Most people recognise a property is the largest and most expensive thing they will buy in a lifetime. It makes sense then that a mortgage contract should be the most important document anyone will ever read and sign. All of which makes new research from Habito that bit more worrying.
The research looked at people’s behaviour when presented with various financial contracts, mortgages included. It found that 75% of homeowners had not read the entirety of any financial contracts prior to signing them. A further 25% also said they had signed on the dotted line without fully understanding the language in the contract.
A third never finished reading their mortgage contract
Zeroing in on the mortgage industry, the research discovered a third of the respondents (34%) admitted they had signed their mortgage contract without reading through all the terms presented in it. Even more worrying was the figure of 46% given for the percentage of people who managed to read a quarter of the contract or less before giving up and signing it.
“A mortgage is something many people strive for, because it enables them to buy the property they have always wanted,” said Darren Pescod, CEO of The Mortgage Broker Limited. “It is understandable that people want to sign on the dotted line quickly to get on with the process of moving. However, as this research has shown, many people are signing without fully understanding what they are agreeing to. A mortgage is a big deal, and something the mortgage holder will be paying monthly for many years. Signing something without reading and understanding what it offers could be disastrous.”
Only half the population are suitably qualified to understand mortgage contracts
The team at Habito put mortgage contracts to the test by allowing linguistics professionals to ascertain the average reading level required to fully understand the average mortgage contract. The research found an A-level education is required to understand them – and nearly 50% of adults in the UK today do not have that education.
While many current mortgage holders could get better deals, those with an education below the A-level stage would benefit the most from switching. This is due to the difference between the possible savings and their income level. And yet the research shows this is the group most likely to have trouble understanding a mortgage contract.
Should the government step in?
Most people get a glazed expression when faced with a contract of some sort – mortgages included. The research mentioned above also asked whether people thought the government should take steps to make contracts far easier to understand, possibly via regulation. This question had nearly 95% of those who took part responding with a resounding ‘yes’.
Whether the government will take note of this remains to be seen. Yet it is clear from the research that many homeowners could be paying over the odds on a mortgage they do not fully understand.