Indeed, a recent survey by Which? found that 90% of homeowners and buyers struggle to calculate the total cost of a mortgage, with only 10% managing to correctly place five mortgage products in order of cost.
The research highlights a commonly acknowledged problem that the overwhelming majority of people compare mortgage products on current interest rates alone, despite the fact that arrangement fees can be a significant part of the overall cost and that APR is not a clear indicator for consumers.
Add to this the possibility of a new EU directive requiring lenders to inform borrowers of the maximum interest rate they have charged over the last 20 years and you’ve got recipe for confusion for the average homebuyer.
Providing customers with information about the cost of mortgages is an essential part of the home buying process, but more needs to be done to make it clear and transparent. Lenders have a part to play in modifying the literature they provide, but as brokers we play a key role in ensuring customers understand the true cost of various mortgages and what product best suits their needs.
The aforementioned EU led directive makes the role and importance of mortgage advisers even greater as we can help customers fully understand the benefits but also limitations of APR as a measure of overall cost and ensure they appreciate not only the changes in cost that may occur over the term of their mortgage, but also how other costs, like lenders fees, come into play.
The research highlighted very well what matters to the consumer but is not always clear and understood – the impact of fees in assessing the relative merits of different schemes. We do it day in day out but our customers don’t.
As lending activity increases, the importance of good advice has never been greater. With so many moving parts, the true cost of a mortgage will continue to be a source of confusion for consumers, but a good broker can really help.
Adrian Scott is mortgage services director at Connells Group