Some 58% of mortgage holders put off switching because of overcomplicated language and small print, costing them up to £15.5bn per year, online mortgage broker Habito has concluded.
Three quarters (75%) of homeowners admitted 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.
Challenging the industry to clean up its act, Habito has partnered with The University of Nottingham’s Linguistic Profiling for Professionals (LiPP) department.
It 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 population don’t have.
Daniel Hegarty, founder and chief executive 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.”
More than half (52%) adults think they have overpaid for something because the language in the contract was unnecessarily complicated.
One in three (34%) admitted 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.
And almost (95%) said that they think the government should regulate to force providers to make contracts easier to understand.
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.
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.”
Some 40% belived the language used in contracts could be simplified and one in three (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.