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Industry has duty to make mortgages clearer ‒ analysis

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  • 19/09/2019
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First-time buyers will continue to labour under potentially costly misconceptions while the industry relies on confusing terminology, brokers have suggested.

A new study by Santander has uncovered a host of mistaken beliefs about the housebuying process among first-time buyers.

Of the buyers polled, three-quarters believed LTV stood for long-term value and referred to how much the property was likely to increase in value over the mortgage term, while almost two-thirds (63 per cent) believed interest rates were lower in parts of the UK where house prices are cheaper.

More than half reckoned that lenders will offer deals of up to 10 times a borrower’s income, and almost two in five (39 per cent) thought the interest rate would stay the same for the entire length of the mortgage.

The survey coincides with Santander’s move to offer more than 1,000 free in-branch educational events across the UK for people looking to purchase a first home, covering issues ranging from property viewing to finding a removal company.

Clearly brokers play an important role in dispelling some of these misconceptions, but is this the best use of their time? And can the industry do more to ensure that borrowers are more informed when the time comes to start looking for a loan?

Removing jargon

Online broker and now lender Habito has launched a new version of its terms and conditions, which it says are now completely jargon-free and will help demystify the mortgage journey.

The document was developed in partnership with the consumer group Fairer Finance, with the aim of removing all unnecessary and confusing terminology. As a result it says the terms and conditions now have a reading age of just 11, compared to those of some financial firms which have a reading age of 19.

Martijn van der Heijden, chief strategy officer at Habito, said the firm had seen a “direct correlation” between unwieldy mortgage jargon and people paying too much for their mortgage, warning that “when people are disempowered and disengaged from the process, they aren’t set up for success”.

He continued: “We don’t see our role as ‘teacher’ per se but we believe we can be a lot clearer in our communications with people. That starts with language, access to help and tips and encouraging and enabling people to ask any and all questions they need to, in order to feel equipped and comfortable in making the decisions that are right for them.”

He argued that the industry had a responsibility to make mortgages as accessible as possible from the outset, adding: “It’s never been more important to get free, whole of market regulated advice that puts the customer front and centre.”

Building a lifelong relationship

Sebastian Riemann, financial consultant at Libra Financial Consulting, said that educating borrowers is an essential part of a broker’s role, and argued this was one of the most rewarding parts of the job.

However, he suggested that it’s only really effective for brokers to take on this educational role in face-to-face meetings “as you can then engage with the client and feed off the reactions”.

And this may not be seen as the most cost effective use of a broker’s time. 

A product transfer or remortgage for a seasoned home owner will take a lot less explaining, time and effort and combine this with your robo or hybrid proposition you can see why these first-time buyers are sometimes a little neglected.”

However, Riemann emphasised that putting the time in when a client is a first-time buyer means they are then more likely to keep coming back to you as their needs develop over the years. 

He added: “This initial expense of time and effort is often also rewarded by the clients wanting to discuss other areas such as surveys, solicitors and protection all of which can generate additional income for a good broker while providing a more complete service to the clients.”

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