Public don’t understand mortgages, says survey

Research has revealed the ignorance of the British public on mortgage matters, with only 19% able to name the Financial Services Authority as the industry’s regulator.

And 20% think the acronym FSA stands for Funds Savings Account.

The survey, conducted by Mortgages Direct, says the low level of knowledge surrounding mortgage issues could lead to many home owners paying well over the odds for their deals.

But the public fared slightly better when it came to another widely used financial acronym, with 60% knowing that APR stands for annual percentage rate.

There are a plethora of mortgage products available on the market these days but an alarmingly low proportion of the public understand their options with only 35% understanding that a tracker mortgage tracks the Bank of England base rate.

Nearly one in four people think a tracker mortgage tracks a borrower’s salary increases and 31% think it tracks the rate of inflation.

With the average property price soaring by 46% since 2001, interest rates are hugely significant when it comes to the personal wealth of borrowers. However, despite the base rate decreasing to 4.5% in August, just 29% of the general public know what the rate is.

And only a small percentage of the population understand the importance of the base rate when it comes to mortgage rates, with 33% of people thinking the stock market influences rates more. Less than half realise the importance of the base rate.

Peter Gladdy, director of Mortgages Direct, says: “A mortgage is likely to be the largest financial commitment anyone makes so the sheer number of people who don’t understand the basic terms and processes is worrying.”