Borrowers' Perceptions of Current Account Mortgages
Although most current account mortgages (CAMs) get good ratings in mortgage comparison surveys, research carried out by the Institute of Education has indicated three potential issues with CAMs, from the customer's perspective:
1. Potential borrowers have difficulties understanding the whole concept of a CAM.
2. Potential borrowers also find it difficult to make comparisons between CAMs and conventional mortgages, when trying to choose the most appropriate mortgage product for their particular circumstances.
3. Some borrowers who have signed up for a CAM do not understand the product which they have taken on. As a result, they fail to manage their repayments effectively, resulting in higher personal debt levels and increased aggravation for both borrowers and lenders.
One existing account holder describes a current account mortgage as follows:
'I think the mistake most people make, financial advisors included, is they regard it as a mortgage, it's not really, it's a current account with an overdraft facility secured on your home'.
While this description may not be 100 percent accurate, it does give a succinct description of a CAM that most people can understand.
Understanding Current Account Mortgages
The conclusion to be drawn is that current account mortgage providers (and brokers) need to ensure that members of their sales staff receive adequate product knowledge training if CAM borrowers are to be signed up and retained successfully. Even people with reasonable basic knowledge of mortgages seem to be confused by CAMs.
Statistics indicate that around 80 percent of CAM holders succeed in paying off their mortgages before the end of the scheduled term, which suggests that most of these people do not spend all their disposable income every month.
This would indicate that a CAM is often not the most appropriate mortgage product for a first time buyer, but by the time they get on to their second or third property it could provide flexibility that they could really use to their advantage.
Current account mortgages are still relatively new to the market and have only been available for approximately 10 years;
for this reason, many people fail to understand the true implications of the CAM;
furthermore, those who have taken out CAMs have yet to reach the point whereby the mortgage may realistically be paid off; therefore, it is impossible to draw any conclusions as to whether or not CAMs are encouraging people to pay off their mortgages, early.