We’re all busy people but you may have managed to catch Pay Off Your Mortgage In Two Years on BBC Two at the back end of last year. The basic concept was eight couples are given help to sort out their finances so they can clear their mortgage in two years. Of course, a certain amount of sacrifice was needed on the part of the ‘contestants’, which resulted in them having no fun whatsoever for the time involved, but they did make significant dents in their mortgage.
In the form of ‘entertainment’ the financial planning assistance these people got did help give their long-term financial security a much brighter outlook. According to Andy Frankish, managing director of Mortgage Talk, it is something we all need to consider.
He says: “The amount of debt we are carrying is a big issue. Credit is not a bad thing and if it is managed wisely it can help you achieve your goals. But, with bad management, things can go wrong very quickly and problems don’t just affect now but also damage your future credit possibilities.”
Depressing times
The statistics being churned out in recent times by the Council of Mortgage Lenders (CML), as well as banks and building societies, tell a similarly depressing story of the state of the nation’s finances.
The UK’s credit card debt alone tops £1 trillion, around a third of the entire owing of Europe; first-time buyers are forced to borrow, on average, 90 per cent loan-to-value mortgages and the average loan increased by 5 per cent in the second half of 2005 to £103,000, while repossessions are at their highest levels since 1993.
“Today’s clients are busy people, and unfortunately looking after their own finances is low on their agenda,” Frankish added. “Alarmingly, 56 per cent of people spend less on their finances every month than the time it takes to watch one episode of Eastenders and even worse, one-in-five admit to spending no time at all.”
Financial coaching
Mortgage Talk’s solution to this is a ‘Financial Coaching’ programme for clients. As well as getting help in finding their mortgage, clients receive assistance to organise their finances for the next two years, allowing them to get in the mindset of planning their outgoings and, ultimately, helping them save money on their mortgage.
“Our financial coaches help clients to set goals and measure progress, as well as working alongside them to actually achieve these goals. These include the best mortgage, current and savings account structures, as well as smarter spending patterns, use of interest-free money and lowering typical household bills.”
With debt management becoming more important, clients are often turning to brokers and IFAs to help them sort out their finances. Regulation and the subsequent added pressure on intermediaries has left many feeling they don’t spend enough time with clients to help them properly organise their finances ahead of taking on the massive burden that is a mortgage.
Frankish said: “The amount of time spent organising the mortgage has often left us with a limited time with our clients, planning the best ways to pay off their mortgage. Often, if you keep in contact with the client and help them, rather than just selling them the product, you will find that things change and you will need to advise them differently than at the beginning of the process.
“We feel the coaching service could be perfect for first-time buyers as they are taking on a huge amount of debt but often haven’t received any financial education so they need that help. Also, people who are fairly high-net worth may have a good income but they sometimes don’t make the best of their accounts so they may need help too.”
But with the Mortgage Advice Bureau reporting a 50 per cent rise in consumers taking out 100 per cent plus mortgages in 2005, there is a concern that clients are extending themselves at a time when interest rates are relatively low and stable and are unprepared if these rates rise. While the current popularity of fixed rate mortgages shows consumers are taking some steps to manage affordability, emphasis on greater financial planning now seems essential for clients’ future safety.
Frankish concluded: “If interest rates were to rise quickly; 1 per cent in 12 months for example, then there would be serious consequences for many people. People need to be educated so they don’t just bury their heads in the sand when things start to go wrong, as this will make it much worse.
“It’s not just an issue for the client as it is something the broker cannot ignore either and they need to be there for their clients. The broker needs to emphasis that if the client talks to them, they can sort it out, as the last thing a bank wants to do is take someone’s house away.”
David French is a news reporter at Mortgage Introducer
