Brokers need to capitalise on consumer ignorance, writes Bob Young, managing director of Capital Home Loans
Amongst the raft of financial surveys and results that are released every week there was one recent press release that caught my attention and should have brought a smile to mortgage advisers’ faces.
It came from the direct bank and lender, First Direct, and it looked into potential and existing mortgage borrowers’ understanding of the mortgage market and the varying types of products available. While the sector as a whole appears to be a lot less confusing than it was a few years ago – particularly given the fall in lenders and product options – the research reveals that the vast majority of borrowers are, at best, uncertain about mortgages and, at worst, completely baffled by the types of deals on offer.
A massive 92% of those who had plans to take out a mortgage over the next year admitted to not understanding the difference between the types of deals available while 11% of those potential new borrowers said they didn’t understand mortgages at all. For those who are already existing borrowers, the numbers showed little improvement with only 26% saying they understood how the main types of mortgages – fixed, variable and tracker – worked. On average, across the various regions of the UK only 22% grasped the difference.
These types of surveys are often derided for many reasons, not least the fact that there is sometimes a distrust of the answers respondents give. There is a feeling that answers are given because that is what they believe the questioner wants to hear. But this seems somehow different because it is very rare in surveys for the vast majority of respondents to admit they are in the dark about a topic in most cases they will lie so as not to appear in this light. Here, however, many hundreds – the sample was 2,000 – of potential and existing borrowers are admitting they don’t have the first clue about mortgages and, one would assume, would like some help in understanding not just the types of products available but which product is most suitable for their needs and circumstances.
These results are surely manna from heaven for mortgage advisers because they are proof-positive that the vast majority of people are not in a position to ‘go it alone’ when it comes to securing mortgage finance. They clearly need the help and support of a professionally qualified adviser who can hold their hand through the process from first thoughts through to completion.
Many believed that the wealth of information available on the internet may well push more borrowers down the direct route because they would be armed with their research and be knowledgeable about the options available and the best deals for them. However, this research suggests this is not the case at all. Most potential borrowers are not sure of what is the difference between mortgage products let alone which one they should opt for and what products best fit their needs. And given that the mortgage market is no longer ‘open for all’ there is an even greater need for professional advice and support.
Clearly, this is an opportunity for advisory firms and it is one that should be grasped now because the facts are that banks like First Direct and their ilk will certainly be heeding the message given. If I were running a mortgage broking firm I would not just be putting in place some sort of brief ‘Intro to mortgages’ educational piece for new clients that could take them quickly and simply through the basics of the mortgage market but I would also be making the effort to contact all my existing mortgage clients to share with them these results and to suggest they read my firm’s guide. Obviously with the added incentive to contact me if they needed clarification on whether they had the most suitable and cost-effective product for them at this time.
This should be particularly relevant for those borrowers sitting on their lender’s SVRs and it must be an approach which is repeated every three months or so by the broking firm. Circumstances can change quickly, borrowers’ perceptions of what interest rates might do can also change, plus there is the simple fact that rates and products change frequently. The SVR rate may be the best deal available now but if they get twitchy about an increase in BBR or SVR, or they decide that now is the time to fix for certainty, then your firm should be at the forefront of providing this option.
It’s a simple fact that your clients don’t know what they don’t know and it is up to you to impart that knowledge, otherwise they’ll either be oblivious forever or a competitor will be beat you to the punch and secure the business. Be aware that in the mortgage market ignorance is never bliss and make the effort to fill the gap that many people clearly have when it comes to mortgages.
