Do Mortgage Rewards Mislead Customers?
3 minute read
Mortgage rewards and incentives have always existed in one form or another. Everything from cashback and free valuations to payments towards stamp duty have been offered and, while it’s now more common for lenders to concentrate on heavily discounted pricing of initial mortgage interest rates to attract new mortgage customers, there are those who are concerned that mortgage rewards may be misleading borrowers – offering enticing short-term incentives on deals that may not be quite so attractive in the longer term. The Financial Conduct Authority’s chief economist, Peter Andrews, recently suggested that the regulator’s impending Mortgage Market Study may include a focus on this aspect of how lenders market their mortgage products. Speaking at Imperial College Business School’s Conference on Consumer Choice in Mortgage Markets, he said: “Even seemingly small differences in the price of mortgages chosen by consumers can have material impacts on household budgets.” While there is no suggestion of mis-selling, as such, Andrews discussed whether current mortgage pricing policies might justify consumer protection measures.
Do Rewards Reduce Transparency?
The question must surely come down to pricing transparency, and whether mortgage customers are provided with the information they need to be able to make an informed choice about which lender and mortgage best suits their needs. Whether shopping around between lenders, using a comparison site or dealing with a mortgage broker, it would seem that the way prices are quoted – including (as they have done for some years) the initial and subsequent interest rate, the product term, details of product fees and an overall cost for comparison – is sufficiently detailed to allow potential borrowers to make the right decision. Is the argument that mortgage rewards might be “misleading” perhaps underestimating the intelligence of the average homebuyer? Certainly there will be some people whose focus, rightly or wrongly, will be on the headline rate – but equally we’d argue that most mortgage customers understand exactly what they’re signing up for. Indeed, many taking out a mortgage are actively looking for short- to medium-term savings, and have an explicit understanding that after the initial product rate expires then it will be to their advantage to shop around for a new deal.
Look to the Long-Term Gain
What can mortgage customers do to ensure that they are not misled into a mortgage deal that will leave them worse off in the longer term? In short, pay attention to every element of the mortgage product you are evaluating – the initial rate and term, the subsequent standard rate, the type of product (for example fixed, discounted, tracker) and, crucially, any associated arrangement fees. If necessary, get out a calculator and work out exactly what you will pay (remembering to include fees) over the product term – and remember that, although you may be able to change to a new mortgage deal once your initial rate expires, this could in itself involve arrangement fees and costs that may be prohibitive. If in doubt, dealing with a mortgage broker who can compare rates from across the mortgage market can be advantageous. An experienced mortgage broker will help you to compare rates, costs and product features and help you to make a fully informed decision on which mortgage deal is the right one for you – even if that isn’t necessarily the one that seems to offer the best upfront rewards.