What to do if you’re declined mortgage protection - Today with Claire Byrne

Image What to do if you’re declined mortgage protection - Today with Claire Byrne

Daragh Cassidy, Head of Communications at bonkers.ie, appeared on Today with Claire Byrne to discuss what to do if you’ve been refused mortgage protection insurance.

Mortgage protection insurance is a form of life insurance that is required by law in Ireland ​​for all mortgage holders. However, some people with an ongoing illness or who have suffered from poor health in the past can struggle to obtain mortgage protection insurance.

Listen back to the interview above or take a look at the main questions answered by Daragh below. 

How common is it for people to be refused mortgage protection?

It’s not hugely common, but unfortunately, it does happen and we’ve heard stories about it happening.

It’s important to remember why we need mortgage protection. It’s there to pay off the outstanding balance on the mortgage if you die before the loan has been repaid. In many ways, it’s there to protect the bank.

There are three exceptions when mortgage protection isn’t needed:

  1. You don’t need mortgage protection if you’re over 50 years old.
  2. You don’t need mortgage protection if you’re buying a home as an investment property.
  3. If you can prove that you’re uninsurable, you also shouldn’t be required by your lender to have a mortgage protection policy in place.

Usually if you get three refusals from three different mortgage protection providers because of your past health history, your lender is allowed to give you the mortgage without you having the mortgage protection.

Sometimes this doesn't happen though and the lender can still refuse to give people the mortgage. This may be where the legislation may need reviewing or tightening up.

Are lenders permitted to withdraw the loan offer?

Yes, they are. Under the 1995 Consumer Credit Act lenders are required to ensure borrowers have mortgage protection insurance in place. Interestingly this does not exist in some other jurisdictions.

In the vast majority of cases in the UK, mortgage protection isn’t needed. 

Even though the intentions in Ireland are good, the rules can be a bit strict. We sometimes see situations where people have worked hard, saved for a deposit and received mortgage approval, but then at the last minute, they’re being refused mortgage protection, which puts everything in jeopardy.

What are the options if you’re refused mortgage protection?

There are a number of things people can do.

Get a second opinion

Firstly, get a second and third opinion. Many people still assume that they have to take out mortgage protection with their mortgage lender but you’re actually free to take out a policy with whoever you choose. 

You can also go to a broker, who can talk to more insurers on your behalf. Different insurers may view past illnesses differently, so it’s worth getting another opinion.

Understand why you were refused cover

Secondly, you should try to clarify the reason for the refusal. Ask probing questions as to why you’ve been refused cover and find out how long you’ve been refused cover for. It may be a flat-out refusal or the insurer may reconsider in the near future. 

You may be refused because of a chronic illness, such as MS, and unfortunately, your circumstances won’t change. If your refusal is due to a high BMI, high blood pressure or recent surgery, the insurer may agree to review your case again in 6-12 months.

Negotiate a deal

You can also try to negotiate. A mortgage protection policy should be for the same length as the term of the mortgage. So, if your mortgage is taken out for 30 years, then your remortgage protection policy should also last 30 years. 

Sometimes if you’re finding it difficult to get cover, a lender may accept a shorter term, such as a 10 or 20-year policy. If you can get a 20-year mortgage protection policy, try and see if you can then also repay the mortgage back over 20 years as well, instead of 30 years. 

This might be difficult as it means your payments will go up and your lender might not allow it, but always try to negotiate.

Do insurers have to tell you their reason for refusal?

They do, but it mightn’t necessarily be upfront. If you ask, they should be able to give you a more detailed reason so that you know why you’ve been refused and what you can do going forward. 

Will mortgage protection always be more expensive for someone with a past illness?

If you do have a past or ongoing illness and do manage to get mortgage protection insurance, you’ll likely be paying a lot more than what’s standard. This is called a loading. 

How much extra you’re charged will vary from person to person. A loading can be 20-30% extra, but it can also sometimes be double or triple. Smokers will also pay a loading on their premium as well. 

The Government should look at this more closely and they could step help in instances where refusal has been given three times and then underwrite the mortgage protection policy. 

No one should not be able to get a mortgage because they couldn’t get mortgage protection approval, it’s very unfair.  

If you’re buying a property with a partner and one person is refused mortgage protection, can you go ahead with the loan?

You can sometimes, it depends on the lender in question and the income of the person who can’t get it. If the breadwinner can get mortgage protection cover but the other person can’t then you can likely go ahead with the mortgage. 

If you’re looking to take out a joint mortgage protection policy then it could complicate things.

Are there any insurers who will take a risk on people?

There are. Some of them are based in the UK, there’s not so many in Ireland. Insurers here are getting a little better and are becoming more open-minded by taking into consideration new medication, etc. 

If you’re refused here you could look abroad, but you might not get a policy to cover the entire term of the mortgage. However, the bank may be more lenient if you have some cover in place.

Are there lenders who will allow you to borrow if you prove you’re uninsurable?

Technically they all should. As long as you have proven you can repay the loan and you’ve passed the financial underwriting, medical underwriting shouldn’t impact the approval. 

However, this depends and can vary on a case by case basis.

Why do over 50s not need mortgage protection?

If you have a mortgage already by the time you turn fifty, you’ll still need your mortgage protection in place. 

If someone only tries to take out a mortgage when they’re 50 or 60, they’ll likely struggle to obtain mortgage protection. This is because unfortunately, we all get a little less healthy as we get older.

This highlights another issue, which is that the average age of first-time buyers is getting older. People used to buy homes at 26 or 27 and would have no issue getting mortgage protection. Now that age has crept up to 35 or 36 and it’s likely more people will start to struggle to get mortgage protection as they’re a little older and a little less healthy. 

Compare mortgage protection on bonkers.ie

If you’re applying for a mortgage and are looking for mortgage protection, you can compare mortgage protection insurance prices on bonkers.ie.

Our service lets you compare prices across all of Ireland's leading mortgage protection insurance providers. You'll receive a quote in just minutes and you could get cover in less than 1 hour!

Don’t forget that you’ll also need home insurance to draw down your mortgage, but don’t worry, we can also help with that! Head over to our home insurance page to get a discounted quote today.

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Discover more about mortgage protection

We know how important it is to be fully informed when making decisions about insurance, so we’ve compiled a list of articles related to mortgage protection insurance that you may find helpful:

You can easily stay up to date on the latest insurance news and advice with our blogs and guides

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