19 March 2015
The easy way to lose a few thousand pounds
For most families, the mortgage is the biggest monthly outgoing. And in a world of sky high property prices, it accounts for an ever growing proportion of many households' income.
Naturally, when people set out to get a new mortgage deal, they want to get the very best value available. But there's a tendency to focus on how much money will be coming out of your bank every month, rather than how much the deal is going to cost you in total - once fees and charges have been added to the tally.
Over the last few years, lenders have become quite adept at exploiting householders' inability to take a long term view. If your main priority is to keep your monthly bills at an affordable level, it's only natural to focus on what your monthly mortgage payments will be. And banks are great at keeping these low, while adding in all their additional fees and charges onto the loan. It feels painless at the time. But what the banks know full well is that with interest added to these charges across 20 or 30 years, they can end up costing the customer many thousands of pounds.
The cost of opacity
The right way to help customers get to grips with this issue is to show how much they'll pay over the offer period of their mortgage - including all fees and charges. But just about nobody displays mortgage costs in this way.
Instead, lenders' tables focus on the headline interest rate and the monthly payments. Upfront fees are disclosed, but there's little help for customers to understand whether high fees and a low rate will be right for them.
Given that it's only a matter of months since we saw the completion of a major mortgage market review by the regulator, it's a shame that these issues have not already been put to bed. But the good news is that Which? and the Council of Mortgage Lenders have since been given the task of taking a look at transparency in the market.
Alongside yesterday's Budget, Which? and the CML published a short interim report, laying out some sensible ideas to tackle the problem. Like many problems in financial services, the solution simply lies in getting companies to be more upfront with their customers - giving them more information, and working harder to help them make the very best decision, both for the short and long-term.
There's still a very laissez faire approach to education across much of the banking and insurance world. Many people I come across at conferences believe customers are entirely responsible for their own decisions, and if they make teh wrong call because they didn't read the terms and conditions, then tough luck.
Thankfully, this is not a view that the regulator shares. Companies need to acknowledge that their products are complicated, and that most people only engage with mortgages a handful of times in their lives. They shouldn't need a law degree to ensure they get a fair deal.
Once companies have done everything they can to arm customers with the information they need to make a good decision, then responsibility passes back to the customer. But most lenders are light years away from that position today. Customers need to be armed with better tools, clearer information, simple terms and conditions - and even videos - to help them make the right decision.
In the meantime, if you're looking for a new mortgage deal, my advice would be to use an honest mortgage broker, who should ensure you get the very best deal for your circumstances. It may cost you a little more in the short-run, but could save you thousands over the long-term.