64% of UK people have taken out a mortgage or personal loan without fully understanding how it works, according to the Money.co.uk financial literacy report for 2022.
As a result, the experts at Confused.com mortgages conducted a survey of 2,000 Brits to discover just how financially clued up the average Brit is.
Survey Findings:
What is an annual percentage rate (APR) concerning a mortgage?
| All respondents | Those with a mortgage | Those without a mortgage | |
| The total cost of your borrowing for a year (including interest and standard fees) | 38.3% | 49.8% | 27.0% |
| The percentage charge for paying off your mortgage early | 11.3% | 12.9% | 9.7% |
| The yearly interest rate on your mortgage | 50.5% | 37.3% | 63.3% |
Over 6 in 10 Brits (61.8%) don’t know what an APR is. More worryingly, respondents were more likely to say that APR refers to the yearly interest rate on your mortgage.
What is a loan-to-value ratio (LTV)?
| All respondents | Those with a mortgage | Those without a mortgage | |
| The ratio of your deposit against the mortgage interest rate | 17.5% | 27.6% | 7.6% |
| The ratio of the loan amount you’re borrowing against the current value of the property being bought | 59.6% | 57.0% | 62.2% |
| The ratio of your deposit amount against the total value of the property being bought | 12.5% | 10.3% | 14.6% |
| The ratio of your loan amount against the interest rate | 10.5% | 5.2% | 15.7% |
4 in 10 of our respondents (40.5%) answered this question incorrectly. This means two-fifths of the UK doesn’t know what a loan-to-value ratio is, one of the key terms associated with a mortgage.
Interestingly, those with a mortgage showed a slightly lower understanding, with 57.0% choosing the correct answer. Those without a mortgage showed a higher rate of correct answers at 62.2%, but also a significantly higher rate (15.7%) of those who thought it’s “the ratio of your loan amount against the interest rate.”
What is the capital on a mortgage?
| All respondents | Those with a mortgage | Those without a mortgage | |
| The total you pay back each month | 23.0% | 33.8% | 12.4% |
| The total loan amount you borrow, not including any interest | 71.6% | 62.6% | 80.3% |
| How many years you pay back the loan over | 5.4% | 3.5% | 7.3% |
In good news, over 7 in 10 (71.6%) of respondents correctly stated that this is the total loan amount you borrow, not including any interest. However, a significant proportion, 1 in 4 (23.0%), still incorrectly think it refers to “the total you pay back each month.”
In addition, people with a mortgage were less likely to choose the correct answer (62.6%) than those without a mortgage (80.3%). This could be due to those with mortgages not paying much attention to the topic once their mortgages were secured (potentially several years ago).
The experts at Confused.com mortgages have also looked at keyword research data to identify the most common questions Brits have surrounding mortgages:
The top 3 most common mortgage questions:
| Rank | Question | Searches June 2021-June 2022 | Searches June 2022-June 2023 | Change (%) |
| 1 | Will mortgage rates go down | 2,660 | 111,400 | 4087.97% |
| 2 | How to improve credit score | 81300 | 88,800 | 9.23% |
| 3 | What mortgage can I afford | 88,500 | 83,100 | -6.10% |
- The most common mortgage was ‘Will mortgage rates go down’, which received 111,400 Google searches. The Government’s Mortgage Charter states: “… the only way we can keep costs and mortgage rates down is to tackle the root causes of inflation. The Government is committed to halving inflation by the end of the year and supporting the Bank of England’s work to return it to 2%.” This suggests that mortgage rates will remain at their current level or higher until the end of the year, provided that inflation begins to reduce significantly in that time.
- The second most common mortgage question is ‘How to improve credit score’, with 88,800 Google searches. Utilising your credit card and paying off your balance at the end of each month is a great way to boost your score. Keep your usage low, however, as higher utilisation may bring your score down. Experian recommends aiming for around 30% utilisation. This means if you have a £2,000 limit on your credit card, aim to use no more than 30%, or £600.
- Completing the top three is ‘What mortgage can I afford’, which received 83,100 Google searches. The amount you can borrow for a mortgage depends on many factors. Perhaps the most significant contributing factor is your salary. Those earning higher incomes will likely be able to borrow more from the bank, as they are more likely to afford the repayments on those higher amounts.
An expert from Confused.com’s broker partner, Mojo, comments:
“Buying a home is one of the most important decisions a person can make in their lifetime. Not only do you have to consider your budget, location, career, and other responsibilities when buying a home, but you’ll also likely need a mortgage.
“Mortgages are, however, complex financial instruments. There are many facets to a mortgage; it is not just a simple loan. Each mortgage has different rates, terms, fine print, and costs, so understanding what these are and how they affect your repayment is very important.
“The complexity of mortgages may be a barrier to purchasing properties for those less financially literate. Research has shown that mortgage literacy is lower for renters than for homeowners.
“For those looking to get on the property ladder with a mortgage, it is good advice to get clued up on the relevant terminology when it comes to these loans. This will help you navigate the complicated challenge of securing the best mortgage for your situation.”
