A debate by figures across the financial services industry on making informed decisions about mortgages has found that education and clarity of information are key to consumers' financial capabilities.
The meeting on Thursday last week, hosted by Treasury select committee chairman John McFall, MP, in the House of Commons, promoted clear standard of information on financial products for consumers.
GMAC-RFC chairman Stephen Knight said the key features document is one of the most important developments for the consumer. He believes the advantages are obvious but expressed concerns with the information that will inevitably be omitted, such as how much consumers may have to pay to get out of a particular mortgage. The document is on average six pages long and Knight believes there is a danger, consumers could be overexposed to information.
Nationwide head of external affairs Tim Hughes said lenders should take the lead from credit card companies and take a simple approach to providing key information to consumers.
Knight added that the mortgage industry should look at the pharmaceutical industry, which provides information booklets with over-the-counter medicines. He said pharmaceutical writing is a discipline in itself and argued the mortgage industry should take the same level of interest and professionalism in its writing of KFIs.
Council of Mortgage Lenders director general Michael Coogan said it may be effective to provide consumers with a tool to assess their own personal financial status. In the US, for example, the public is much more astute in knowledge of their credit ratings, although he suggested it would be more problematic in the UK because of the principles of reciprocity where marketing companies cannot share as much information because of data protection issues.
The FSA is working with academics to create a survey to determine the amount of financial capability among UK consumers, something which has never been calculated conclusively. Progress is good so far, according to FSA spokeswoman Vyv Bronk, and she hopes this will help inform policy on financial education.
Conservative economic affairs spokesman Henry Bellingham, MP, said another issue affecting the financial capabilities of UK mortgage buyers is not the initial debt but when additional loans are taken out.
He said: “As people take out additional mortgages, they lose that point of contact from the high street. There is no one around to help them look at the overall financial commitment.”