How COV-ID 19 impacted mortgage products and the market

The coronavirus pandemic has changed many aspects of our daily lives, with everyone taking steps and precautions to work together to prevent the spread.

In uncertain times, banks and lenders are examining their products and the level of risk involved. A number of mortgage products have been withdrawn from the market, mainly those with a high loan to value (LTV), that being the percentage of the property’s value that you need as a mortgage.

Mortgages with a high (LTV)- for example a 95% LTV mortgage where you provide 5% of the property’s value and your lender loans the other 95% – are often considered a bigger risk to the lender and would most definitely require a valuation of the property. As these need more human interaction and intervention than mortgages with lower LTVs, making it difficult for lenders to find a risk-free way of continuing these products.

Many lenders found that, with in-person valuations being made impossible with the initial lockdown rules, offering high LTV mortgages became a much higher risk and providing them was less feasible in the current climate. Lots of mortgage deals with an LTV of over 70% offered through many major banks, such as Halifax and Barclays, were temporarily withdrawn. This doesn’t mean it’s impossible to get a higher LTV mortgage, it just means less are being offered and the criteria will most likely be stricter so the lenders can efficiently manage risk and valuation requirements. Not all lenders have chosen to do this so dramatically though, with Nationwide only limiting the cap to 85% LTV for first-time buyers and remortgages. With different lenders taking different approaches to managing the changes presented due to the pandemic, more than ever mortgage brokers are a valuable tool for those seeking to purchase a home, keeping constant track of the different LTV ratios for each lender and helping customers navigate a rapidly changing market.

Improving your chances of getting a mortgage after Covid 19

With the housing market back open – under strict social-distancing guidelines – and valuations able to re-commence, some higher LTV mortgages are beginning to return. With estate agents able to reopen, buyers have been able to look towards viewing properties, removal firms have been able to resume work and the housing market is starting to flow again – however it’s important to remember that social distancing and following guidelines is essential to ensure the purchase and sale of property can be done safely.

It’s been reported by Rightmove that the interest for “home-mover visits” hit 5.2 million, up 4% from the same day last year. Miles Shipside, Rightmove director, said the figures show “clear signs of returning momentum” which means those who have been thinking forward and looking to move home are not alone. With many of us looking to life post-lockdown and making plans for the future, it makes sense that there’s an increase in people wanting to own their own home. Click here to read the article.

If you want to increase your chances of getting a mortgage, luckily there’s plenty you can do to help prepare your application and prove you can be a responsible borrower- even with bad credit.

Also, read our article on the first steps of easing lockdown

Income

Having a stable income is important when applying for a mortgage. Lenders will want to know you’ll be able to meet repayments, and your income is usually how you’ll do this. It’s usually best to have been working in the same job or field for at least 3-6 months before applying for a mortgage, but some lenders can be more flexible. Even with furloughed income, a lender will consider this on a case by case basis.

Electoral Roll

Registering to vote on the electoral role is the simplest, yet one of the most vital steps in preparing your application. Lenders will use data from the electoral roll to verify your identity, making sure your address on your application matches the one you’re registered to vote at.

You can register here:  – and it only usually takes around 5 minutes.

Paperwork

Get your paperwork in order. This could be things like:

  • Proof of income – this could be payslips or your accounts
  • Expenditures – your lender will want to know you can afford your repayments. Any regular outgoings need to be accounted for, check your bank statements for any outgoings that you don’t need and could possibly cancel?
  • Identity – you’ll need to authenticate your identity so make sure you have the relevant documents, usually a passport or driving licence, but other documents can be used.
  • Proof of deposit – you’ll need to verify your deposit, but this can usually be done fairly easily – for example through savings accounts statements
  • Proof of address – e.g. utility bills, council tax statements

Credit Score

Your credit report is how a lender can see if you’re a responsible borrower and plays an important part in your mortgage application. You could still get a mortgage with bad credit (or even no previous credit), but if you’re looking to prepare an application, taking a look at your credit report and working to improve it will increase your chances of being accepted.

  • Use of available credit – the amount of credit available to you and the amount your utilising will have an impact on your credit score. Make sure you’re borrowing responsibly and don’t take out credit you don’t need.
  • Close old and inactive accounts.
  • Check for irregularities – if there’s something you don’t recognise or disagree with you can raise a dispute with the lender or the company providing your credit report.
  • Make sure you pay your bills and any credit repayments on time. Missed payments appear on your credit report and can impact a mortgage application.

If you’ve had to take a payment holiday as a result of financial impacts from the coronavirus epidemic, provided the payment holiday was agreed with your lender this shouldn’t impact your credit score or prevent you from taking out credit in the future. This includes mortgage payment holidays, car finance payment holidays and even some payday loan repayments. However, it is worth noting that payday loans rarely reflect well on a mortgage application and if you’re looking to apply for one, waiting until payday loan use has dropped off your credit file could boost your application.

Save a deposit

As mentioned above, there aren’t as many 95% LTV mortgages available right now so you might need to save for a larger deposit. You should usually aim to save at least 5% of the property’s value but a larger deposit reduces the risk to the lender which increases your chance of being accepted and could give you access to better rates or deals.

We’ve helped 1,000’s of customers get the perfect mortgage – specialising in helping people with bad credit. Get in touch with one of our advisors to find out more.

How to increase the value in your home

If you’re looking to make your home more valuable, you’re probably wondering where to start. We’ve put together a handy guide to see you through increasing the value in your property.

If you require finance to do the improvements, from a remortgage, equity release or secured loan, speak to an advisor.

Type of building:

First of all, you’ll need to check what type of property you own. If your property is a listed building you might need special permissions to make alterations. A listed building usually has national significance, historical interest or importance and has legal protection within the planning system. There are 3 grades, and any listed building will appear on the National Heritage List for England.

