MAS interest-only advice for borrowers slammed as encouraging procrastination

A behavioural finance professor has criticised the Money Advice Service’s advice for interest-only customers as encouraging procrastination not action.

In a paper published by the Council of Mortgage Lenders in its News & Views section, Professor Daniel Read of Warwick Business School and his PhD student Ali Osseiran list seven rules to effectively communicate with interest-only customers.

In May this year the FCA published the findings of its thematic review into interest-only mortgages, finding just 13 per cent of borrowers said they did not know they needed a repayment plan when they took out their loan. Then in August it listed guidance to lenders and third-party administrators about how to treat interest-only customers who risk being unable to repay their loan.

The FCA urged banks and building societies to contact interest-only customers and confirm that they have clearly understood the terms of their mortgage and that they have a suitable repayment plan in place.

But the academics say a pamphlet put together by the MAS to assist interest-only borrowers called ’Take action with your interest-only mortgage now’, is an example of how not to communicate with borrowers.

Read and Osseiran’s first three rules to communicating effectively with these customers are to keep the wording simple, get “right to the point” and for lenders to ask exactly what they want. In particular the academics advise lenders against providing an extensive menu of options. They say behavioural scientists have found that too many options can lead to confusion, procrastination, ”feelings of uncertainty and regret, and even withdrawal from the choice situation”.

Read and Osseiran say all three of their rules are violated in the MAS pamphlet.

The academics say: “The pamphlet provides those who do not have a plan in place with five steps to take, and those who do have a plan with (surprisingly) six steps.

“In fact, the steps are not steps at all but a list of actions that can be taken in any order and in any quantity. They do not even appear to be in order of priority. Moreover, the steps all appear to be non-trivial projects, each containing many steps and are very likely to lead to a high level of procrastination.”

Recommended

Experian credit ratings ‘misleading’

Brokers say scores from credit rating agency Experian are misleading potential borrowers by rating them as ‘excellent’ when their credit history shows otherwise. Firms say clients are obtaining ‘excellent’ ratings from Experian when they may end up being turned down for a mortgage, due to factors such as defaults or county court judgments. Perception Finance […]

MS-18Dec-CoverIndex.jpg

The Genie of the Piggy Bank

Chancellor George Osborne travels to distant lands to find the Genie of the Piggy Bank Mark Carney but he meets a nasty end in his ill-fated quest 

Mark Lofthouse Mortgage Brain

Mark Lofthouse: Mind the LTV rate gap

Current research into mortgage product data has revealed that the gap between the interest rates at different LTVs for the same type of mortgage is continuing to rise – and in its most extreme case, has more than doubled. But what’s the story behind the figures and what does it mean for borrowers?  Every quarter, […]

Newsletter

News and expert analysis straight to your inbox

Sign up
Comments
  • Post a comment
  • Seamus 19th December 2013 at 12:00 pm

    Sarcasm is the lowest form of wit since its aim is to belittle or hurt someone, and to laugh at their expense…sums you up really 🙂 And you should try reading, you might learn something

  • Harry Katz 18th December 2013 at 7:14 pm

    @ Seamus

    No wonder you want to post anonymously. Being irritating must have earned you a few good hidings in the not too distant past. No wonder you won’t be inheriting!

    The word ‘Advice’ appeared and that in effect is what I was commenting on. My comment was supposed to have sarcasm. Perhaps it went over your head?

    I wouldn’t waste my time reading anything about the MAS in detail. As I have said most of what I have seen in the listings provided are inaccurate anyway.

  • Seamus 18th December 2013 at 4:10 pm

    HK. Yet again way off the mark…Tut tut. The Money Advice Service is not regulated by the FCA and so they can not provide a regulated service. They can not recommend specific financial products and so recommend that the customer seeks further information from an independent financial adviser.

    This is covered in step 5 “If you don’t have a plan” and step 2 “if you do” within the leaflet….if you had taken the time to read it.

  • Harry Katz 18th December 2013 at 11:53 am

    Advice? I thought they were not authorised or qualified to provide advice – just information. Who is uninformed- the CML or Warwick Business School. Either way if these people are confused what hope for the public?

    Yet another indisputable indicator that the MAS is just not fit for purpose.

  • ASBO 18th December 2013 at 11:38 am

    Once again proving the MAS is not fit for purpose and should be shut down immediately before wasting any more tax payer money

  • Sascha Klauß 18th December 2013 at 11:14 am

    Wise man say never put off till tomorrow what you can do the day after tomorrow. Anyway…

    The leaflet is two pages long, is headed “Take action with your interest-only mortgage now” and to quote the lede: “If you have an interest-only mortgage it’s vital to have a plan to pay it off. If you don’t, you may have to sell your home to repay the mortgage when the term ends… Time is of the essence – follow the steps below to get on track. If you don’t have a plan…Act now!”

    If this is “encouraging procastination” I would like to know what the good Doctors Read and Something Else think they should have said to encourage action. “Oi you! Pleb! Pay mortgage now! Or die!” maybe.

    The statement that the steps “do not even appear to be in order of priority” is nonsense – the order is logical enough to me.

    The main thrust of their argument seems to be that ordinary people – people who don’t have PhDs in Business Studies from Warwick U – are too stupid to read through a five- or six-point list on a 2-page A4 document without getting confused and panicky. Anyone that actually applies to probably did not have legal capacity to take a mortgage out in the first place.

    Much as we all like a pop at the MAS, this is ivory-towership that puts Canary Wharf to shame. MA vs MBA – I’m with MA on this one.