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Overcomplicated language dissuades people from switching mortgages

Across the UK adults are signing away the biggest financial contracts of their lives without fully reading or comprehending them, new research from online mortgage broker Habito has revealed.

Some 75% of homeowners admitted to not fully reading financial contracts before signing them, while a further 25% said that they have committed to a financial agreement without understanding the language used in it.

Over half (52%), meanwhile, think they have overpaid for something because the language used in the contract was unnecessarily complex.  


Some 34% said they had even signed up to their mortgage without finishing reading the terms, while almost half (46%) admitted to only reading up to a quarter of the way through a mortgage contract before signing it.

The research also found that 58% of UK mortgage holders put off switching their mortgage because of the over-complicated language and small print used in the contracts, while a massive 95% of those surveyed said they think the government should intervene to force providers to make contracts easier to understand.

Habito has estimated that complex mortgage contracts are doing a costly disservice – to the tune of £15.5 billion a year - to those who should switch more often. The broker partnered with linguistic and economics experts to analyse how much mortgage holders could be missing out on by not switching.

The University of Nottingham’s Linguistic Profiling for Professionals (LiPP) department combined seven independent readability measures, tracking features such as average word length (in syllables) and average sentence length in mortgage contracts. They found that the educational reading age needed to fully understand the language used in mortgage contracts is Year 13 (A-level), which excludes nearly half of the UK adult population.

Elsewhere, research by Dr. Peter Backus, a senior lecturer in Economics at the University of Manchester, found that households with a GCSE reading level are staying on costly deals up to a year longer than those with a higher level of education. This comes in spite of the fact that the potential savings from switching could make a huge difference relative to income.

“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,” Backus said.

“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.

The research suggests that consumer appetite for change is there, with 90% believing the language used in contracts could be simplified.

Legal jargon (51%), confusing terms and conditions (48%) and the explanations of the implications of not adhering to the contract (34%) were put forward as the main things that should be re-written so they become easier to understand.

“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,” Daniel Hegarty, founder and chief executive of Habito, said. “Enough is enough.”

“Taking inspiration from the food industry, Habito is making itself a “free from” mortgage broker, he added. “For us, this means being free from confusing language, industry jargon and ropey customer communications.”

Hegarty believes 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,” he concluded.

Paula Higgins, chief executive of the HomeOwners Alliance, said it was 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,” she argued.


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