By Simon Halifax, senior marketing consultant
For a few years now, mortgage advisers have probably been warning their clients that there’s only one direction that the interest rate is going and that’s up (well, I know mine has!). However, the financial landscape changed when the UK voted to leave the European Union last month and it wasn’t surprising when the Bank of England reduced the interest rate to 0.25 per cent the other week.
Naturally, this was not good news for savers but it will have been taken slightly better by those who are borrowing money. And in the UK there are quite a few of us, with the mortgage being by far the biggest debt taken on by the majority of households. There are an estimated 9.3 million households in the UK with a mortgage and the typical amount left to pay is £116,000*.
A case study
Looking at current house price data, we can calculate that a 0.25 per cent cut means roughly a £20 reduction in the monthly mortgage bill based on a 25-year variable repayment mortgage of £143,500, which is currently the average loan amount for a new mortgage. Now an extra £20 a month doesn’t sound very much – what does that buy you these days – two cinema tickets, a few drinks at the pub?
But if we link this extra cash back to the mortgage, and how we could be protecting it should something drastic happen, then that £20 could come in very handy indeed.
For example, depending on individual circumstances £20 a month could buy a family around £220,000-worth of life cover**. This would be more than enough to cover the typical mortgage loan shown above, as well as a bit extra to help with any other outstanding debts.
A conversation starter
There’s been more than enough coverage over the last few months about the EU and what the UK’s exit will mean, much of which is still unknown. But the potential short-term benefit of the interest rate cut could mean good news to many of your clients. Perhaps this could be the ideal time to revisit some of them, especially those on variable rates, to discuss their protection needs.
How we can help
We offer a range of tools, from sales aids to approach letters, which are specifically aimed at mortgage clients, as well as our range of calculators, including an affordability calculator.
This could be the ideal time to revisit certain mortgage clients to discuss their protection needs as they might find things a little bit easier with some extra cash in their back pocket.
*Source: Council for Mortgage Lenders
**Source: Royal London quotes, based on a healthy 34-year-old woman or a healthy 39-year-old man, both non-smokers.
