Research commissioned by the bank revealed consumers tend to suffer from ‘myopic loss aversion’ when searching for a mortgage, focusing on the short-term alone. It further revealed consumers find it difficult to make economically rational decisions when searching for a mortgage, with consumers prone to anxiety, bias and ‘decision simplification’ strategies.
The study showed most people listed the initial period repayments as the most important factor when deciding on a mortgage, with many ignoring the APR associated with a product.
Jackie Moran, head of sales proposition at Standard Life Bank, said brokers needed to do more to make borrowers aware of viable long-term deals.
She said: “The research showed consumers tend to get a mortgage with their heart rather than their head. Brokers have the responsibility of trying to take the emotion out of it and making clients see the exact costs and the best option for them to take. Brokers have a much bigger role to play in educating clients about the long-term benefits of obtaining a mortgage, away from the short-term that clients tend to focus on.”
However Paul Hearnden, managing director at my Mortgage Direct, said borrowers were tempted by low initial rates as it matched their financial situation. “Most people are rate-driven and individual circumstances will determine what they can and want to pay. People would rather have short-term benefits so they can keep more money in their pocket at the time than be thinking five or 10 years down the line.”
He added: “Flexible mortgages are an option, but not many people take them up. We go through client circumstances and they often choose a cheap initial rate, if the fees also fit their budgets.”
