A poll released today reveals that nearly one in four people think that a tracker mortgage tracks your salary increase.
The survey commissioned by Mortgages Direct highlights the extend of public ignorance of basic mortgage facts, which could lead to homeowners paying well above the odds.
Nearly a year on since the start of the regulation of the mortgage industry by the FSA, the Mortgages Direct poll reveals that only 19% of the British public know the name of the regulatory body, with as many 20% of respondents thinking that the acronym stands for Funds Savings Account.
The general public fared slightly better on their knowledge of another basic financial acronym, however, with 60% knowing that APR stands for annual percentage rate.
There are a plethora of different types of mortgages available to borrowers, yet an alarming low number of the general public understand their options, with only 35% knowing that a tracker mortgage tracks the Bank of Englands base rate.
With the average property price soaring by 46% since 2001, interest rates are hugely significant for the personal wealth of borrowers. However despite interest rates recently decreasing to 4.5% in August 2005, only 29% of the general public know the current interest rates level.
A small percentage of the general public understand the implication the base rates level has on the setting of mortgage rates, with 33% of people thinking that the stock market influences the setting of mortgages and less than half realising the importance of the Bank of England base rate on their mortgage rates.
Peter Gladdy director of Mortgages Direct, says: “The interest rate level plays a crucial part in determining homeowners personal wealth. Borrowers, particularly those that have not opted for fixed rate deals, should ensure they are informed of changes in the base rates and consequently the rates set by their lender. With borrowers not keeping their eye on the ball they could find they are paying way above the odds on their current mortgage. As circumstances change there may well be better deals available.
“It is concerning that the general public are not on top of basic personal finance issues. Buying a house and signing up to a mortgage is possibly the largest financial commitment we make in our lives and yet the sheer number of people who do not understand the basic terms and processes is very worrying.
“All homeowners should ensure that they are fully informed not only prior to purchasing a property but throughout their period of repaying a mortgage. However help is at hand as there are a large number of highly trained financial advisors who can help explain the basic details as well as the more complex issues and keep borrowers abreast of any relevant changes.”