John Phillips is financial services director at Kinleigh Kolkard & Hayward It doesn’t take long in a growing market for instances illustrating the value of advice to crop up. Nowhere is this more apparent than in the rising tide of rate versus fee decisions being unleashed on the unsuspecting public. Choice in itself between these options is no bad thing, but the devil is in the detail and low headline rates frequently look better value than they actually are. Lower rates, without advice, will often win over consumers when a slightly higher rate with free legals and lower fees is the better value product. Now in a one on one taste test, it is likely armed with a calculator and good understanding of APRs consumers might stand a fighting chance, but multiply that choice by another ten products and even the most devout mortgage enthusiast will lose the will to live. Advisors are once again to the fore. At the root of this confusion is the assumption that consumers understand this trade off, and when it may or may not work in their favour. A bigger fee on a short term product is a real cost and unlikely to be to the advantage of anyone seeking a smaller loan. The APR cannot help as the fee is effectively amortized over the term of the loan but not equally over the discounted product period. Financial promotions have strict requirements about the use of APRs which do not deal with this issue at all – indeed they could be said to anything but “clear, fair and not misleading” – but consumers who buy in bank branches or direct should really watch out for fees and their impact on the total payable. Advice doesn’t just have a future in the mortgage market, it has a role here and now.
