Pensions might be perplexing, and investments an enigma, but most of us think we have got a handle on mortgages. That is what lenders want you to think — that unlike other financial products, mortgages are transparent, easy to understand.
Most of us believe it, thanks to the fact that we fixate on the elements lenders want us to spot, and blithely ignore the pointers telling us to “see important notes”. These notes are where you will find the fees that lenders would prefer us to forget.
Though small compared with the overall price of a home loan, these charges cost borrowers millions of pounds a year. More than that, they are confusing — attempt to find out the full charges on most lenders’ websites and prepare for defeat.
Lenders, of course, argue that they are completely open. They are required to include an APR on all mortgage tables and adverts.
The APR includes any upfront fees charged and shows how much borrowing will cost each year over the full term of the debt. In theory, this enables you to make a comparison between one lender and another, but I wonder how many borrowers ignore this and zone in on the much lower and more appealing headline rate?
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I would guess that most do, and if you intend to remortgage in a few years’ time — after, say, a fixed term ends — you would be right. The APR is calculated over the whole term of a mortgage and only shows the true cost if you keep the mortgage for the full 25-year term. For rate tarts who regularly remortgage it is next to useless, and the most obvious tool they have to compare what is on the table is the headline rate. Then, of course, you don’t see the effect of the fees, so it is back to square one.
This leaves the door open for borrowers to be gamed. Given that the regulator has made a big fuss about its desire to ensure that consumers who buy investments or insurance, or open new bank accounts, can easily compare what is on offer, the fact it doesn’t seem so concerned about mortgages seems remiss.
It certainly isn’t getting any easier, as a growing number of banks and building societies have started offering “treats” to entice new customers. Cashback is the incentive of choice for most. Enticing as this sounds, David Hollingworth, of London & Country, warns: “It’s important to differentiate between a gimmick and something that offers real value.” The deal bearing the biggest gifts isn’t necessarily the cheapest overall (see thetim.es/cashback for more) and the only way to work that out is for you or a broker to crunch the numbers.
Banks and building societies profess not to see the problem, claiming to be offering choice so that customers can choose the combination that best suits their needs. Good luck with that because I am astounded anyone can make their way through this quagmire and be sure they got the best deal. In a low-interest-rate world that may not matter a great deal, but once rates start to climb it certainly will. On page 59 we report how algorithms are being used to aid investors. Any boffin who can create an algorithm to identify the best mortgage in seconds deserves a CBE.
We must face facts when it comes to long-term care
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At last, some honesty about the nightmare that is paying for long-term care. Kate Barker and her Commission on the Future of Health and Social Care in England is admirably candid in its analysis of the failures of the current system. It exposes the government’s reform — centered on the lie that if you have £72,000 everything else is covered —for what it is, a sticking plaster, and a poor one at that.
Not everyone is going to like the commission’s solutions: that older generations should contribute to the cost as they have most to gain from an overhaul. It recommends means-testing winter fuel payments and TV licences, ending free prescription charges and charging national insurance if you work past state pension age.
Why should those who are fortunate enough not to need care pay for it? Because greater sharing between those who need it and those who do not is “a sign of a more civilised society”.
Are there any MPs out there brave enough to champion its cause?