Finance and protection
Buying a home often involves taking on significant financial commitments. Understanding the mortgages, insurance and protection products that may be relevant during the home-buying journey can help consumers manage risks and make informed decisions, with access to further information and support where needed.
Financial Products
When buying a home, there are several financial products that can help protect both your property and your finances:
Mortgages
A long-term loan used to buy a property, usually repaid through monthly payments, with different products and interest rates to consider before choosing one
Building insurance
Helps cover the cost of repairing or rebuilding your home if it is damaged and mortgage lenders usually require it from exchange of contracts
Contents insurance
Helps protect your belongings inside the home by covering replacement costs if they are damaged, destroyed or stolen. While not usually required by mortgage lenders, it can provide valuable financial protection
Pure protection insurance
Long term insurance products designed to support individuals and/or their dependants financially if the policyholder dies, becomes incapacitated, injured or seriously unwell
What are the risks associated with mortgages?
Buying a home is often the largest financial commitment a person will make. A mortgage is a long-term loan that must usually be repaid over many years, and there are risks that could affect a person's ability to make those repayments.
Some of the key risks include:
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Loss of income through illness or injury – Ill health or an accident could make it difficult to meet mortgage payments
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Death of a borrower – Surviving family or joint borrowers may struggle to continue repayments
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Serious illness – A serious medical condition increase costs and may reduce a person's ability to work and their income
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Changes in personal circumstances – Relationship breakdown, caring responsibilities or financial pressures could affect affordability.
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Rising mortgage costs – Interest rate increases can raise repayments on variable-rate mortgages
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Risk of arrears and repossession – Persistent missed payments could lead to lender action and, ultimately, repossession
How can these risks be mitigated?
While no financial product can remove these risks entirely, protection insurance is one way to help reduce their financial impact and provide greater security for homeowners and their families.
Life insurance
can pay a lump sum if the policyholder dies, helping repay the mortgage and support dependants
Income protection insurance
can provide regular income if illness or injury prevents someone working, helping cover mortgage and household costs
Critical illness cover
can pay a lump sum after diagnosis of a specified serious illness, helping with mortgage repayments, lost income or other commitments
Protection needs vary by individual circumstances, including age, employment, family situation, savings and financial commitments. Considering these risks early can help buyers make informed decisions about protecting themselves and their families.
If taking out a policy, buyers should also consider who should receive any payout and how, such as by nominating beneficiaries or placing the policy in trust. An insurance broker can advise on these arrangements.
Who might need to consider protection products?
Anyone taking on a mortgage or other significant financial commitments when buying a home may wish to consider whether protection products are right for them.
Protection products may be especially relevant for:
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First-time buyers, who may have limited savings and are taking on their first major financial commitment.
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Families and couples with shared financial responsibilities, where the loss of one person's income could affect the household's ability to meet mortgage repayments and other essential expenses.
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People with dependants, who may want financial support to be available for their family if they die or become unable to work.
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Self-employed people, who may not have access to the same sick pay or employment benefits as employees.
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Single homeowners, who may not have another income to rely on if they become ill or unable to work.
Protection products are not necessary or suitable for everyone, but they can help some people manage the financial risks associated with homeownership.
Financial products across the home buying journey
Financial products are relevant at different stages of the home-buying journey.
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Before searching, buyers may explore mortgage options and obtain a Decision in Principle to understand borrowing levels and likely repayments.
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During the mortgage application, they choose a product, complete affordability checks and may consider protection products such as life insurance, critical illness cover and income protection.
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Once a mortgage offer is received, buyers can review their protection needs and arrange buildings insurance, which lenders usually require before exchange.
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Near completion, they may arrange contents insurance and ensure any protection policies are in place before repayments begin.
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After moving in, homeowners should regularly review their mortgage, insurance and protection arrangements, especially after major life changes.
Throughout the process, lenders, advisers, conveyancers, insurers and other property professionals can signpost buyers to relevant information and support informed decisions.
Rules and Regulations
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The sale of mortgages, buildings insurance, contents insurance and pure protection products is regulated in the UK by the Financial Conduct Authority (FCA), which required firms to treat customers fairly and provide clear information to support decision making.
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Mortgages are primarily governed by the FCA's Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) and cover areas such as mortgage advice, affordability assessments, disclosures and the treatment of customers throughout the life of the mortgage.
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Buildings insurance, contents insurance and pure protection products (such as life insurance, critical illness cover and income protection insurance) are primarily governed by the FCA's Insurance Conduct of Business Sourcebook (ICOBS). These rules require firms to provide clear and fair information, assess customer needs where appropriate, and ensure customers are treated fairly throughout the sales and claims processes.
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Firms selling or administering these products must comply with the FCA's Consumer Duty, which requires them to deliver good outcomes for retail customers and communicate information in a way that consumers can understand.