Rising redundancies could expose broker files under Consumer Duty where unemployment risk is never discussed or recorded
Mortgage brokers who skip conversations about unemployment cover are leaving a weakness in their files as redundancies rise across the UK, according to Paul Hampton (pictured top), owner and mortgage consultant at Approved Mortgage Solutions.
The UK unemployment rate for people aged 16 and over was 4.9% in May to July, up 0.2 percentage points on the year, according to Office for National Statistics (ONS) figures published on 15 September. Earlier in the month, Jaguar Land Rover said it would cut up to 4,000 jobs over the next two years.
Why unemployment cover fell off the radar
Hampton traced the problem back to the insurance market, which he said had largely stopped offering the product.
"Unemployment cover, basically nobody did it," he told Mortgage Introducer. "When I say nobody did it, I don't mean brokers, I mean insurance companies. So, particularly after COVID, unemployment cover was almost non-existent."
Hampton added that many brokers had never taken on the product as it was an optional part of their licence, and that a generation of advisers had never sold it or given advice on it. That leaves a gap under Consumer Duty.
"Under Consumer Duty, you should be discussing all potential risks," he said. "You should be telling your client, if you're made redundant, you're going to have to still pay your mortgage."
What brokers should be recording on file
Hampton emailed his company’s advisers after hearing that a lender business development manager had been made redundant, the second he knew of in less than a month. The email told advisers to discuss unemployment in every case and record the discussion and its outcome on fact-finds.
"It takes five minutes to quote, which is much less time than would be involved with dealing with a complaint because we didn't make our clients aware of potential risks," the email read. "We are currently not all quoting at all, which for me means not having a discussion. Recording it as not affordable is impossible if you don't have the quotes on file."
Two days after the email went out, he said, Jaguar Land Rover announced its job cuts.
A single large employer closing could open the door to claims firms, he warned. "If Nissan closes down, you've got 4,000 jobs gone. The solicitor who was doing the conveyancing won't have the business to do. If they turn into ambulance chasers, get hold of the employee database, simply contact them and say, did you have a mortgage? Did your mortgage adviser discuss unemployment cover? So even if you can't give advice on it, if it's not part of your licences, you should be discussing it and recording it," he added.
A newly qualified nurse he advised showed how that works in practice. "We had the discussion, so I've recorded the discussion, but she said, I don't think I'm ever going to be out of work, and if I am, I can do bank work and stuff like that until I find another job," Hampton said. "But we haven't just ignored it."
Is the unemployment gap bigger than the protection gap?
The FCA's Final Pure Protection Market Study, published on Monday, found that around 58% of adults have no life insurance, critical illness cover or income protection. It proposed no new rules, instead setting out three areas of work with the industry – building consumer awareness, improving the sales journey and supporting innovation. The regulator is now enlisting mortgage advisers to help close the protection gap, while Royal London's 2025 claims data, which showed just £9.6 million of its record £821 million payout going on income protection, has exposed the gap brokers can't ignore.
Hampton believes unemployment is the bigger blind spot. "Everybody bangs on about the protection gap between life cover and critical illness and mortgages," he said. "But the unemployment gap will be even bigger."
He estimated that as few as 2% of employed mortgage borrowers hold unemployment cover and predicted that the unemployment rate could climb to 7% or 8%.
Putting protection back into the mortgage conversation
Remote advice has stripped out habits advisers once relied on, in Hampton’s view, including telling clients at the outset that risks would be covered as well as benefits.
"We will discuss what the risks are, what they mean to you, what provision you've already got, what provision you've got from work, and we can help you fill the gaps in," he said.
Clients typically need to budget about 20% to 25% of their monthly payment to protect the debt, Hampton said, and where protection sits in the sale explains why income protection keeps getting skipped by advisers.
"It's just the fact that you've committed to something and then it's an add-on," he said. "If it's integrated in the mortgage advice, it's not an add-on, it's part of the mortgage."
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