Mortgage Brain Ireland, the leading provider of mortgage software for brokers, lenders and consumers, recently commissioned research into the level of mortgage literacy in Ireland. The research was undertaken by Coyne Research who surveyed over 1,000 adults aged over 18, comprising people who currently have a mortgage, or for those who don’t have a mortgage, those likely to take out a mortgage in the next 12 months.

The research was commissioned to assess the level of capability among Irish consumers in understanding mortgages and making basic calculations.

Of particular note are the low levels of mortgage literacy amongst those who are likely to take out a mortgage in the next 12 months, and amongst the younger age cohorts (18-34s), where the knowledge gap is most evident.

According to the survey results, there was also a widespread gap in knowledge across the various groupings with more than half (55%) of the population unable to correctly note the impact on interest paid on a 25 year mortgage versus a 35 year mortgage. Almost 70% of consumers did not know how much interest they would pay a lender over the life of a mortgage.  When asked to calculate the Loan to Value (LTV) for borrowings of €200,000 on a house worth €250,000, almost half (48%) answered incorrectly.

It is clear from this research that the consumer needs to be educated before they take out a mortgage, at the point of sale, not after the loan documents have been signed.  Paradoxically, it is in the lenders interest to have ‘smart’ rather than ‘uninformed’ borrowers.

Greater resources in financial education for consumers need to be put in place so they can make smarter decisions when it comes to managing their mortgages and making the right choices.  Education and capability building is an urgent priority – particularly for the 18-34 age group and this must occur as a matter of urgency.

Face-to-face interaction between the mortgage broker and borrower has a key role to play in reducing the problems associated with financial illiteracy and the associated risk of mortgage default.