In order of importance, Grade 1 is for buildings of high significance, Grade 2 comes second and then Grade 3. Most listed buildings are Grade 2, and make up 92% of listed buildings. If you live in a listed building and want to make renovations that needs listed building consent, it’s vital you obtain this before carrying out any work.

Price ceiling:

There will be a price ceiling of properties in your area, which is the maximum price a property has sold for. This will give you a good idea how much you need to raise and invest in your property, but it’s important to remember the housing market can fluctuate so your property’s value could go up, or down. Adding substantial value to your home through renovations can make sure your home has selling appeal, and when done properly there’s always a possibility of breaking the price ceiling in your area.

How do I afford home improvements?

There are several ways you can raise the money needed to fund home improvements. Homeowners tend to have a wider range of loans available, especially if you’ve built up equity in your home.

Our expert brokers could help you find a secured loan (also known as a homeowner loan) or remortgage that could let you access cash tied up in your home, allowing you to fund your home improvements and raise the value of your property.

We’ll work with you, taking your current financial situation into account and presenting you with the options you have to make your vision reality.

Structural issues & problems:

Before you look to decorate, it’s important to check your property for structural issues and problems. These could be things such as

  • Damp
  • Cracks in the walls
  • Rotten timbers
  • Leaky roof, missing tiles
  • Sagging roof
  • Woodworm or other insect infestations
  • Leaning walls

If your home has any structural issues, defects or problems it’s advised to get these repaired. Not doing so could depreciate the value of your home and make it difficult to sell. This should be the first port-of-call when looking to renovate your home.

Extension:

Adding an extension is a popular and effective way of adding value to your property, adding up to 23% to the value of your home. In London especially, adding a 50 square foot extension could add £25,000 to the value of your property. (Source)

This can be a costly endeavour so make sure you weigh up sum it will take to build and the return of your investment.

Loft conversion: 15-30%

A loft conversion could see your home’s value increase by 15-30% making this one of the most cost effective renovations you can do.

Whereas this can be pricey, by converting your loft into a bedroom or liveable space, you can add an extra room onto your home and see a substantial return on your investment.

Kitchen makeover:

The kitchen is central for many families, and making sure the kitchen is a clean, inviting space can add real value to your home. On average, a new kitchen can add up to 6% to the value of your home.

  • Paint in clean, neutral colours
  • Replace old worktops
  • Look at investing in energy efficient appliances, many modern families are looking to be more eco-friendly when buying a home
  • Replace old floor tiles or sand and re-varnish dull wooden flooring

Open-Plan living:

One of the most popular renovations for increasing value in the modern market is creating an open plan living space, combining the kitchen and living rooms. This ties in with families finding the kitchen is the heart and hub of the home, so it’s important to bear this in mind when planning your renovation.

Making sure the room has clear zones for cooking, eating, spending time as a family and relaxing can help you decide how you want to lay out your open plan living space, looking at lighting and furniture placement to ensure the zones ‘flow’ to one another. There are countless combinations and open plan spaces can give you the opportunity to be creative with the space, making it a unique selling point and attracting families looking to buy a home.

It’s important to make sure you consult a structural professional before removing any walls, in some cases the walls are load bearing and you’ll need to install supportive steels if you want to open the space.

Plumbing & your bathroom:

If your home hasn’t had it’s plumbing upgraded in a while, looking to this can help increase the value and sale price.

  • Replace old toilets, baths and sinks. Renovating your bathroom can also add value.
  • Check and replace leaky or rattling pipes – consider modernised pipes if they haven’t been replaced in a long time
  • Make sure the drains are maintained, cleaned or replaced as needed.
  • Home water filter systems can be a great selling point, especially in hard water areas

Garage: up to 5%

Building a garage or driveway could add up to 5% to your homes value, so if you have the space it’s definitely worth considering.

Off-street parking is often considered a desirable selling point, although it’s important to ensure any construction adheres to local regulations, including highway regulations if you install a drop kerb.

Exterior:

You’ll want to impress potential buyers from the moment they set eyes on your home, so making sure the exterior is attractive and tidy is vital if you’re trying to sell your home.

  • Repair damaged brickwork
  • Repaint doors and windows, repairing or replacing as needed
  • Adding/replacing house number
  • Clean decking, patio or porch – first impressions count

Be sure to keep in line with permitted development guidelines, or obtain planning permissions if needed.

Decorating:

Walls: check the walls for cracks or peeling paint. Fixing cracks and adding fresh coat of paint can brighten the space and make it far more appealing, neutral colours are often preferred when looking to showcase a home to potential buyers.

Doors: Make sure the doors are clean, and squeak-free. A fresh coat of paint can work wonders here too, making sure you protect the handles etc. Check the handles, latches and locks all work.

Skirting boards: Giving them a quick wipe down, or fresh coat of paint will help your property look clean and tidy.

Flooring: Keep the carpets clean, replacing worn ones as needed. You can hire kits to do this at home, or hire professional cleaners depending on your budget. Wooden floors can be easily revitalised by sanding them down and coating with a varnish.

Lightbulbs: Double check they all work before a viewing. Energy-saving lightbulbs can be a good selling point for your home, especially if you’ve worked to improve the energy efficiency rating.

Electrics & wiring:

Making sure the electrics are up to date and safe can save hassle down the line if you’re looking to sell. Updating the electrics, upgrading the fuse box and making sure sockets are safe can help assure buyers and ensure you pass safety checks.

Garden:

A well-kept, tidy garden space can add value to your home, and make your property more attractive to potential buyers.

  • Mow the lawn(s), feed if needed.
  • Keep overgrown shrubs, hedges and trees in shape
  • Add flowers and planters for appeal
  • Make sure garden is free of weeds
  • Clean any patio space
  • Freshen up and repaint any decking
  • Private gardens are often appealing to prospective buyers, You can raise boundary fences and walls up to 2m without needing planning permission (0.6m on the highway) (https://www.homebuilding.co.uk/20-sure-ways-to-add-value-to-your-home/)

Central heating & your boiler:

Adding or upgrading a central heating system is a sure-fire way to add value to your home. Installing a new boiler and upgrading the radiators can have a huge impact – adding a condensing A rated boiler could reduce the running costs and can come with warranty of up to 10 years. If done hand-in-hand with improving the energy efficiency in your property, you could make a fair profit.

