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What Is A Mortgage? 92% Do Not Understand!


We all know that 83.5% of statistics are made up on the spot, but this startling little nugget was published a week or so ago by none other than First Direct who stated that a whopping 92% of those planning to take out a mortgage do not understand the difference between the types of deals on offer.

However, even more worrying is that only 26% of existing mortgage borrowers said they really understood the difference between fixed, variable and tracker rate mortgage types!

To be honest, as far as direct only business lenders are concerned, whilst this is incredibly worrying, it is of no real surprise.

First Direct, whilst continuously praised by account holders as a wonderful bank to, er, bank with, are of course a division of HSBC Bank. We all know that many who go direct to HSBC, and indeed many other banks, do not actually receive any advice, but are instead invited to choose what rate they fancy.

Now call me stupid, but if only 26% of existing borrowers understand something as simple as the different types of mortgages then *(reaches for calculator)* that means 74% of people may have taken a rate that does not do what they think it does!

If ever there was a self-damning piece of research then surely this is it! Mortgage borrowers are crying out for advice, whether they want it or not, it is obviously needed.

What is more, lenders themselves realise this, but until we have exactly the same rules and controls that apply to independent brokers also applicable to bank staff this is unlikely to change.

So lenders such as HSBC will continue to advertise low products to get the hordes through the door, many of whom may not take the advice they actually need and end up with a product that may look good, but is wholly unsuitable, ( I went out with a girl like that once). It’s a bit like wearing a dinner suit to go paintballing!

And when those on a discounted rate see their payments rise when they did not realise that they would so quickly, or try to pay off a lump sum and get hit with large penalties, who can they turn to? Not the bank because they chose not to get advice – caveat emptor and all that!

Now you may say I am just bitter because HSBC do not deal with brokers, but it is honestly not for that reason, (I remain convinced within the next couple of years that will change anyway as most lenders are finding they cannot sustain the market share they need without the help of brokers, even with low rate offerings).

People these days are not generally mugs and know the value of even a little bit of advice when faced with the biggest debt they are ever going to take out. In any case, whether good or bad, there is a whole generation of borrowers who will never understand the need to see the inside of a bank.

I just find it shameful that in this day and age, after the monumental issues we have faced, a first-time buyer can still get a mortgage at a highish loan-to-value and not receive advice. It should be compulsory.

What all lenders actually need to do is much the same as the broker community and embrace it. Embrace the fact that the whole industry needs to be, for want of a better word, professionalised. Embrace the up skilling of all their “mortgage specialists” to become advisers. The first bank to come out and say we will not let anyone take out a mortgage without having taken advice, especially given recent events, will surely win some great PR as well as more customers.

Richard Tolchard, senior mortgage product manager at First Direct, said about this research that, “This highlights a worrying trend. It’s really important that people do their research into which is the best mortgage product for them, taking into consideration their stage in life and current financial circumstances. They should always try to compare like for like and bear in mind that fees can play a large part in how a mortgage stacks up against the competition.”

Quite right. So why don’t HSBC lead the way if so many of their own borrowers do not really understand what the hell they have got?

Embrace advice, embrace brokers, what is the point of barring a whole section of people who want to take independent advice, still be recommended to come to you, but more well informed and knowledgeable, from taking your products?

There is room for both independent advice and direct to lender advice. Just don’t skimp on the advice bit because that is important and it proves you actually give a toss about your borrowers.

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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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