Young homebuyers happy to forgo financial protection

Despite rising interest rates, one in six (15%) young adults (under 35) in the UK would be happy to take on a mortgage of four or more times their annual wage and 30 per cent are clear they would forego financial protection insurance in favour of the largest mortgage they could borrow. This is according to new research from LV= which today urges homebuyers to think about whether they could continue to meet their mortgage repayments in the event of long-term illness or injury.

Overall, the vast majority of people (87%) claim they would restrict their mortgage borrowing to no more than four times their salary, with a prudent 58 per cent seeing three times their income as their limit. However there is also a marked generation gap with regards to borrowing. Young people have a readiness to ‘borrow big’, with five per cent happy to stretch to more than five times their income, whilst just one in ten (13%) adults over the age of 35 say they would stretch beyond four times their income.

Nigel Snell, Communications Director at LV= said: “Home-owning has long been a national passion, and one which continues to cascade down the generations; but what concerns us is just how many younger buyers are prepared to stretch themselves well beyond traditional lending limits without arranging adequate financial protection. These were hypothetical responses and we fear that, under genuine pressure to realise their home-buying dreams, many more buyers will choose to walk the mortgage highwire without a financial safety net.”

Regional Variations

Regionally across the UK the research shows that people in Northern Ireland are the most risk conscious, with four out of ten consumers (44%) stating that they would take out Income Protection cover to cover the monthly cost of their mortgage, followed by homebuyers in East Anglia (38%) and Yorkshire (32%). Consumers in Scotland (28%), Wales (29%) and the South East (25%) are least likely to take out cover.

A major barrier towards taking out protection seems to be uncertainty about how much it costs. The research shows that over a third of people’s (38%) decision to take Income Protection cover is based on how much it would cost. However, a 30-year old non-smoking woman taking a mortgage of £187,048 with a monthly repayment of £1,252 would pay a monthly premium of just £19.53 for Income Protection insurance, if she could not work due to long-term illness or injury. Based on monthly benefit of £1,252. This is an example only, as premiums will vary depending on personal circumstances.

The survey from the UK’s largest friendly society also discovered that:

Women seem the more safety-minded sex. Only 11 per cent say they would borrow more than four times their income, compared to 15 per cent of men, while a fifth (21%) of female respondents ruled out insurance to cover their mortgage repayments compared with over a quarter (27%) of men.

21 per cent of respondents in the South East would stretch to more than four times their income, compared to the national average of 13 per cent, and one in four in the South East (28%) would rule out taking financial protection for their mortgage altogether.

Overall, a quarter (27%) of people say they would definitely take out protection insurance.

Nigel Snell continued: “A looser set of borrowing habits is taking root among younger generations of home-buyers. We understand the pressures and realities of today’s housing market, but we urge young families and individuals to think very carefully before deciding to omit financial protection from their home-buying process.”