Energy efficiency:

To improve the energy efficiency, make sure you:

  • Replace and seal old windows, making sure they are double glazed. This has the added bonus of reducing noise, especially on main roads. Most houses are expected to have double glazing, unless there’s a listing reason that prevents it so it’s important to bear in mind.
  • Loft insulation – you should install loft insulation that’s at least 270mm thick
  • Wall insulation – insulating your walls can improve your EPC rating and you can sometimes qualify for help with the costs
  • Having a wood burning stove, over something like an open fireplace as a secondary heating system
  • Making sure appliances are energy efficient, such as fridges and washing machines
  • Changing the lightbulbs to LEDs or energy efficient bulbs

Mortgage Payment Holidays extended!

With the announcement from the Financial Conduct Authority (FCA) that banks and building societies can now extend Mortgage Payment Holidays for a further 3 months there is going to be a lot of questions from borrowers on how this is going to impact their potential borrowing in the future.  Also, could there be other options of reducing your mortgage payments that could help?

The difference between independent and bank mortgage advisers

Mortgage advisers in a bank or building society can only offer you advice and mortgage products from the bank or building society they work for.  If they don’t have a lending solution that is right for you, then you’ll have to find an alternative option yourself.

An independent mortgage adviser will search products from across the market, they have a range of lenders and products available to you.  With Clever Mortgages, this also comes with the experience of dealing with applications from those with low or bad credit ratings.  They are able to find the right solution from 100’s of lenders.

Is it time to seek independent advice?

Taking independent advice can make the difference whether you are looking to purchase, remortgage or just want to obtain a better rate.  Speaking to our brokers can ensure you achieve a significantly better deal; they’ll take your individual requirements in to account and could potentially save you thousands of pounds over the mortgage term.

Mortgage Payment Holidays

Mortgage Payment Holidays have given a temporary solution to over 1 in 7 homeowners who have found their income has been affected by COVID 19, but these are not free holidays, they are payment deferrals and will affect your mortgage balance, term and/or monthly payments going forward.  If your income is still affected the further extension may be welcomed, but you must also consider other options, could you make a partial payment each month, could you do a product transfer to lower your rate, could you use any over payments that you have made previously?  These are all options you should consider before looking to extend the holiday.

Read more on payment holidays here.

Remember: A mortgage payment holiday, MUST be agreed with the lender.  Cancelling your direct debit is not a payment holiday and will be counted as a missed payment. You should not cancel your direct debit without agreeing this with the lender first. A missed payment could show up in your credit file and may impact your ability to remortgage.

Why would I not just speak to my current lender, bank or building society?

As mentioned above, your current lender, bank or building society can only talk to you about the products they offer or give generic advice and information, they are not able to offer you products from other lenders, you are potentially missing out on other potential options and what might be a better solution.

Our mortgages advisers are qualified professionals who specialise in finding the most suitable mortgage deal for your circumstances.  They have access to a wide range of lenders from across the market and can make the difference between an application being declined or successful.

Lending criteria and available options available at the moment are changing daily and it is our mortgage advisers’ job to keep on top of the information and to find a solution to your lending requirement.

If you’ve had financial issues in the past, then you have a lot to gain from speaking to a mortgage adviser from Clever Mortgages, their specialisation is getting mortgages for people with bad credit and this requires multiple options from a comprehensive range of lenders.  A mortgage adviser and their supporting administration unit is there to guide you through the process and make sure they maximise your opportunities with the lenders.

If you still feel you need to contact your existing lender for a payment holiday, you can find useful contact information here.

What is a Product Transfer?

Mortgage providers are changing the rules on eligibility for product transfers, allowing homeowners who are on payment holidays or furlough to switch mortgage products at the end of their term. Mortgage holders on payment holidays wouldn’t usually be eligible for a product transfer, but UK Finance have announced that lenders are amending the rules to help those financially impacted by the epidemic. With one in seven mortgages in the UK utilising the support of payment holidays and many workers furloughed, this will potentially impact on mortgage holders’ ability to afford higher interest rates if they’re on a payment holiday at the end of their fixed-term.

Product transfers, even before coronavirus can help reduce your monthly repayments: by switching to a new deal with the same lender you could see a lower interest rate, saving you money. These transfers are usually unavailable to mortgage holders on payment holidays: however, in the current circumstances this has been changed. Homeowners on payment holidays, or who have been furloughed can now transfer products at the end of their term.

It’s worth talking to a mortgage adviser, such as Clever Mortgages, who can assess your options of a product transfer or a remortgage to another lender, this ensures you get the very best solution.

https://www.ukfinance.org.uk/press/press-releases/lenders-grant-1-6-million-payment-holidays-to-mortgage-holders

How does a product transfer work?

A product transfer is when you move from your current mortgage deal to a new one with the same lender, usually at the end of a fixed term. After a fixed-term on your mortgage, where the interest rate stays the same, the interest rate will usually switch to the lenders Standard Variable Rate (SVR) which is often higher than the rate of the fixed-term. The process of transferring products is usually quite simple and it’s unlikely you’ll need a valuation on your property.

Many product transfers don’t require affordability assessments as you’re not borrowing more money, as you might with a remortgage for example. It’s simply a case of switching products, meaning homeowners who have been furloughed as a result of the epidemic could transfer products without having to be subject to the usual affordability assessments, fixing the interest rate and preventing them from paying a potentially costly SVR.

