Millions of Brits are clueless about how mortgages work and blame their schools for not teaching about them, a study shows.
Even though more than 20 million people in the UK currently have a mortgage, two-thirds are confused by what a deposit is, and seven in 10 don’t know what an “annual percentage rate” (APR) means, a survey by firstmortgage.co.uk found.
What's more, half of homeowners don't know what a fixed rate mortgage is, while nearly two in three (64%) don't know what is meant by “re-mortgage.”
The terms “negative equity” and “APR” are the most commonly misunderstood phrases, with four in five (79%) not knowing the term negative equity and almost as many (77%) not knowing what was meant by APR.
More than four in five (84%) Brits agreed that mortgages would be a useful thing to teach in school.
Instead, the average age people start learning about mortgages is 23. Half of Brits wish they had started learning about them earlier, the research found.
Meanwhile, nearly two thirds (64%) said it would have been useful to start learning about mortgages before they started to apply for one.
The remaining third said they’d only do a “a little bit of research” before applying.
Firstmortgage's mortgage expert David McGrail warned homebuyers against going in blind.
He said: “Understanding exactly what is and isn’t a part of a mortgage is crucial when applying.
“People should know what mortgage they are getting, how and when this might change and how much they could be repaying a month.
“For example, a variable rate mortgage would change in line with interest rates, while a fixed rate mortgage wouldn’t.
He added: “Knowing what type is best for you is vital.”
While nearly half (47%) of Brits know what a “fixed rate” mortgage is, only one in 10 know what is meant by a “variable rate mortgage,” and just 5% know what a “tracker mortgage” is, the study found.
McGrail said: “There are so many types of mortgages. I would strongly encourage people to do their research and reach out to an adviser to discuss potential options before applying.”
“While some might turn to Google for advice, it is important to get personalised and professional help when deciding on which mortgage works for you, as it can be a complicated world.
“Advisers can help you understand the complicated terms and help you get the best deal.”
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