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Warning – more warnings on the way

I have a list of crazy warnings that I find amusing. Some of my favourites are the sleeping pills that carry the warning ‘May cause drowsiness’ and the matches that have ‘Caution – contents may catch fire’ printed on the box.

We live in a world of warnings, probably driven by our increasingly litigious society. But there is one that should be added to Key Facts Illustrations with immediate effect – ‘If you take out an interest-only mortgage there is a strong chance you will have exactly the same amount of capital that you started with at the end of your term’.

I do not pretend to be a rocket scientist but most people would be able to figure out that an interest-only deal is exactly that.

And apart from the name there are other clues. For starters the sales process – documentation given out at the time, including the KFI, will give information on repayment type. After completion there are more clues to be found. The annual statement is one, which will convey information about the repayment type. But the biggest giveaway of all is the balance not reducing.

Some readers may think I am being facetious about this issue and I would respond by saying it’s hard not to be. The truth is that far more information is being given to prospective borrowers.

There is little point in giving out the information we do if it does not result in an increase in consumer understanding not only of what they are buying but also in their background knowledge.

Just how much information needs to be put in front of customers to (a) get the message home that they have an interest-only mortgage and (b) the effect of having one?

There are some stark facts available that bear close examination. Consider this – the percentage of people opting for repayment mortgages increased from 18% in 1991 to a whopping 75% in 2004. This increase would seem to suggest that market practices have evolved to counter the interest-only problem.

And it also gives out a signal that consumers must be aware of the difference between the two options and are capable of making an informed choice.

The Financial Services Authority has made it clear that it has concerns about the sale of interest-only mortgages and is considering undertaking a review of this. That’s exactly what a regulator is supposed to do – identify and quantify risk. It may perceived risk but I will be surprised if the regulator can find any systemic problem with the sale of interest-only mortgages.

Consumer choice and understanding are at the heart of this issue. But looked at from another perspective – where’s the fire?


Marketing Brief

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SMS offers reduced cost Equifax credit reports

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Use summer time to make living easy

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Is this a cunning plot or has Labour just cocked up again?

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Europe: banking on a recovery

Neptune video: Europe — banking on a recovery

Arguing that the eurozone crisis is over, watch Rob Burnett, head of European equities at Neptune, discuss the sectors that he’s investing in to harness the recovery. 

In the video, Burnett addresses the following: 

• The primary drivers of the eurozone’s economic recovery
• The turnaround in individual countries’ current accounts
• Sectors best positioned to harness the recovery, without offering undue exposure to risk


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