In recent years, the world has faced unprecedented challenges, including the Covid pandemic, rising inflation, an unstable housing market, soaring energy costs, petrol prices, and higher borrowing costs. Homeowners globally have had to develop resilience, acquire new skills, and seek support to navigate these turbulent times.
During periods of financial strain, such as the past few months, it is tempting to cut back on non-essential expenses without fully understanding the long-term implications and potential risks. This is particularly true for life insurance, which covers one of the most significant financial commitments for families—their mortgage. Paradoxically, the same factors that add financial pressure also increase the financial distress for a family in the event of an unexpected premature death. Recent studies from the Office of National Statistics indicate that mortality rates post-Covid have remained significantly above the long-term average across all age groups.[1]
Our latest study, titled The Mortgage Cover Gap, examines the extent of financial exposure among mortgage holders who lack life insurance protection. The findings highlight a clear gap in the market, with over £400bn of mortgage debt in the UK at risk (in the event of premature death) due to the absence of life insurance coverage. This research underscores the urgent need within the industry to raise awareness and educate homeowners about the importance of financially safeguarding themselves and their families. Any further financial instability, such as the loss of a loved one and a second income, can tip the financial balance beyond recovery.
The scale of the problem
Analysing the problem regionally, we observe varying levels of mortgage risk across the UK. Rising cost pressures affect the entire country, but the cost-of-living crisis is exacerbating inequalities, with cities outside the South experiencing higher rates of inflation and tighter household finances. Notably, northern cities face up to 30% higher inflation due to factors like poor insulation and car dependency.[2] Additionally, eight out of ten cities with the highest energy costs are in the North, Midlands, and Wales.[3] Nevertheless, contrary to assumptions that areas outside of London and the Southeast are more financially exposed due to lower salaries, the real measure of “Mortgage Affordability” risk lies principally in the relationship between average mortgages and average salaries in each region of the country. Measures of affordability are in fact more favourable in areas outside London and the Southeast. London and the Southeast alone account for a combined mortgage debt of £168m, whereas the Northeast of England has an estimated mortgage debt of £10.8m.
The decline of real wages
The decline in real wages exacerbates the situation further. Government figures reveal a substantial decrease in wage growth in October to December 2022, with total real pay falling by 3.1% and regular pay by 2.5%—the sharpest decline since comparable records began in 2001[4]. Simultaneously, consumer goods and service prices have risen at the fastest rate in four decades, adding to the financial burden[5]. Many individuals are simply trying to weather this wave of economic uncertainty. Given the alarming number of mortgage holders without life insurance protection, it is high time for life insurance brokers, vendors, and the wider industry to redouble their efforts to help homeowners face this potential threat. Even greater collaborative efforts are needed to help life insurance intermediaries and brokers guide customers in obtaining the appropriate level of life insurance coverage to mitigate their financial exposure.
The traditional family has evolved
The modern family structure has significantly evolved over the years. Today, insuring a single life may not offer adequate protection, as both parents are often employed in nearly three-quarters of couple families[6]. There is greater equality in the amount of time each parent works. Self-employment has also risen, posing additional risks without the employer contributions that support savings and pension provisions. Thus, ensuring both lives are covered by sufficient insurance is imperative in today’s typical household.
What can be done?
Promoting the affordability of life insurance among mortgage holders – especially younger cohorts – not only informs and empowers a potentially vulnerable consumer group but also offers substantial coverage when needed. For instance, a young person with a family can obtain life cover of £200,000+ for around £10 per month (based on a 30-year-old non-smoker with £225,000 decreasing term cover for 20 years). This amount is comparable to a basic mobile phone contract.
The implementation of the Financial Conduct Authority’s new Consumer Duty initiative, effective from July 31st, will generate confidence in the life insurance industry which is likely to promote greater uptake of life insurance coverage. Furthermore, the increasing popularity of life cover offered by businesses as an employment perk could also contribute to shifting the needle.
Building a strong partnership between brokers/intermediaries and mortgage owners requires mutual understanding. It starts with recognising the factors that influence life insurance protection and the risks associated with not having adequate coverage.
This collaboration empowers those who are most in need to understand and prioritise their financial commitments, ultimately securing their families’ financial future. Our latest report reveals the sheer scale of exposure where mortgage holders have not taken out insurance to cover the debt and offers breakdowns of the level of risk regionally.
To access a copy of the report please click here.
Mark Mullaney is head of partnerships & distribution at Beagle Street
[1] Office for National Statistics. (2023). Excess deaths in England and Wales: March 2020 to December 2022. https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/ articles/excessdeathsinenglandandwalesmarch2020todecember2022/2023-03-09
[2] Centre for Cities (2022). Cost of living crisis deepening inequalities across Britain. https://www.centreforcities.org/press/cost-of-living-crisis-deepening-inequalities-across-britain/
[3] Centre for Cities (2022). Cost of living crisis deepening inequalities across Britain. https://www.centreforcities.org/press/cost-of-living-crisis-deepening-inequalities-across-britain/
[4] Office for National Statistics. (2023). Average weekly earnings in Great Britain: February 2023. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/february2023
[5] Office for National Statistics. (2023). Cost of living latest insights. https://www.ons.gov.uk/economy/inflationandpriceindices/articles/costofliving/latestinsights
[6] Office for National Statistics. (2022). Families and the labour market, UK: 2021. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/familiesandthelabourmarketengland/2021
