A recent survey by financial outsourcer Opal concluded that brokers are being superceded by the internet.
A bold claim and one that does not stand up to scrutiny when you look at the data – 29% of respondents believed mortgage business conducted via the internet will increase in 2009 and 38% believed distribution through intermediaries would decrease as a result.
We have seen a reduction in business transacted through brokers but not as a result of the web, it’s simply symptomatic of the times we live in. Before the web can take a foothold in mortgage distribution the financial competence of consumers needs to increase, not something the net is going to resolve any time soon.
Given that statistics from the Council of Mortgage Lenders show that 72% of first-time buyers and 60% of existing mortgage holders rely on brokers to arrange their mortgages, this demonstrates that a significant number of consumers are not financially equipped or confident to deal with the process themselves.
Consumers look to brokers to advise them not just on mortgages but also on products that are a requirement of mortgages, such as buildings and contents insurance. What is the difference with selling this type of insurance and suitable protection for repayments on the biggest investment they’ll ever make?
Forcing consumers to seek alternative advice via the cooling-off period may result in the selection of an inappropriate product as an alternative adviser is unlikely to be fully apprised of the customer’s circumstances.
Moreover, it may not be in their best interests to seek professional advice rather than place their trust in a standalone price comparison website as they may face an additional fee or inferior cover.
Our financial literacy is a national embarrassment, according to a report last year by the Organisation for Economic Co-operation and Development. It concluded that Britons systematically overestimated their knowledge of money matters. The Financial Services Authority has already started to tackle this issue in a press release smuggled out over the festive season in 2008.
On top of this the government has introduced a multimillion pound scheme to boost financial education in schools. This does not address the fact that consumers need to understand their financial situation and risk exposures now.
I am not convinced consumers who really need mortgage payment protection insurance will shop around during the point-of-sale ban period and make an adequate decision as the Competition Commission seems to believe.
You only have to look at buying habits of consumers in the motor and household markets to see the danger that in buying mortgage or income insurance protection, their choice will be dictated by price and not whether the cover is suitable for their circumstances.
Recent research by Assurant Solutions revealed that affordability of cover is the single most important factor in their purchase decision and not their ability to shop around.