Homeowners Could Save Nearly £300 a Month by Switching Their Mortgage, but 58% are Put off by Over-complicated Industry Jargon, Habito Study Reveals

News provided by

Habito

29 Jun, 2018, 10:25 GMT

LONDON, June 29, 2018 /PRNewswire/ --

Mortgage contracts so complicated they are above the reading age of half of UK adults 

95% think the Government should regulate to make contracts easier to understand  

Switching energy suppliers is often seen as the best way to save money on monthly bills but switching mortgages could save households even more. Yet nearly 60%[1]of mortgage holders are put off switching due to jargon-filled contracts, according to research from the University of Nottingham and the University of Manchester released by 'free from' online mortgage broker, Habito.

Despite being in line to save up to £294[2] per month, 58% of mortgage holders are put off from switching due to baffling contracts that require A-Level reading age to understand, leaving almost half of UK adults in the dark.

Habito found that this lack of switching, due to confusing mortgage contracts, is costing consumers across the nation an estimated £15.5billion a year.

Combining seven independent readability measures, tracking features such as average word length (in syllables) and average sentence length, the University of Nottingham's Linguistic Profiling for Professionals (LiPP) department, found that the educational reading age needed to fully understand a mortgage contract is Year 13 (A-level), well above the average national reading age of 12[3] .

Signing up to, and staying on, confusing contracts is costing consumers dearly. Research by Dr. Peter Backus, senior lecturer in Economics at the University of Manchester, revealed that households with a GCSE reading level are staying on expensive deals up to 12 months longer than those with a higher-level education.

Dr Backus, said: "Following the analysis of live (in-market) mortgage deals, my research shows that over half (55%) of mortgage holders could reduce their payments and save nearly £300 per month by switching. As a percentage of their current monthly payment, it's households with an educational reading age of Year 11 (GCSE) or below, who would benefit from switching the most. We also see that these households are more likely to be on variable rate mortgages, leaving them more vulnerable to future changes in the Bank of England base rate."

Additional polling has found that more than half (52%) adults think they have overpaid for something because they signed a contract without fully understanding it.

One in three (34%) mortgage holders said they only read up to a quarter of the way through their contract because they were confused by the language it contained. They said that legal jargon (51%), confusing terms and conditions (48%) and the explanations of the implications of not adhering to the contract (34%) should be re-written to be easier to understand.

Consumers have a clear appetite for change, with 90% of those surveyed believing the language used in contracts could be simplified and all of those questioned (95%) saying that they think the Government should regulate to force providers to make contracts easier to understand.

Daniel Hegarty, founder and CEO of Habito, the free online mortgage broker, said: "For too long banks and lenders have bamboozled consumers with over-complicated industry language, meaning people frequently sleepwalk into signing and staying on hellish long-term agreements that aren't in their best interests. Enough is enough.

"Taking inspiration from the food industry, Habito is making itself a "free from" mortgage broker.  For us, this means being free from confusing language, industry jargon and ropey customer communications. The fact that almost everyone wants regulation to force contracts to be easier to understand is hugely telling and we plan to campaign for that to happen. "

Paula Higgins, CEO of the HomeOwners Alliance, the UK's only consumer group for homeowners, said: "It is shocking that mortgage lenders are boosting their profits by billions of pounds by pulling the wool over their customers' eyes. It is time for the industry to stop forcing homeowners to sign tortuous contracts that only lawyers can understand."

Notes to Editors

ADDITIONAL STATS 

The consumer also research also revealed that:

  • Londoners (79.3%) are the most likely to sign a contract without fully reading it, followed by people in the East Midlands (79.2%) and the South East (77%).
  • Londoners are also the most likely (31%) to never read a contract in full, whereas adults in Wales (6%) are the least likely to always sign up without getting to the end of the agreement.
  • Men are more likely to regularly sign contracts without fully reading them (47.1%)
  • According to the data, the contracts customers are least likely to read all the way through are; a mobile phone contract (61%), credit card agreement (53%), building insurance (40%) and mortgage (34%).
  • And, more than just financial pressures, mortgage holders say that it's the language, including complex wording, acronyms and industry jargon, used in financial contracts that is the most stressful part of signing (46%), followed by the length of time it takes to read and understand the contract (31%).
  • Almost two thirds (65%) of those questioned said that making the language in contracts simpler would ease their stress levels. More than a third (35%) admit that the stress of trying to understand a financial contract had led to sleepless nights and being distracted throughout the day. One in ten have taken time off work to go over a contract because the language used is too complex.
  • Research from Mumsnet[4] and Habito revealed that the perceived complexity of the market may be one cause of consumer inertia when it comes to switching. Almost half (44%) of parents surveyed said they would need to research the meaning of the term loan-to-value, a third (31%) would need to do the same for standard variable rate, and around a quarter say they would have to look up base rate (25%), annual percentage rate (22%), Land Registry (18%), Equity (14%) and Stamp Duty (14%)

References:  

[1]  Habito research carried out between 30.05.18 and 04.06.18 of 2,004 UK adults with a mortgage.00

[2]Analysis the annual NMG Consulting Survey (2014-2017). The data of 6,773 households with a mortgage was fed through Habito's search algorithm to determine if they could be on a better deal by switching. Dr. Backus looked at the average household mortgage repayment (£563 per month) and the Habito algorithm searched to see if the average household could reduce its monthly mortgage payments by switching (55% could save up to £294 per month). There are approx. 8 million mortgage holders in the UK (FCA 'Mortgages Market' interim report, May 2018). Total amount that could be saved is £15,523,200,0

[3] OECD (2012). Survey of Adult Skills. Available at: https://bit.ly/2l4iFvo  (Accessed 12 June 2018).

[4] The Mumsnet survey results are based on responses from 1,077 Mumsnet users who completed an online survey via the MN Insight Panel between 23 May - 08 June 2017. An incentive of a £150 M&S voucher was offered.  

About Habito:

Habito is the UK's online digital mortgage broker, using technology to bring the mortgage application process into the 21st century. Simple, fast and honest, homeowners can be sure they're getting the best mortgage on the market for the first time. No jargon, no fees and no misinformation. Habito is backed by Atomico, Ribbit Capital and Mosaic Ventures, with a stellar lineup of angel investors including Transferwise CEO Taavet Hinrikus, Funding Circle's founder Samir Desai and Yuri Milner.