of people said they would want to deal with financial difficulties privately and only 52% would talk to their partner or family about them. Some 42% of men prefer to deal with debt problems privately, compared to 34% of women and worryingly 45% ‘never’ or ‘rarely’ broach the subject of debt to family or a partner.

The point is if people won’t talk to family – will they talk to someone outside of the family? Especially when they are desperate to get a loan, get a mortgage, possible insurance will not be as high on the list, although ironically it should be – although only before debt problems arise.

If we do our jobs right – by selling insurance and by arranging mortgages we may well be putting debt in place and calling on income for premiums.

But if we do it responsibly – ensuring the debt and the protection is manageable – we are ultimately ensuring against debt not just in the short-term but in the long-term.

A mortgage paid off – or being paid off – by degrees becomes an asset that can be utilised if needs be. Ideally, we want to ensure that whatever financial problems hit with the right protection in place a mortgage can be paid off, a lump sum provided in the case of a serious illness, an income provided in case the individual can’t work.

We should not really see our homes as investments or pensions but if they need to be they can be. If we have done our jobs responsibly we are giving our clients those options and that security. It’s all a bit over and above just selling a mortgage or a bit of insurance. I’m sure any debt counsellors would be quite happy if we could make their jobs redundant.

None of us are likely to make fortunes out of this bit of good news for those struggling to get on the housing ladder: that the government is introducing a new national model for shared ownership designed to help lower earners to buy their own homes – or a proportion of them.

Given that this means some people can get on the housing ladder with deposits as low as £2,000 none of us are going to retire on the back of it.

But we should all welcome the investment into home ownership becoming achievable for more people. Individuals with an ownership stake in bricks and mortar are in a position to build on that stake – and perhaps at some point to build on it.

Housing Associations will be at the helm of much of these opportunities.

There may be clients – or children, friends or relations of clients – for whom these schemes are

entirely appropriate and welcome. And us guiding them towards those schemes will not necessarily mean those individuals will never be a client.

The scheme works in that whereas now a housing association tenant renting a £200,000 property cannot buy a share of that property.

Under the new right to shared ownership, the tenant could buy an initial 10% stake worth £20,000, while paying subsidised rent on the remaining 90% of the property.

The tenant could make up this 10% stake through a £2,000 deposit and a £18,000 mortgage.

The idea is that people will be able to buy small chunks of their home and that fees such as for valuations will be ‘fairer and proportional’.

It is the case that ‘the smaller share purchases will make it easier for people to save the money required to buy additional shares, removing the need to secure mortgage finance or pay fees to the lender.’

For individuals who do need a mortgage the government says it wants to make it easier to get one and will be introducing a preferred national model for shared ownership and encouraging more widely available mortgage finance.

If someone wants to move out of their home before they and achieved 100% ownership, the new scheme is also set to help simplify the re-sales process. There will be equity – there will likely be a need or desire to make buy another property.

At any stage we can contribute our expertise – in smaller mortgages initially (all will need to be clearer) perhaps to remortgaging and at any level to some form of appropriate protection to protect whatever stake there is, what income there is, whatever lifestyle there is.