Pros:

  • Not usually subject to a full valuation
  • No legal fees
  • Could reduce monthly repayments by going from your lenders SVR to a fixed-rate mortgage
  • Often a quick process

Cons:

  • You might not be getting the best deal, only what your current lender offers you
  • Other providers could offer a better rate or product, saving you money in the long-term
  • You won’t be able to borrow more money if you wanted to carry out home improvements for example.

Why it might not be the best option?

You might not be getting the best deal or product on the market if you transfer product with your current lender. It may be the case that you could lower your repayments further or have more options by remortgaging with a new lender. Our specialist brokers can search to find the best product or deal for you.  Whether through a product transfer or remortgage, they can give you reliable advice for your situation and could save you money. They’ll be able to compare deals from across the market helping you make an informed decision. Get in touch to find out more!

Insurance payment holidays

At Clever Mortgages we understand that these continue to be worrying times, and you’re doing your best to look after yourself, your family and friends.

Mortgage payment holidays have been available some time and you should only consider a payment holiday if you really need it.  We have further guidance on this here.  If you do need to contact your lender, you can find useful links here.

The Financial Conduct Authority (FCA) have issued guidance today (14th May 2020) to insurance providers to help policyholders who are experiencing financial difficulty because of the coronavirus.

It’s great to see that some insurance firms have already offered help to customers, but the measures now cover the wider insurance industry and guidance to offer support such as premium reductions, discounts, waiving fees, and payment deferrals.

The measures come into force 18th May 2020 and insurers may look at amendments to cover to reduce premiums or a payment deferral (holiday) if its in the customers best interests to do so.

The payment deferral will initially be granted for 1 to 3 months and requests can be made up to 18th August 2020, being the 3 month window.  If you need to contact your provider, some useful contacts are here.

As a reminder, if you have protection policies in place be that life, critical illness or income protection insurance, accident, sickness and unemployment cover or buildings and contents insurance.  You can keep yourself and family protected by retaining the valuable cover and requesting a payment deferral.

Life, critical illness and income protection insurance is underwritten and confirmed when you start paying for the policy.  This means the insurer will guarantee the cover you have and will not make any amendments due to a change in your health or any new diseases in the population.  This will not be impacted by taking a payment deferral, but would if you cancelled your cover and then re applied at  a later date.

You can read more about the importance of protection cover here.

If you need to talk through your mortgage or protection options, you can contact us

From everyone at Clever Mortgages team, we’d like to wish everyone and their families all the best and pass on our encouragement to keep strong throughout these unparalleled times.

The Government has started the first steps to ease the coronavirus lockdown within England

The Government has started the first steps to ease the coronavirus lockdown within England, and has issued new guidance on moving home and working in homes.

During the effective ‘lock down’ for the UK, which has been almost two months, a temporary halt was put to many industries, one of those being the housing market, including the ability to move home, unless it was unavoidable.

Following the latest Government announcement, physical property viewings and mortgage valuations are now possible, once online resources have been considered.  Any viewing or valuation must be carried out following the strict social distance guidelines.

All this means Estate Agencies can look to reopen and start viewings and property listings.  Solicitors can start to complete property purchase chains and lenders can consider their lending criteria and progress the current applications they have to valuation or offer.  Its estimated there are 450,000 buyers and renters with plans on hold and it will take all parties time to work through the back log.

The Government have also opened up the construction industry, again, following strict guidance.  The announcement confirmed that builders could apply to work up to 9pm in residential areas, Monday to Saturday and longer in non-residential areas.  Restarting new builds will fuel the market for new and onward purchases, including the help to buy scheme.

Learn more about the help to buy scheme in our video below

Our team at Clever Mortgages have been working from the home since the lockdown started and we now have a small number of staff located in the office, following social distancing guidelines.

We have always made telephone mortgage advice a success, if you have any queries please feel free to contact us, we would love to help with your house move or remortgage.  You can read more about us on our website or on Trustpilot.

Payment Holidays Lender Information

Mortgage Lender pages for payment holidays

Its recommended that you only apply for a payment holiday if you really need it, if you want to discuss mortgage options please contact the Clever Mortgages team.

Accord Mortgages
Payment Holiday link for Customers

Aldermore
Payment Holiday link for Customers

Bank of Ireland
Payment Holiday link for Customers

Barclays
Payment Holiday link for Customers

BM Solutions
Payment Holiday link for Customers

Coventry
Payment Holiday link for Customers

Fleet Mortgages
Payment Holiday link for Customers

Halifax
Payment Holiday link for Customers

HSBC
Payment Holiday link for Customers

Kensington
0800 111020

Kent Reliance for Intermediaries
Payment Holiday link for Customers

Leeds Building Society
Payment Holiday link for Customers

Metro Bank
Email mortgageservicing@metrobank.plc.uk with your mortgage account number and monthly payment date. If you need to speak to their team urgently, you can call 0345 319 1200.

Nationwide
Payment Holiday link for Customers

NatWest
Payment Holiday link for Customers

Platform
Payment Holiday link for Customers

Precise Mortgages
Payment Holiday link for Customers

Santander
Payment Holiday link for Customers

Scottish Widows
Payment Holiday link for Customers

Skipton
To request a mortgage payment holiday of up to 3 months, please email PaymentHolidayRequests@skipton.co.uk including your mortgage account number and the best number to contact you on.

TMW
Payment Holiday link for Customers

Together
Payment Holiday link for Customers

TSB
Payment Holiday link for Customers

Vida Homeloans
Payment Holiday link for Customers

Virgin Money
Payment Holiday link for Customers

Hero mortgages – For the Hero’s among us!

Here at Clever Mortgages we have access to a wide range of mortgage products including some that are only available to those of you providing vital community services. Kensington Mortgages have recently released a specialist product range specifically designed for hero’s working in the public sector.

We speak for a large number of people who appreciate all your efforts, with many of you working relentlessly in an effort to reduce the impact of Covid-19.

