I heard an interesting interview on Radio 4 with a spokesman from a leading mortgage broker who came out with a remarkable statement.
Having warned about the risks of currency rate fluctuations, he concluded that the recent changes in Japan would have little effect on demand because “people are generally risk-averse when it comes to mortgages”.
Is this from the same industry that sold endowment mortgages by the bucketload and still sells Isa mortgages?If these comments are to be believed, virtually everyone in the country with a homeloan would be the proud owner of a repayment mortgage. Poppycock obviously but it got me thinking.
Like a lot of products in our industry, the problem is not the inherent risk but ensuring that the customer fully understands the risk and is comfortable with it. Anyone with financial services knowledge will know that there is nothing fundamentally wrong with endowment mortgages, high-income bonds, even equity Isas in a crashing marketplace. Just as long as the risk is prominently explained and people understand what they are letting themselves in for.
How many endowment mortgages were, and are, sold with the warning: This method of repaying your mortgage might leave you with a shortfall at the end of the mortgage term. If this risk is unacceptable to you, please do not proceed with this purchase? Forget the euphemisms about unit prices and bonus rates. They are lost on an unsophisticated public.
We really do need to rethink the rules on health warnings in terms of wording and prominence. The typeface size of some warnings beggars belief. It is no good the regulators relying on key features documents. Unless our industry, and those responsible for regulating it, sit up and think again about how risk should be conveyed to the customer, misselling scandals will dog the lives of our grandchildren.
Training consultant and freelance writer,
Leighton Buzzard, Beds