The Financial Conduct Authority (FCA) has identified a lack of protection cover and older borrowers on interest-only mortgages as two potentially harmful issues for consumers.
The regulator has warned that a significant proportion of mortgage borrowers aged between 35 and 44 with a mortgage and/or financially dependent children do not have protection cover that would help pay their bills if they couldn't work.
It has also pointed out that one in seven people (15 per cent) would struggle to pay their mortgage if repayments went up by less than £100 per month.
The regulator has flagged up high levels of interest-only mortgages among people between 45 and 54 as a further cause for concern.
Interest-only mortgages – where the borrower only has to repay the interest and makes their own provision for capital repayment – are held by 15 per cent of people in this age bracket.
The findings are presented in a paper titled Understanding the financial lives of UK adults, published today (Wednesday, 18 October).
It is based on a survey of 12,865 people covering all demographics.
Alan Lakey, partner at Hertfordshire-based Highclere Financial Services, said advisers needed to be prepared to make the case for protection up-front.
He said: “Look at the outcome. If you die, what is the outcome? That is the sort of conversation you need to have.
“My first question is ‘what are you trying to achieve?’ My second is ‘are you trying to protect the mortgage against ill health or premature death?’ I want a commitment from people. If you leave it until after the mortgage has been arranged, it is an afterthought.
“While I have them in front of me, or on the phone, I have the conversation at the outset.”
Mr Lakey pointed out that mortgage lenders used to insist that borrowers take out life insurance; he also said we live in a culture where people want things immediately and are unwilling to look at products like protection.
His views were echoed by Martin Stewart, director at London Money, who said: “When I started, it was mandatory that people had a life insurance plan when they took out a mortgage. That would be a start.
“[Even if they had] 15 kids some people might rather spend £120 a month on a Sky package than a protection package. How you address that I don’t know. Unfortunately, people see more value in material things than their own mortality.”
But he also suggested insurance providers could play a role by making products simpler and cutting underwriting times, as policies sometimes take longer to put in place than a mortgage.
David Hollingworth, associate director, communications at London and Country, said: “Protection is one of those things where we have to keep plugging away about what the benefits are going to be, and the point of taking a mortgage will be a crucial trigger for that.”
On interest-only, he added: “I think it is important to maintain the communication that lenders are required to do with borrowers that it is their responsibility to repay that.