The Hero’s mortgage range is available for first time buyers, those looking to move home and those looking to remortgage; whether this is to save money or release money from your property.

  • Maximum age 40 at application for the essential skilled worker.
  • Up to 5 x Loan to Income, subject to affordability.
  • Overtime and second job income accepted.
  • Debt management plans considered.
  • Joint applications accepted.
  • Cashback, free valuations and no product fees are available on some products.
  • Is my occupation eligible

The range of products we have access to specifically within the Hero’s mortgage range are available to the following occupations.

  • NHS Clinicians (including Paramedics & Nurses)
  • Teachers
  • Armed Forces Personnel (Army, Navy, RAF)
  • Firefighters
  • Police

Some of my income is from overtime work or bonus’, are they taken into consideration?

These products have been specifically designed with you in mind, they can take up to 100% of regular overtime and bonus’ into consideration when working out the affordability. They will also work out affordability based on 5times your annual income.

I have bad credit; can you still help?

Depending on the level of bad credit, these products may still be available to you even if you are in a debt management plan, our team are experts in sourcing solutions for people with a poor credit history; so, could still help.

Our dedicated team of specialist advisers are on hand to take the stress away from you, if one of the Hero mortgages are not suitable based on your circumstances, we have access to over a 100 other lenders with over 1000 different products some that are not available to the general public.

Why use a mortgage broker?

Mortgage brokers can help you find the best deals on the market – not just from one lender. With a broker you’ll get:

  • Valuable knowledge, through years of experience helping customers to find mortgages
  • An improved chance at finding a mortgage, some mortgages are only available through a broker
  • Help with the application process, as usually just one application can be used across various lenders
  • Advice on how to improve your chances, for instance getting a guarantor or applying for a joint mortgage

 

 About Clever Mortgages

We specialise in assessing an individual’s situation, and finding a best-fit mortgage solution for them. We can help:

  • With remortgages, buy-to-let, and first-time buyers mortgages. We have experts over all of these areas
  • Even if you’ve got bad credit – we help people every day with less than perfect credit histories to find the right mortgage
  • With applications, as we’ll take the hassle away. We require your details once and we’ll know the best lenders for your circumstance
  • Our team know the lenders that are most likely to say ‘yes’, and to give the best rates

Should I protect my income?

When it comes to protecting your family and livelihood, you just can’t be too careful. It may come as a surprise to learn that only 35% of UK adults hold a life, critical illness or income protection product.

This equates to 15 million people, which may seem like a lot (https://www.fca.org.uk/publications/corporate-documents/sector-views-published-february-2020 – page 35) but comparing it to the 17.6 million who have gadget, phone or warranty products, it could be argued that UK adults are seemingly more likely to protect their gadgets than their income!

Even with only 35% of the UK adult population holding life, critical illness or income protection products, insurers still pay out £14.5million every day for claims, highlighting just how important income protection insurance can be. (https://www.abi.org.uk/data-and-resources/industry-data/uk-insurance-and-long-term-savings-key-facts/) Nobody likes to think that something bad might happen, and there’s certainly nothing wrong with that positivity day-to-day- but it’s important to be prepared in case something goes wrong. Just take the current climate as an example.

Income protection is one of the most important things in financial planning but often overlooked by many. There are various types of income protection which we’ll explore, but first it is useful to know what the statuary sick entitlement is to understand the importance of protecting your income.

Should you find yourself in a position where you can’t work, it’s likely you’d get some form of sick pay from your employer or through statutory sick pay (SSP), but in most cases SSP equates to around £94.25 a week for up to 28 weeks (https://www.gov.uk/statutory-sick-pay), which many find doesn’t match the income they’re used to, making it a struggle to make ends meet

Some employers will continue your pay during periods of sickness, this is at the employer’s discretion and isn’t guaranteed, it can vary from one week to 2 years. It may be useful to know that you can tailor some income protection policies around employer sick pay.

Income Protection

What are the different types of income protection insurance?

There are several different income protection products designed to protect your income or cover your outgoings.

Read more here

Mortgage Payment Protection Insurance policies – MPPI

Please note, this is not the widely mis-sold PPI.

Mortgage payment protection insurance policy, or MPPI is a type of protection policy that covers your mortgage and associated bills. MPPI will cover your mortgage payment, any associated life assurance and buildings and contents insurance, usually up to a limit of 125% of your actual mortgage payment if you’re unable to work. This type of income insurance product allows you to choose what kind of situation you’d like to cover that may result in loss of income due to an inability to work. You can usually cover sickness, accident or unemployment as a package or individually if you choose not to cover a certain scenario. Often insurers allow a tolerance to allow for interest rate fluctuation and may allow you to cover an additional percentage of the mortgage payment.

Accident, Sickness and Unemployment – ASU

This type of income protection is very similar to MPPI but is based on your income, rather than your mortgage and outgoings. Known as Accident, Sickness and Unemployment (ASU), this insurance helps replace and cover income that could be lost if you’re unable to work due to sickness, injury or unemployment, depending on the cover you choose.

Remember that you will only receive Statuary Sick Pay from the state if you are unable to work due to an accident or sickness, so the ASU policy adds to this. ASU can protect a percentage of your gross salary, usually around 50-70%, providing the financial support you’ll need to continue your life with a monthly tax-free (https://www.gov.uk/income-tax) cash sum until you’re ready to return to work. However, the duration of payment is normally to a maximum of two years with 12 months being the most prevalent cover available.

Is income protection like PPI?

Income protection is not the same as PPI (payment protection insurance). PPI is a type of insurance sold alongside credit agreements like loans, car finance or credit cards to make sure repayments are made if the borrower becomes unable to afford them, perhaps due to unemployment, sickness or injury. The whole scandal around PPI was that it was just added to people’s loans whether they would have been eligible to make a claim or not.

