It is 1985; Madonna’s "Get into the Groove" blasts from your Sony Walkman headphones, Margaret Thatcher is in her sixth year as prime minister and Back to the Future makes its big screen debut. What a year.
So why the trip down memory lane?
Last year, as we were getting ready for consumer duty, I was frequently asked if the new regulation would make protection more of a focal point within financial advice, and should the industry not just go back to the 1980s when it was a requirement to have life cover in force with a mortgage.
There is not a straightforward answer. Life cover was never a legal requirement when taking out a mortgage. But back in the 1980s lenders, particularly banks, mandated that life insurance was sold alongside mortgage lending, but not necessarily for the reasons life insurance is advised on today.
What was the housing market like in the 80s?
The 1980s saw a mortgage ‘revolution’ as the Housing Act 1980 introduced the Right to Buy scheme, letting people in council houses become homeowners. Over 970,000 sales took place in the 1980s thanks to the scheme, with more than 2.2mn to date.
As a result, banks became a major distributor of mortgage products. Previously building societies ruled supreme, with the Bank of England even describing the pre-1980 mortgage market as a cartel, with 80 per cent of mortgage lending being carried out by building societies as well as having almost complete control over interest rates during that time.
Average property prices sat just under £28,000 or around three times average earnings. Today it is closer to eight times.
It was during this time we saw the rise of interest-only mortgages, peaking in 1989 with more than 80 per cent of new house purchases through interest-only lending.
The role of insurance alongside mortgage advice was not necessarily as clear cut as it is today.
Lenders typically mandated mortgage insurance as a way of protecting themselves, rather than the consumer, with 83 per cent of new home sales in the 1980s having a (now often maligned) endowment policy linked to the mortgage term.
With interest-only lending rising, endowment policies were a cost-effective solution letting the homeowner repay the outstanding mortgage balance at the end of the policy term.
They often included an element of life cover, meaning if you died during the term of the policy a nominated beneficiary could receive a cash payment.
What was insurance like in the 80s?
Critical illness cover, or ‘dread disease insurance’ as it was more commonly known, had only just hit the UK market and would not take off for another decade.
The income protection product we know today was better known as ‘permanent health insurance’, and like CIC it would be some years before we saw an increase in volume of IP cover sold today.
Life assurance, on the other hand, had been around for centuries. Until the mid-1800s it was typically out of reach for most working and middle classes of society. This changed thanks to the Victorian innovation of ‘industrial life assurance’, with its small premium and low sum assured cover.
