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58% of mortgage holders put off switching because of overcomplicated language, costing households an extra £15.5billion a year.

  • The average mortgage holder could save up to £294 a month by switching.
  • 95% think the Government should regulate to make contracts easier to understand.
  • Online mortgage broker Habito becomes world’s first “free from” mortgage company

LONDON:  Adults across the country sign away the biggest financial contracts of their lives without fully reading or understanding them, according to new research out today from online mortgage broker Habito1.

Three quarters (75%) of homeowners admit to not fully reading financial contracts before signing them and one in four (25%) said that they have committed to a financial agreement without understanding the language used in it.

More than half (52%) adults think they have overpaid for something because the language in the contract was unnecessarily complicated.

More than one in three (34%) admit they actually signed up to their mortgage without finishing reading the terms, while nearly half (46%) only read up to a quarter of the way through a mortgage contract before signing it.

Research from Habito, published to coincide with the launch of its “free from” mortgage commitment to tackle jargon in the mortgage industry revealed that more than half (58%) of mortgage holders in the UK put off switching their mortgage because of the over-complicated language and small print used in the contracts.

And almost all of those questioned (95%) said that they think the Government should regulate to force providers to make contracts easier to understand.

Challenging the industry to clean up its act, Habito has partnered with specialist linguistic and economics experts to reveal that complex mortgage contracts are doing a costly disservice to those who should switch more often by up to £15.5billion2 a year.

Combining seven independent readability measures, tracking features such as average word length (in syllables) and average sentence length, the University of Nottingham’s Linguistic Profiling for Professionals (LiPP)  department, found that the educational reading age needed to fully understand the language used in mortgage contracts is Year 13 (A-level), which almost 50% of the UK adult population3 don’t have.

Additionally, research by Dr. Peter Backus, senior lecturer in Economics at the University of Manchester, revealed that households with a GCSE reading level are staying on costly deals up to 12 months longer than those with a higher-level education. This is despite the fact that the potential savings from switching could make a huge difference relative to income.

Dr Backus, said: “Following the analysis of a significant number of live (in-market) mortgage deals, my research shows that 55% of mortgage holders could reduce their monthly mortgage payment.

“From my research, the average mortgage holder is able to save up to £294 a month by switching to a new mortgage. As a percentage of their current monthly mortgage payment, it’s households with an educational reading age of Year 11 (GCSE) or below who would benefit from switching the most.

“For an investment as important as a mortgage, often the biggest financial commitment a person will ever make, the readability of the agreement itself is crucial, which is why I welcome Habito’s ‘free from’ approach and urge the industry to follow their lead.”

Consumer appetite for change is clear with the research results showing that 90% of those surveyed believe the language used in contracts could be simplified and 1 in 3 (34%) mortgage holders said they only read up to a quarter of the way through their contract because they were confused by the language it contained.

They said that legal jargon (51%), confusing terms and conditions (48%) and the explanations of the implications of not adhering to the contract (34%) should be re-written to be easier to understand.

Daniel Hegarty, founder and CEO of Habito, said: “For too long financial service providers have bamboozled consumers with over-complicated language, meaning people frequently sleepwalk into signing hellish long-term agreements that aren’t in their best interests. Enough is enough.

“Taking inspiration from the food industry, Habito is making itself a “free from” mortgage broker.  For us, this means being free from confusing language, industry jargon and ropey customer communications. It is about being upfront and clear with customers by using terms they understand and explaining much better the ones they don’t.

“We feel this should be an industry standard. The fact that almost everyone wants regulation to force contracts to be easier to understand is hugely telling of the scale of the problem, and we plan to campaign for that to happen. ”

Paula Higgins, CEO of the HomeOwners Alliance, the UK’s only consumer group for homeowners, said: “It is shocking that mortgage lenders are boosting their profits by billions of pounds by pulling the wool over their customers’ eyes. It is time for the industry to stop forcing homeowners to sign tortuous contracts that only lawyers can understand.”

And, more than just financial pressures, mortgage holders say that it’s the language, including complex wording, acronyms and industry jargon, used in financial contracts that is the most stressful part of signing (46%), followed by the length of time it takes to read and understand the contract (31%).

Almost two thirds (65%) of those questioned said that making the language in contracts simpler would ease their stress levels. More than a third (35%) admit that the stress of trying to understand a financial contract had led to sleepless nights and being distracted throughout the day. One in ten have taken time off work to go over a contract because the language used is too complex.

It’s not just the industry that Habito is challenging, but itself too; customer-facing information across the Habito site and throughout all of its customer communication (website, email, customer services) has undergone linguistic analysis by the University of Nottingham, to ensure it is ‘free from’ (over complicated and confusing language).