ASU income insurance is designed to protect your income and ability to pay your credit commitments and your life costs, such as food, bills, utilities and childcare. A valid claim on ASU insurance gives you a monthly, tax-free percentage of your income(https://www.gov.uk/income-tax)- allowing you to distribute it accordingly.

What does it cover?

All types of income protection insurance allow you to protect your ability to meet financial commitments in the event you’re unable to work and earn your usual income due to illness, accidental injury or unemployment. Financial commitments income protection insurance can cover include:

  • Salary
  • Mortgage or rent payments
  • Loan payments
  • Credit card repayments
  • Daily living costs
  • Other financial commitments

Some insurers allow you to protect up to 70% of your gross salary. It’s important to remember that income protection doesn’t cover life-threatening illness or death, to be insured for this you’ll need to consider critical illness insurance or life insurance.

What doesn’t it cover?

ASU and MPPI doesn’t cover everything, things that an insurance policy doesn’t cover are often termed ‘exclusions’ and it’s important to check your insurance policy to be sure your concerns don’t fall under an exclusion before purchasing it. Exclusions could include but are not limited to:

  • Pre-existing conditions
  • Critical illness
  • Some policy covers mental health, some policy excludes it. If this is something that is relevant to you it’s worth double checking whether the insurance you’ve chosen covers this
  • Normal pregnancy
  • Specific policy exclusions
  • Voluntary redundancy
  • Voluntary resignation
  • It’s essential to thoroughly check the policy of income protection to be sure that it covers the types of illness, injury or unemployment situation you might be concerned about.
  • If it is known that you may be at threat of redundancy prior to taking out the cover

Also, there is often an initial Exclusion Period or Waiting Period see below.

How soon am I covered by income protection insurance after taking it out?

Your cover starts as soon as your application is accepted, and your policy begins. Don’t forget though that your policy will more than likely include a ‘waiting period’ meaning you won’t be able to make a claim before a specified time has passed. This is normally 3 to 6 months where no claim can be made. This is to protect the insurer against large scale claims if many applicants may know that that their company could be laying people off or an applicant feels that they may have a serious illness before taking the cover. Once you have paid premiums beyond the initial “exclusion period” then you will be covered.

To find out how to get cover as soon as possible, speak to one of our specialist advisors.

You may also choose a “deferred period”, this would mean if you made a valid claim, you’d wait a period before payments would begin. You may think that you want cover immediately, however the sooner the payments are made the higher the premium, so applicants may choose a deferred period to bring down the monthly premium. You can usually select deferred periods from 4 weeks to 12 months- the longer the deferred period the lower the premium. You can sometimes opt for “back to day one” cover. This would mean that if you chose a 30-day deferred period with back to day one cover, on the 31st day, a claim payment would be made covering the period going back to day one of your claim.

It is important to understand that most MPPI and ASU insurance products go through the full underwriting process to check eligibility at the point of claim and not at application.

Can I take out long-term income protection?

Simply put, yes- but this falls into a separate category and does not include unemployment or redundancy cover. Known as Permanent Health Insurance or PHI, this is underwritten at the point of application and covers you for long term sickness or accident. You can select an end date of the cover up to your retirement age and cover up to a maximum of 70% normal take home pay minus State Sickness Benefit.

For this type of cover you would go through a full underwriting process, but once cover is given by the insurer it won’t be withdrawn or changed (even due to new health conditions)- providing you keep up your premium payments. It is worth noting application may be declined if you have a serious medical condition or have a high-risk occupation, but this can be discussed with an adviser before you apply. You will need to think about some of the points listed below, all of which will have an influence on premium prices. See more about how much income insurance will cost?

  • Employment type– many insurers will put you into a risk category according to your type of employment. For example, a low risk profession, like an office administrator might have lower premiums than a high-risk profession, like a construction worker. This is because a person in a high-risk profession is more likely to make a claim on their income protection than someone in a low risk profession.
  • Age – you can apply from 18 years year old, most insurers let you apply up to 60 but this is increasing with some insurers as people are working for longer.
  • Family medical history – insurers will want to know what your family medical history is to get a better idea of what kind of insurance they can offer.
  • General health
  • Whether you’re a smoker
  • Amount you want to cover– this will affect your premiums so insurers will want to know how much you want to protect in the event of your inability to work.
  • Deferral period– the amount of time you must be off work before receiving payments. A longer waiting period is likely to have lower premiums as opposed to a shorter waiting period, but it’s worth checking to see how much cover you might want and how soon before choosing an income protection insurance plan.
  • Benefit payment period, with PHI policies you can set the benefit payment period per claim to be 1, 2 or 5 years, or full term- which means in the event of continuous claim the insurer would pay out until the policy end date.

Who might want a type of income protection?

Anyone who would struggle to live without their regular income earned from working should consider income protection. It’s not something that many people consider until the protection is needed, but being proactive and taking steps to prepare for the possibility of injury, illness and possible unemployment can help keep you and your family financially safe should need arise.

If you’re self-employed see here.

If you’re in part-time employment see here.

If you’re unsure, speak to one of our specialist advisors at Clever Mortgages to find out if income insurance is right for you.

I work part time. Can I still take out Income Protection Insurance?

You can take out the various forms of income protection described above with part-time work. Just like income protection with full-time employment, you can protect a percentage of your income when you’re in part-time employment with an income protection insurance policy, covering you in the event of sickness or injury.

If you’re in part-time employment and want to take out income protection insurance, get in touch with one of our specialist advisors at Clever Mortgages.

Redundancy and income protection insurance

Some income protection insurance policies protect against involuntary redundancy, ASU and MPPI being the most common as described above. You can’t insure against voluntary redundancy or leaving work by resignation, but you can put protection in place so that if you experience involuntary redundancy, you’ll be able to meet your financial commitments. You’ll still most likely have a waiting period, and the payments usually only last a set period, intended to keep your financial and living costs covered while you find a new source of income. Some policy also requires you to have held it for a certain length of time, the initial exclusion period, explained above before you can claim for involuntary redundancy, often around 3-6 months.

