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Borrower small print apathy underlines ‘value of advice and concerns about execution-only’ – analysis

  • 10/06/2019
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Borrower small print apathy underlines ‘value of advice and concerns about execution-only’ – analysis
It is up to intermediaries to ensure clients fully understand the terms and conditions of their mortgage contract, as the borrowers themselves are unlikely to bother reading the documentation, advisers have said.


A study from insurer Paymentshield suggested that around a third of borrowers admitted to not reading the full terms and conditions on their mortgage documentation.

Even higher numbers confessed to not bothering to read the small print on credit card and insurance policy contracts, with Rob Evans, CEO of the firm, warning that “too many people are not taking the time to read and understand critical financial documents”.


Lenders won’t stitch me up

Andy Wilson, founder of Andy Wilson Financial Services, said he felt the number of borrowers that read the full documentation was likely to be even lower than the study suggests, with borrowers believing that as the loan comes from a reputable and recognised lender “they won’t stitch me up”.

He added: “If the number of my clients who had actually read them was as high as this research suggests, I would have expected a lot more to have come back to me to ask ‘what does this section mean, in plain English?’.”


The role of the broker

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, noted that contracts which are “written in plain English are best” in helping a borrower understand what is involved, and highlighted the role that brokers play.

He explained: “The value of using a broker to ensure that the customer has assistance and explanations through the process should be appreciated by all market participants including the FCA.

“All FCA research supports the view that too many customers do not read or understand the documentation sent. The need for good professional advice from a broker has never been more important as we have so many lenders competing for business and a vast range of diverse products.”

Wilson agreed, noting that his firm takes each client through the mortgage illustration, explaining each section and what it means for them.

He continued: “We then follow this up in a plain English ‘suitability report’ which aims to further detail what they are signing up for. But once again, I doubt everyone reads these either.”

Sebastian Riemann, financial planner at Libra Financial Planning, noted that the mortgage terms only tend to matter to clients when they are told they cannot do something or they fall foul of them, though he emphasised how important it was for all property professionals to take the time to go through the documents with their clients.

He added: “It further underlines the value of advice and the concerns about execution-only business that has been on the tip of many peoples’ tongues of late.”


Do lenders really want to try?

Wilson suggested that it may not really be a big problem if borrowers do not read the documents in full, so long as they understand the fundamentals like how much they are borrowing, for how long, and how much it is going to cost them.

He added: “I suspect the documents can’t be much improved and that the lenders don’t really want to try. As long as the legal requirements to provide the details are met, and a legally enforceable contract is made,  I’m sure they are not too worried either.”

However, Paul Flavin, managing director of Zing Mortgages, cautioned that the fact terms and conditions are not read and never fully understood “can only lead to a poor outcome for the consumer”, and suggested that financial firms could make better use of technology – such as video content – in order to make it more engaging, whether they are selling mortgages or insurance products.

He added: “I do think that our industry has long been guilty of making life difficult to understand and slow to change with technology. Educating a client in a way that’s painless for them to absorb should be the responsibility of the providers and comparison sites.”


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