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Which?: 99.5% of borrowers do not understand true cost of mortgages

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Which? is demanding lenders take action on mortgage fees after damning research shows 99.5 per cent of borrowers do not understand the true cost of mortgage deals.

Which? says lenders must be more transparent so borrowers can more easily compare total costs and not just headline rates. It also calls on lenders to explore alternatives to the APR and warns high fees can damage competition.

The consumer champion says the number of arrangement fees has risen dramatically in recent times. Of the 28,000 mortgage deals on the market, 22,680, or 81 per cent, have set-up fees.

Moneyfacts data shows mortgage arrangement fees have risen by around 66 per cent to an average of £1,506 in the past two years.

Which? asked 1,001 homeowners and homebuyers to rank five two-year fixed rate mortgages in order of total cost over the two years including monthly payments and fees, based on a £100,000 deal.

Only five people, or 0.5 per cent, correctly ranked all five mortgage deals in the correct order, and just 27 per cent could identify the cheapest and most expensive deals, despite half saying they found the test easy.

Only 30 per cent of people who have remortgaged, and 25 per cent of those who had bought their first home in the past five years, correctly identified the cheapest and most expensive mortgages, compared with 22 per cent of potential homebuyers.

In a separate survey, just 29 per cent of people who took out a mortgage recently said the total cost is important, compared to 52 per cent who said the headline interest rate was important.

Which? executive director Richard Lloyd says: “While it is good to see lenders now offering lower interest rates, mortgage arrangement fees have risen dramatically in the last two years making it increasingly important for borrowers to understand the overall cost. Our research shows that even people who already have a mortgage struggle to recognise the cheapest deal.

“Lenders should be more transparent about the true cost of mortgages so that borrowers can more easily compare deals and find the best one for them.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Give the same thing to the same number of mortgage brokers and I doubt the response would be much better. When are which goingto realise people looking for mrotgages dont care about the overall cost for comparison. They see the fees, they see the rate and wht this means in pounds and pence and they go with the one they feel they can afford on a month by month basis. The amount of disclousre that is out there currently is huge and bambousles people as it is. The last thing anyone needs now is more opaque transparency by having more figures available. By the way it was the regulator who, years ago came up woth the “simple” APR figure for all to use. It was a crock of poop then and has got no better. It is not the lenders so saying they should come up with a different way is just plain silly. But then the is Which? we are talking about here.

  2. It is called the ‘total cost of borrowing’ that advisers don’t really bother to show their customers. If they did, nobody would take out anything else other than a repayment mortgage !! Having said that, many customers can’t look further than their , but it should be documented that clients ahve been made aware of the difference.

  3. And that was just a sample of their own clients

  4. My understanding is even the FSA don’t like APR but they are bound by a European agreement. But we wouldn’t expect the consumer champion to know that, would we?

  5. So perhaps Which should be saying go to an IFA. At one time I respected Which, now they are just a self centred petty irrelevance looking for headlines., like the FSA perhaps it is time for them to simply go away.

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