Please note that you can’t take out unemployment protection cover if you’re aware of a situation that could lead to you being made unemployed.

How much income protection cover can I get?

To find out how much cover you might want, you can calculate your essential monthly outgoings. This could be things like:

  • Mortgage or rent payments
  • Household bills. Think about your food shops, internet bills, telephone packages etc
  • Utilities. Your gas, electric and water bills will still need to be paid if you’re unable to work.
  • Childcare costs
  • Loan repayments
  • Credit card payments
  • Essential running costs

When you add up your living costs to figure out what income protection you could use, bear in mind some travel costs, work clothes and equipment, work lunches and other associated costs might be decreased or stop if you’re unable to work.

Once you have your total, check and see how much statutory sick pay you’re entitled to or how much your employer will pay while you’re off work, then subtract this from your overall sum. This should give you an indication of how much cover you could use to keep paying your living costs in the event of being unable to work.

It’s important to remember that statutory sick pay only last 28 weeks, whereas some employer sick pay schemes can last up to 12 months so bear this in mind when choosing your cover. Your adviser will take this into account and discuss the best option.

Its also important to remember that the maximum cover you can obtain is 70% of your normal gross salary, and many insurers cap the total level of cover, which could be less than 70% depending on your salary.

How long does income protection pay out for?

This depends on the type of product you have and, with some policies, how long you choose when getting your quotation. If you make a valid claim on your income protection insurance, you could get payments until you’re well enough to return to work, unless you retire before that.

You can get long-term protection (see PHI see above) and short-term income protection insurance. Some plans will pay out until you retire, some will only last a few years, so it’s important to decide how much cover you might need and how long you might need it for.

You can also bring two options together, an ASU policy with a 12-month claim pay out period, dovetailed with a PHI policy with a 12-month deferred period and a full term pay out.

How many times can I claim?

With a traditional long-term income protection insurance policy, you can claim as many times as you need to while the policy is active.

How much does income protection cost?

The cost of your income protection will depend on the product you choose and a variety of factors -insurers will use many elements of your personal circumstances to calculate the premiums in your quotation.

  • Employment type– many insurers will put you into a risk category according to your type of employment. For example, a low risk profession, like an office administrator might have lower premiums than a high-risk profession, like a construction worker. This is because a person in a high-risk profession is more likely to make a claim on their income protection than someone in a low risk profession.
  • Age – you can apply from 18 years year old, most insurers let you apply up to 60 but this is increasing with some insurers as people are working for longer.
  • Family medical history – insurers will want to know what your family medical history is to get a better idea of what kind of insurance they can offer.
  • General health
  • Whether you’re a smoker
  • Amount you want to cover– this will affect your premiums so insurers will want to know how much you want to protect in the event of your inability to work.
  • Deferral period– the amount of time you must be off work before receiving payments. A longer waiting period is likely to have lower premiums as opposed to a shorter waiting period, but it’s worth checking to see how much cover you’ll need and how soon before choosing an income protection insurance plan.
  • Benefit payment period, with PHI policies you can set the benefit payment period per claim to be 1, 2 or 5 years or full term, which means in the event of continuous claim the insurer would pay out until the policy end date.

Get in touch with one of our specialist advisors at Clever Mortgages to get a (free?) quote on your income protection insurance.

Self-employed income protection

If you’re self-employed, you don’t have access to statutory sick pay as you don’t have an employer and, without income protection insurance, would have to apply for ESA. https://www.gov.uk/employment-support-allowance) Because of how the new Universal Credit

system works, it’s likely you’d have to apply for that and claim ESA within Universal Credit. After completing an assessment, you’d be eligible for up to £73.10 a week if you’re in the work-related activity group or up to £111.65 a week if you’re in the support group (https://www.gov.uk/employment-support-allowance/what-youll-get).

If you’re self-employed, it’s advised that you consider income protection insurance to protect some of your income in the event of sickness or injury. Income insurance for self-employed workers usually offers cover for around 50%-70% of your income, just like regular income protection insurance.

Are you self-employed and want to protect your income? Get in touch with one of our specialist advisors at Clever Mortgages to take the first step towards protecting your livelihood.

Critical Illness Insurance

What is critical illness insurance?

Critical illness insurance is a type of protection insurance that provides you with a tax-free lump sum if you’re diagnosed with any of the injuries, illnesses or medical conditions covered in your policy. It’s designed to give you and your family peace of mind financially should you fall seriously ill or become injured and unable to work.

This insurance is not intended as a form of income- this is why it’s paid in a lump sum and not monthly or in instalments. However, the money can be used in any way you see fit, such as investing to provide a monthly income.

Read more here

How does critical illness insurance work?

You’ll need to figure out how much cover you’ll need and how long you want the policy term to last. So, you could decide to cover the cost of paying off your mortgage and a year or more of your salary while you recover or find alternate income. If you fall critically ill, injured or get diagnosed with a condition listed in your policy, you’ll get a one-time, tax-free lump sum of cash and then your policy will end.

Critical illness insurance is often sold alongside life insurance and they work in a similar way. See life insurance.

What illnesses are covered?

Different insurance providers have different policies that include or exclude certain medical conditions. Generally, most critical illness policy covers:

  • Some cancers
  • Heart attack
  • Stroke
  • Some organ failure
  • Multiple sclerosis
  • Major transplant surgery
  • Alzheimer’s
  • Parkinsons

You’ll do assessments to make sure your policy covers the illnesses or medical conditions you may be concerned about.

What isn’t covered?

Critical illness insurance doesn’t cover minor illness, injury, accidents or death. These scenarios are covered by income protection and life insurance.

There are also often exclusions to policy, which you’ll need to check before you take out your insurance. Sometimes you can add cover for certain medical conditions, sometimes they’ll be specifically excluded- it entirely depends on the insurance the provider offers.

