Lack of client knowledge sparks concern over TCF

Consumers are struggling to understand mortgage terminology and products, causing concern over the products they are being advised to buy.

The latest One Specialist survey by BM Solutions finds that nine out of 10 brokers believe consumers have no idea what the London Inter Bank Offered Rate is and what it entails.

This statistic in particular has raised concerns relating to the Financial Services Authority’s Treating Customers Fairly policy, and whether allowing borrowers to take out LIBOR products without fully understanding what it means qualifies as TCF.

Martin Reynolds, head of sales at BM Solutions, says: “The fact that 60% of brokers do not recommend LIBOR products suggests there is an issue here. If the average consumer does not understand LIBOR, should they be offered LIBOR-linked products?”

But some argue that as long as customers are fully informed there is no reason why LIBOR products should not be offered.

Ray Boulger, senior technical manager at John Charcol, says: “It is not surprising that most people don’t know what LIBOR means but that doesn’t mean that they should not have a LIBOR product.

“If an adviser is doing their job properly and a LIBOR product is quoted for a client, it is imperative the customer understands what it is and how it relates to other rates. A significant number of advisers probably don’t even understand what it means themselves.”

Boulger believes the way LIBOR is reported in the press has contributed to the confusion.

He adds: “There are many types of LIBOR. It comes in one week, one month, three months and six months varieties. It’s nearly always three months but it’s never reported that way.”

The results coincide with an announcement by the FSA regarding its own research highlighting the lack of mortgage knowledge among consumers. The research shows that 56% of first-time buyers and mortgage holders don’t know what APR stands for.