Almost nobody can work out the cost of mortgage deals
New research from Which? suggest that 99.5% of homeowners and homebuyers have problems getting to grips with the total cost of a mortgage deal
Alex Johnson has been part of The Independent's online team since 2007. He has been writing about microarchitecture on his internationally-acclaimed Shedworking blog since 2006 and is the author of Shedworking: The Alternative Workplace Revolution. His latest book is Bookshelf, published by Thames & Hudson.
Thursday 20 June 2013
Just over 1,000 homeowners and homebuyers were asked to rank five two-year fixed-rate mortgages in order of total cost over the two years, including monthly repayment charges and arrangement fees, based on borrowing £100,000. Just five people (0.5%) correctly ranked all five mortgage deals in the correct order and only a quarter could identify the cheapest and most expensive deals.
Around one in four of people who had bought their first home in the past five years worked out which were the cheapest and most expensive mortgages, compared with one in five potential homebuyers.
Which? executive director, Richard Lloyd, said: "While it’s good to see lenders now offering lower interest rates, mortgage arrangement fees have risen dramatically in the last two years making it increasingly important for borrowers to understand the overall cost. Lenders should be more transparent about the true cost of mortgages so that borrowers can more easily compare deals and find the best one for them."
However, Sue Anderson, head of member and external relations at the Council of Mortgage Lenders, said: "The mortgage process includes a number of checks and balances to try to ensure that consumers understand the whole picture of the rate, fees, charges, and total costs and characteristics of the mortgage they eventually choose. Consumers do not, in real life, have to make their choices based on the very limited information that Which? used to gauge consumer awareness and capability to decide on which loan represented the cheapest option.
"The more important issue that the Which? data reveals is the limitations of the APR. Although the APR is a useful tool, it cannot be used in isolation from the other important disclosures about cost. Which? asked consumers to rate the deals on offer only for cost over the period of the special deal - the APR, on the other hand, is designed as a comparison tool for the long-term cost of the mortgage."
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