Research on consumer understanding of mortgage products by NSE researchers John Gathergood and Joerg Weber features in the Daily Mail: http://www.dailymail.co.uk/money/howmoneyworks/article-3260616/How-understand-mortgages-quiz-beat-UK-average.html.
John and Joerg’s work shows that many consumers have poor understanding of the basics of mortgage products, so-called ‘financial literacy’. In particular, mortgage holders who chose more complex and risky alternative mortgage, such as interest-only mortgages, have the worst understanding of how mortgages function.
Commenting on the research, John Gathergood said ‘'Alternative mortgage products can provide flexible solutions for responsible and rational borrowers, but in the wrong hands they can allow people to get into financial situations they just can't handle. Our study suggests that one reason alternative mortgage products often perform poorly is that they attract consumers who are less likely to understand their features and who don't think ahead. We need to find ways of addressing this issue, otherwise the repercussions – not just for these consumers but on a far wider scale – could be extremely serious'.
He added: 'An inability to correctly answer basic questions about interest rates demonstrates a fundamental lack of comprehension with regard to how mortgages work. 'Perhaps just as disturbingly, the question that most alternative mortgage product holders got wrong was the one question whose scenario captured the very essence of an alternative mortgage'.
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Posted on Tuesday 6th October 2015