Protecting What Matters Most - Your Income The Safety Net You Didn't Know You Needed

When we think about buying a home, we tend to focus on the exciting parts: finding the perfect property, negotiating the best mortgage rate, and planning how we'll decorate each room. But there's a crucial conversation many of us overlook – what happens if our income suddenly stops?

Here's an uncomfortable truth: most of us don't actually know how long our employer would continue to pay us if we became unable to work due to illness or injury. Have you checked your contract recently? The answer might surprise you.

Meet Adam and Sacha

Let's look at a typical scenario through the eyes of Adam and Sacha, a young couple who've just found their dream first home in a quiet suburb for ￡350,000.

Adam works as an accounts assistant at a small local accountancy firm, while Sacha is a trainee solicitor at a high street legal practice.

They're excited about their future, with a combined income that comfortably covers their new ￡1,595 monthly mortgage payment (fixed for five years) plus their other living expenses. They’ve calculated that they need a minimum of ￡2,800 per month to maintain their lifestyle.

But there's something neither of them has considered – their employer's sick pay policies:?

• Adam is entitled to just 4 weeks of full sick pay before reverting to Statutory Sick Pay (SSP)
• Sacha has a slightly better arrangement with 8 weeks of full pay before dropping to SSP

And what is SSP? Currently just ￡116.75 per week – significantly less than either of them earns normally.

When Life Takes an Unexpected Turn

Six months after moving in, Adam gets the devastating news that he has cancer, meaning he’ll need extensive treatment and rehabilitation. Doctors estimate he could be unable to work for at least 12-18 months.

Let's examine how this situation might unfold under two different scenarios:

Scenario 1: Without Income Protection?

Month 1: Adam receives his full salary while undergoing initial treatment. The couple manages to pay their mortgage and bills without much difficulty.

Month 2: Adam's employer sick pay ends after just 4 weeks. His income drops dramatically to ￡116.75 per week (about ￡506 per month) in SSP. The couple's combined income falls well below their ￡2,800 monthly requirement.

Months 3-6: The financial strain intensifies. Sacha's salary covers most of the mortgage, but there's little left for utilities, council tax, food, and other essentials. They begin using credit cards for everyday expenses and dip into their limited savings.

Months 7-12: With savings depleted and credit card debt mounting, they struggle to make full mortgage payments. They contact their lender about payment holidays, but these only postpone the inevitable while interest continues to accrue.

Beyond 12 months: Adam's SSP ends after 28 weeks (approximately 6.5 months), leaving him with no income at all. The couple faces potential mortgage arrears, damaged credit scores, and in the worst case, repossession proceedings. This puts pressure on Adam to consider returning to work before he feels he’s ready, which could significantly impact his recovery.

Scenario 2: With Income Protection

Now let's imagine that when taking out their mortgage, Adam and Sacha’s Mortgage & Protection Advisor had discussed potential bumps in the road and taken steps to help them protect their income and ultimately their home!

Both Adam and Sacha took income protection policies, that would replace 65% of their salaries after their employer sick pay ends. They didn’t want to leave anything to chance, particularly as their mortgage term is for 35 years and a lot could happen during that time!

Month 1: Same as before – Adam receives full salary during initial treatment.

Month 2: When employer sick pay ends, Adam's income protection policy activates. Instead of dropping to ￡506 in SSP, he receives approximately ￡1,400 per month (65% of his previous salary).

Months 3-12: The couple's combined income remains sufficient to cover their mortgage payments and essential living expenses. While they may need to economize on luxuries, they avoid debt accumulation and maintain financial stability.

Beyond 12 months: Adam's income protection continues to pay until either he recovers and returns to work, or until the policy term ends (which could be several years or even until retirement age, depending on the policy they chose). Crucially for his recovery, there's no pressure for Adam to return to work until he feels ready!

The Self-Employed Perspective

If like me, you're self-employed, this scenario becomes even more critical.

Without an employer providing any sick pay at all, your income could stop completely the moment you're unable to work. There's no safety net beyond the minimal support from the government.

The Reality Check

Consider these sobering statistics:

The average UK household has less than ￡3,000 in savings*

1 in 4 mortgage holders would run out of savings within 2 months if unable to work?

?The average long-term absence from work due to serious illness lasts over 2 years ~

These statistics help illustrate why income protection deserves consideration as part of a comprehensive financial plan, especially for homeowners with mortgage commitments.

Making an Informed Choice

Income protection isn't just another insurance policy – it's about securing your home and lifestyle against unforeseen circumstances. While none of us likes to think about becoming seriously ill, the financial consequences of being unprepared can be devastating.

For Adam and Sacha, the monthly premium for comprehensive income protection would likely cost less than their streaming subscriptions and weekend takeaways combined – a small price to pay for the security of knowing their home isn't at risk should the unexpected happen.

Prudent Steps to take

1.?????? Check your employment contract to understand exactly what sick pay entitlement you have. Whether it’s a day, a week or a year (which is rare in my experience), having this information puts you in a strong position to make a plan, rather than just putting your head in the sand and hoping for the best!

2.?????? Calculate your essential monthly household outgoings to determine how much income you'd need to protect. Even if two incomes come into the household, the worst-case scenario is that they both stop! (For example, the “healthy” partner had to take time off work to care for the health-impaired partner, meaning neither at work).

4.?????? Speak with your Mortgage & Protection Advisor / Financial Adviser about income protection options that suit your specific situation and budget.

Remember, the best time to consider income protection isn't after you've fallen ill – it's while you're healthy and have choices.

Your home may be repossessed if you don't keep up with your mortgage payments.

This article doesn’t constitute advice - your situation and requirements are unique and therefore you should seek expert advice based on your own individual circumstances.

Sources: * Money and Pensions Service, UK Financial Wellbeing Survey 2021 | ? Royal London's State of Protection Nation Report 2022 | ~ Association of British Insurers (ABI), Protection Insurance Claims Data 2023

About Me

I'm Mark Humphrey, founder and Advisor at MHC Mortgage & Protection Ltd, a mortgage broker firm based in Whitstable and helping people buy their homes across the UK.

I've worked in Mortgages for over 20 years and am passionate about making the mortgage and moving process as simple and stress-free as possible.

Buying your home is a BIG DEAL and with a bit more understanding and help along the way - it really can be such a positive experience and not the stressful and anxious time that so many people dread!

Please get in touch if you have any questions or I can be of any help at all - [email protected] | 01227 807087

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MHC Mortgage & Protection Ltd is an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority.

Registered in England and Wales - 12067840 – Registered address – 13 Aurum Close, Whitstable, Kent. CT5 3FN