Why the mortgage industry must help tackle personal finance paralysis

Not making decisions carries real consequences – failing to switch to a more competitive mortgage rate costs UK consumers £2.5bn per year. This works out to £745 per person, according to research from Freedom Finance and Economist Professor David Hillier from Strathclyde Business School.

With Brexit on the horizon and house prices continuing to fluctuate, giving customers the support they need to make well-informed decisions, is important now more than ever.

Nearly half (45%) of adults across the UK say that the process of making important personal finance decisions, including switching to a better mortgage rate, makes them feel overwhelmed and anxious. As a result, this crippling feeling causes over a third of Britons to regularly put off or delay making decisions about their finances and it only takes them 21 minutes to give up.

Interestingly, despite being more tech savvy, young people are twice as likely as baby boomers to suffer from personal finance paralysis. 50% of Millennials regularly delay or put off important personal financial decisions because it makes them feel overwhelmed or anxious, compared to only 22% of Baby Boomers.

Having lots of choice in the mortgage market is not a bad thing, however, lots of irrelevant options can be confusing and people often find the application process daunting and unnecessarily complicated. Developments in Open Banking can help with this, as pre-filled applications will tailor and limit options to give customers what they are looking for efficiently.

Recent developments in robo-technology give customers a better understanding and remove unnecessary confusion. We are seeing this technology help customers with switching, particularly when choosing energy providers, so it is really beginning to pave the way for supporting personal finance decisions. Over 70% of consumers told us that they want more clarity from financial services providers about which financial products they qualify for and which are right for them.

Although brokers can help customers choose the right option, we found that a quarter of people are worried about agreeing to terms and conditions that they don’t understand. The industry must do more to inform and educate customers, so that they make well-informed decisions.

At Freedom Finance, we are gathering market intelligence on consumers’ behaviour around terms and conditions. We already offer instant access to phone advice throughout the digital journey, but what we want to integrate is pop-up chat services where customers typically pause or are frequently asking questions. We are also dedicated to introducing personalised journeys for customers in order to tailor the experience for particular customer groups.

Providing consumers with clarity, not choice is crucial in today’s market. Brokers are supporting customers on decision making, however more needs to be done to bring customers the clarity they are demanding.