Borrowers Show Low Level Of Understanding Their Debt ...

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11 October 2023

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A depressing 64 per cent of people have taken out a mortgage or personal loan without fully understanding how it works, according to a new survey.

Website Confused conducted a survey of 2,000 Britons to discover just how financially clued up they were.

Here are the three questions asked and a breakdown of responses:

1. What is an annual percentage rate (APR) concerning a mortgage?

	All respondents	Those with a mortgage	Those without a mortgage
The total cost of your borrowing for a year (including interest and standard fees)	38.3%	49.8%	27.0%
The percentage charge for paying off your mortgage early	11.3%	12.9%	9.7%
The yearly interest rate on your mortgage	50.5%	37.3%	63.3%

2. What is a loan-to-value ratio (LTV)?

	All respondents	Those with a mortgage	Those without a mortgage
The ratio of your deposit against the mortgage interest rate	17.5%	27.6%	7.6%
The ratio of the loan amount you're borrowing against the current value of the property being bought	59.6%	57.0%	62.2%
The ratio of your deposit amount against the total value of the property being bought	12.5%	10.3%	14.6%
The ratio of your loan amount against the interest rate	10.5%	5.2%	15.7%

3. What is the capital on a mortgage?

	All respondents	Those with a mortgage	Those without a mortgage
The total you pay back each month	23.0%	33.8%	12.4%
The total loan amount you borrow, not including any interest	71.6%	62.6%	80.3%
How many years you pay back the loan over	5.4%	3.5%	7.3%

A spokesperson from Confused’s broker partner Mojo comments: “Buying a home is one of the most important decisions a person can make in their lifetime. Not only do you have to consider your budget, location, career, and other responsibilities when buying a home, but you’ll also likely need a mortgage.

“Mortgages are, however, complex financial instruments. There are many facets to a mortgage; it is not just a simple loan. Each mortgage has different rates, terms, fine print, and costs, so understanding what these are and how they affect your repayment is very important.

“The complexity of mortgages may be a barrier to purchasing properties for those less financially literate. Research has shown that mortgage literacy is lower for renters than for homeowners.

“For those looking to get on the property ladder with a mortgage, it is good advice to get clued up on the relevant terminology when it comes to these loans. This will help you navigate the complicated challenge of securing the best mortgage for your situation.”