Home buyers in the UK could save almost £300 a month by switching their mortgage but many are put off doing so because of over complicated jargon in the industry, a new study suggests.
Indeed, mortgage contracts so complicated they are above the reading age of half of UK adults and 58% of owners are turned off by baffling contracts, according to the research for online mortgage broker Habito.
The study, carried out by the Universities of Manchester and Nottingham, also found that 95% think the Government should regulate the lending industry to make mortgage contracts easier to understand and 90% believe the language used in contracts could be simplified.
The research suggests that the lack of switching to a better deal due to confusing mortgage contracts is costing consumers across the nation an estimated £15.5 billion a year in potential monthly savings.
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 A-level, well above the average national reading age of 12.
While 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 of education.
Backus explained that his research shows that 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,’ he added.
The study also found that 52% adults think they have overpaid for something because they signed a contract without fully understanding it and only 34% mortgage holders revealed that they only read up to a quarter of the way through their contract because they were confused by the language it contained.
Some 51% said they were confounded by legal jargon, 48% by confusing terms and conditions while 34% say that the explanations of the implications of not adhering to the contract should be re-written to make them easier to understand.
‘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,’ said Daniel Hegarty, founder of Habito.
‘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,’ he added.
Paula Higgins, chief executive of the HomeOwners Alliance, the UK’s only consumer group for home owners, described the findings as appalling. ‘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 home owners to sign tortuous contracts that only lawyers can understand,’ she said.
