The director of British Money, which provides independent mortgage protection policies, said he believed the FCA and PRA should address the issue as a lack of protection posed a significant risk to householders.
He said: “Out of the 1.2m or more households given lender funding last year, we have found that 96 per cent will have no financial support mechanism to ensure continuity of mortgage payments if an income goes due to redundancy or illness.”
Mr Burgess said that under the FCA’s Mortgage Market Review guidelines, lenders are required to undertake stringent affordability tests to assess borrowers’ abilities to repay their mortgages, before funds are released.
He asked: “Why are similar checks not undertaken to assess how repayments will continue to be made if a salary stops?
“Stress-testing against income loss is equally important when assessing affordability, and I am appalled both regulatory bodies do not consider this a priority.
“My repeated requests to include financial protection within affordability testing guidelines have been met with ‘I can’t make rules’ or no response at all from representatives of the FCA. In an equally non-committal stance, the PRA advised it was a ‘conduct and not a prudential matter’.”
A spokesman for the FCA said: “The MMR aims to ensure that consumers get a mortgage they can afford; this means lenders will be looking carefully at their financial situation before agreeing a mortgage.
“Ultimately it is a personal decision for the consumer to decide whether they need the extra cover provided by a financial protection plan, and the FCA is not doing anything to prevent this. The decision to sell these plans is a commercial one.”
Adviser view
Colin McCallum, founder of Heritable Financial Planning in Edinburgh, said: “Lenders need to make lending decisions on the basis that buyers will be able to continue their level of income. Clearly that does not always happen, but if the checks proposed were introduced, no one would get a mortgage.”
