More than half of adults under 35 say they have “a fairly or very bad understanding” of how mortgages work, according to a survey from Paymentshield.
The insurance distributor reports that 52% of 18 to 34-year-olds said they had little understanding of the whole mortgage process from beginning to end.
By comparison, 32% of 35 to 44-year-olds admitted to the same lack of understanding, with the proportion dropping to 25% among those between 45 and 54.
This comes as the average age for a first-time buyer rose this year from 30 to 31 for the first time in a decade, with the average cost of a first home in the UK at £196,223 according to research from Savills in May.
UK adults under 35 showed a similar lack of understanding of the types of insurance required at different stages in life, with 53% declaring their knowledge “fairly or very bad”, says the insurer’s survey.
It adds, this may explain the report’s finding that if 25 to 34-year-olds were purchasing home insurance, they would do so through comparison sites rather than consult a broker or financial adviser.
It found 40% of this group would use a comparison site, against just 6% going through a broker.
Fear of financial jargon may be the biggest barrier, the data reports.
A third (33%) of 25 to 34-year olds say they are “not very” or “not at all confident” that they would understand the language used to explain financial products and services. A similar proportion, 37%, said the same among 18 to 24-year-olds.
Paymentshield sales director James Watson says: “The finding that 25 to 34-year olds are nearly seven times more likely to say they would prefer price comparison sites to seeking financial advice if they were purchasing home insurance is alarming, and risks leaving this already vulnerable cohort with insurance unfit for their needs.
“Hopefully, measures like the implementation of the Financial Conduct Authority’s general insurance pricing practices study will go some way to address this by creating a fairer marketplace that offers consumers products focused on value, rather than an automated race to the bottom where the cheapest price is offered at the expense of all other considerations.”
Watson adds: “Even beyond the end of stamp duty holiday, the FTB market presents a key opportunity for advisers.
“This is a cohort lacking in confidence and knowledge about both the mortgage and insurance processes, meaning that they need more guidance.
“Advisers are perfectly positioned to support them – and not just for a one-off transaction: FTBs also have more overall needs in terms of general insurance.”
Watson says by providing “valuable, tailored” advice to this young age group, brokers “have the opportunity to become a trusted expert who these buyers can rely on and recommend for the rest of their life.”
Paymentshield’s poll was carried out by data group YouGov, which contacted a nationally representative sample of 2139 adults online between 4 and 5 of January 2021.
