Gregor Watt looks at the plight of people stuck in rental property and the importance of having protection.
Despite
the launch of Help to Buy 2 and the general pick-up in the mortgage
market, many people are either stuck in rental property or are choosing
to rent rather than buy.The strong historical link between house purchases and protection sales means that this section of the population is harder to reach for protection sales, leaving many renters financially vulnerable if they are unable to work.
LV= head of protection Mark Jones says: “It’s important to realise that renting does come with certain pitfalls that often aren’t signposted. When buying a property, you are encouraged to take out an insurance policy to guarantee repayments in the event that something happens to the mortgage payer. No such prompt exists in the rental market.”
With the cost of rent increasing and general price inflation continuing to outstrip wage inflation, renters are under similar financial pressures as homeowners.
Although Help to Buy will help people borrow more money, the lack of new property being built means the supply of new homes is still far short of demand. The Council of Mortgage Lenders says the number of new properties being built is currently around 110,000 a year but this is some way short of the 232,000 new households the Government says are looking for housing every year.
This shortage has caused a rise in the cost of renting in recent years.
According to LSL Property Services, the cost of renting in the UK hit an all-time high last month, with the average monthly rent hitting £757 a month, up by 2 per cent since this time last year.
This figure disguises some sharp regional variations, with rents in London up by 4.4 per cent on a year ago, while the East of England has seen an increase of only 0.8 per cent.
LSL Property Services commercial director David Brown says: “A new peak in tenant demand has driven rents to new heights, well above all previous records. Higher rents in almost every region show that, despite Government schemes, buying a first home is still a difficult aspiration. This is not only down to low salary growth but also a general shortage of supply – which is the underlying reason why homes are getting more expensive.”
Housing is the single biggest monthly expenditure for many people. LV= says rent accounts for 39 per cent of monthly expenditure on average, rising to 44 per cent in London and the South-east.
Jones says: “We know that one-third of Brits currently rent and that 65 per cent of these people have no insurance in place. This would leave a huge number of people in the UK in a vulnerable position if they found themselves unable to cover their rent and living expenses.”
The high cost of buying a house is also changing people’s attitudes to buying property. Figures from the Office of National Statistics show that the percentage of people who own their own home has fallen back to 64 per cent from a peak of 69 per cent in 2001.
Earlier this year, the Halifax reported that 21 per cent of 20 to 45-year-olds had given up on owning their own homes, rising to 45 per cent of over- 45s but this drop in home ownership does not mean that this growing section of the public do not have the same protection needs as homeowners.
Expert view: We must do more to persuade renters of their protection needs
Ian Smart, head of product development & technical support, Bright Grey
With all the activity around the increase in first-time buyers, it would be easy to forget about generation rent – those people who will continue to rent for years to come, either through choice, because they enjoy the flexibility of renting or because they are struggling to afford a first-time buyer deposit.
According to research from Castle Trust, more than six out of 10 tenants believe they will never get on the property ladder. High property prices and stagnated earnings mean that many young people will spend their twenties and thirties in the rental market. It also means that the need to have protection insurance may not occur to them until they are much older.
But not having a mortgage does not mean protection needs should be ignored. Tenants have monthly rental payments. They have to pay for food, gas, electricity and council tax. If they lost their job due to an accident or serious illness, how would they survive financially?
The need to protect themselves against unforeseen circumstances such as these is just as important for people renting as it is for homeowners. While life insurance may not be appropriate for someone who does not have a mortgage or dependents, income protection is.
The recent focus on income protection has seen more providers improve their proposition to cover as many people as possible under an own-occupation definition. This will make it easier for consumers to claim and will ultimately increase consumer confidence in the product and make the case for taking out income protection an even stronger one.
However, more work needs to be done to persuade those people who are renting, that protection insurance is not something to be taken out only when they have
a mortgage.
Many renters will be saving hard for a deposit to buy their own home and this means money will be tight. But ironically this is all the more reason to take out
a protection product.
It would be awful to see the deposit they had worked so hard to save for disappear because they had to use the deposit money as a financial buffer.
Posing pertinent questions, albeit uncomfortable ones, will open people’s eyes to the potential consequences of not having a financial safety net in place. It is natural that clients will want a cost-effective option and taking into account all the solutions such as deferred periods or shorter payout terms can get around the issue of price.
Ultimately, individuals need to be responsible for protecting their incomes against illness or disability. It is unrealistic to rely on the state, especially with all the changes and cuts to welfare spending by the government.
Taking out a mortgage may be the number one trigger for people to sort out their protection needs but we need to switch people on to the need for protection well before then.
With all the activity around the increase in first-time buyers, it would be easy to forget about generation rent – those people who will continue to rent for years to come, either through choice, because they enjoy the flexibility of renting or because they are struggling to afford a first-time buyer deposit.
According to research from Castle Trust, more than six out of 10 tenants believe they will never get on the property ladder. High property prices and stagnated earnings mean that many young people will spend their twenties and thirties in the rental market. It also means that the need to have protection insurance may not occur to them until they are much older.
But not having a mortgage does not mean protection needs should be ignored. Tenants have monthly rental payments. They have to pay for food, gas, electricity and council tax. If they lost their job due to an accident or serious illness, how would they survive financially?
The need to protect themselves against unforeseen circumstances such as these is just as important for people renting as it is for homeowners. While life insurance may not be appropriate for someone who does not have a mortgage or dependents, income protection is.
The recent focus on income protection has seen more providers improve their proposition to cover as many people as possible under an own-occupation definition. This will make it easier for consumers to claim and will ultimately increase consumer confidence in the product and make the case for taking out income protection an even stronger one.
However, more work needs to be done to persuade those people who are renting, that protection insurance is not something to be taken out only when they have
a mortgage.
Many renters will be saving hard for a deposit to buy their own home and this means money will be tight. But ironically this is all the more reason to take out
a protection product.
It would be awful to see the deposit they had worked so hard to save for disappear because they had to use the deposit money as a financial buffer.
Posing pertinent questions, albeit uncomfortable ones, will open people’s eyes to the potential consequences of not having a financial safety net in place. It is natural that clients will want a cost-effective option and taking into account all the solutions such as deferred periods or shorter payout terms can get around the issue of price.
Ultimately, individuals need to be responsible for protecting their incomes against illness or disability. It is unrealistic to rely on the state, especially with all the changes and cuts to welfare spending by the government.
Taking out a mortgage may be the number one trigger for people to sort out their protection needs but we need to switch people on to the need for protection well before then.
Article Source: http://www.moneymarketing.co.uk/news-and-analysis/protection/lack-of-protection-leaves-generation-rent-vulnerable/2001906.article
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