How financially literate are UK people in terms of mortgages?
Sixty-four per cent of people in the UK have taken out a mortgage or personal loan without fully understanding how it works, according to new research.
The findings in a financial literacy report from Money.co.uk suggests that six in ten of the British population do not know what an annual percentage rate (APR). For the study, it linked up with Confused.com mortgages, which surveyed 2,000 British people.
Four in ten did not know what a loan-to-value ratio was, with 40.5% of the respondents choosing the wrong answer from the survey’s options. However, over 7 in 10 respondents or 71.6% knew that the capital on a mortgage was the total loan amount they borrowed, without including any interest.
But worryingly, 23.0% thought the capital referred to the total one paid back each month.
Confused.com mortgages also noted that people with a mortgage were less likely to choose the correct answer, or about 62.6% of the respondents, as compared to those who did not have a mortgage.
Experts say it could be because the people with mortgages are not paying much attention to the topic once their mortgages were approved, “potentially several years ago.”
Confused.com mortgages also studied keyword research data to find out the most common questions Brits have about mortgages.
Top common mortgage questions:
- Will mortgage rates go down?
Between June 2021 to June 2022, there were 2,660 google searches. From June 2022 to June 2023, there was a 4,087.97% increase to 111,4000 searches.
- How to improve credit score?
This question was searched 88,800 times in the past year.
- What mortgage can I afford?
This question received 83,100 Google searches.
An expert from Mojo, Confused.com’s broker partner, noted that mortgages were “complex financial instruments” and are not just a “simple loan” and suggested mortgages’ complexity could be a barrier to less financially literate people’s purchasing abilities, adding that mortgage literacy was lower for renters than for homeowners.