Should you have to pass an exam before you are allowed to take out your first mortgage? According to the Consumer Credit Counselling Service, the answer is yes.
In a speech last week, Malcolm Hurlston, the chairman of the national debt charity, called on political parties to introduce some sort of training for first-time buyers. “First-time mortgages should be sold not with pretty ribbons and tax breaks, but with health warnings. They should be sold like driving licences, after study and exam.”
It is feisty stuff, and clearly not the kind of thing anyone involved in the selling of mortgages much likes the sound of. Lovemoney.com thinks that Hurlston has “lost the plot” and that the whole plan is “ludicrous”. Why should people be forced to learn about mortgages if they don’t want to know about them, the author asks, particularly when they can just nip along to a qualified mortgage broker who can advise them on what best to do.
This rather misses the point. Buyers should be forced to learn about mortgages because taking one out at all is the biggest financial decision the vast majority of us ever make. And getting one at the wrong time (before we are financially ready or stable enough to buy) or getting the wrong one (say a discounted deal with a reset we can’t afford) can turn out – and often does turn out – to be the worst financial decision any of us ever make. Witness the deeply depressing rise in repossessions over the last few years, and then think forward to how fast they will rise again as interest rates rise. It isn’t nice.
The truth is that homeownership isn’t a good thing for everyone. But if you don’t grasp the basics of the effects of compound interest, if you don’t know how interest rates impact on house prices, and if no one has told you that there are periods in history when house prices have fallen in real terms for decades, then you might not know that. And I really can’t see the average mortgage broker stopping to explain it: their job is not to put you off home ownership with a proper run though of the potential risks to your long term financial well being, but to sell you debt. That’s not really the same thing.
No one is suggesting that anyone should be banned from taking out a big mortgage. Just that they shouldn’t be allowed to do so before they have fully understood the maths behind it and accepted the risk that comes with massive leverage. It makes sense to me.