It’s also worth noting most critical illness insurance only allows you to make a claim once your illness or medical condition reaches a certain point of disability or inability to work. There may also be a short processing period so it’s important to get in touch with your insurer as soon as you receive a diagnosis.

How much cover?

The amount of cover you might want will depend on what you want to cover should you fall critically ill. You should consider things like:

  • Paying off mortgage
  • Rent while arranging new income
  • Home improvements or adaptations, depending on how your needs may change
  • Paying household bills while arranging new income
  • Paying off debt
  • Covering medical bills or equipment

The cost of your insurance will vary with different providers, but insurers often look at:

  • Lump sum you wish to receive should you claim on your critical illness insurance
  • Term of insurance
  • Age
  • Personal medical history
  • Family medical history
  • Type of work
  • Whether you’re a smoker

This information helps the insurer decide how much your monthly premium should be.

Who might want it?

It’s a personal decision whether to take out critical illness insurance, many people don’t like to think they’d fall ill or become disabled, but if you have financial commitments that working enables you to meet, it’s important to consider what protection you have in place should you lose the ability to earn that income.

Unemployment benefits vary, but they rarely match a working salary. If you’re in a couple, and one of you is over 25, you’d be entitled to £498.89 for you both per month. A single person over 25 would be entitled to £317.82 per month according to the current universal credit figures. (https://www.gov.uk/universal-credit/what-youll-get)

Of course, these figures increase if you’re off work and claiming due to illness- but you have a waiting period with assessments, and you’re not guaranteed a higher rate of benefit. If you fall ill and have mortgage payments, a new need for medical equipment and home adjustments a lump-sum of cash could help tide you over until new arrangements can be made.

Life Insurance

What is life insurance?

Life insurance is a type of protection insurance that provides a lump-sum of cash to your family or loved ones in the event of your death. It can provide a peace of mind knowing your loved ones will be provided for, can help pay for funeral costs or could go towards pay off your mortgage. Whatever the use, it’s there to cover the ones you leave behind should you pass.

Read more here

Types of life insurance

There are several different types of life insurance, covering different periods of time and situations.

Term assurance
With term life insurance, you have life insurance for a set period. This means your insurance will only pay out in the event of your death during the term of your policy. If you out-live the term of your policy, you won’t receive any money or the return of your premium. This could be useful if you’ve got a set term on a mortgage, for example, and wanted to make sure it could still be paid off by your family in the event of your death.

There are three main types of term assurance insurance;

Level term: pays out a lump sum if you pass away within the term of your policy. The amount of money you insured for stays level- the same- throughout the term of your insurance. Even with a repayment (decreasing mortgage) often people take fixed lump sum of cover to build up a ‘surplus’ in cover.

Decreasing term: the lump sum paid in the event of your death decreases over time, this type of policy is often intended for debt that decreased over time- such as a repayment mortgage.

Increasing term: this type of term assurance means the amount of money you’re insured for increases over time, often to match inflation, so your beneficiaries can get the maximum payment possible within your policy should you pass away.

Family income benefit policy
Family income benefit works differently, this type of life insurance is essentially a replacement income for your family over a set period. So, if you took out family income benefit policy, with a pay-out of £3000 per month on a valid claim, with a term of 40 years and you passed away 20 years into your term, your family would receive a monthly payment of £3000 for 20 years (£720,000).

This policy is usually intended for families, if the primary earner takes out family income benefit policy and passes away within the term, it means the family can live as usual until another income is arranged or the term of the policy ends. If you pass away after the term of your policy ends, your family won’t receive any payment.

Whole of life policy
This type of life insurance means that your beneficiaries get a lump sum payment in the event of your death, regardless of when that might be. Unlike term assurance or family income benefit policy, whole of life insurance doesn’t have a set period that it covers, you’re covered for your whole life until you die, your insurance providers pay your beneficiaries the lump sum agreed and the policy ends.

How does life insurance work?

Similar to critical illness cover, you work out how much you would like to leave to your beneficiaries, decide the term of your policy and what type of life insurance would suit your situation best, and

take out a life insurance policy which you pay monthly premiums for. In the event of your death, your policy would pay out the agreed amount to your chosen recipients.

Life insurance if often sold alongside critical illness insurance. See critical illness insurance.

What does life insurance cover?

Life insurance protects your family financially after you pass away. It’s intended to provide financial security to your loved ones when they can’t depend on your income or salary anymore.

How much cover?

The amount of cover you might want will depend on what you want to leave your beneficiaries, it also depends on the period you want to be covered. You might want to consider thing such as:

  • Paying off mortgage
  • Replacing your salary for a period of years
  • Leaving a cash gift to loved ones
  • Covering your funeral costs

Deciding what you want to protect could give you an idea of what insurance you might want, whether you want term assurance to cover your salary for your family in the event of your death before retirement, or whether you might want to leave a legacy to your family regardless of when you pass – figuring out what you want from your policy can help you find the right cover. If you’re struggling, you can always speak to one of our expert advisors to find out more.

The cost of your insurance will vary with different providers, but insurers often look at:

  • Lump sum you wish to leave
  • Term of insurance, if applicable
  • Term type- level, decreasing, increasing
  • Age
  • Personal medical history
  • Family medical history
  • Type of work
  • Whether you’re a smoker
  • Some policy requires you to disclose whether you take part in risky sport, if so, you might be charged more

This information helps the insurer decide how much your monthly premium should be. It’s also worth considering having your life insurance written in trust, if you have specific beneficiaries you wish to name. All life insurance policy can be written in trust, this lets you name your trustees and can offer protection from inheritance tax your life insurance pay-out wouldn’t be considered part of your estate.

Who might want life insurance?

If you have family, or dependants that rely on your income it’s worth considering protection insurance. You might also want to leave their loved ones a gift, help pay for funeral costs or make sure your family is financially secure in the event of your death.