Hamptons International Mortgages has called for the annual percentage rate (APR) to be scrapped on mortgage products, dubbing them "worthless measurements" which customers do not understand.
The APR is designed to give the customer an idea of what the mortgage will cost over the entire term of the loan, taking into account any special introductory rate or fees and the standard variable rate. For example, a product that starts with a two year fixed rate of 5% with a GBP499 fee, which then switches to an standard variable rate (SVR) of 6.75% gives an APR of around 6.8% for the entire term of the loan.
However, the measurement assumes that customers will stay on the same product for 25 years and that the SVR will remain the same over that period – both unlikely assumptions, Hamptons argues.
Jonathan Cornell, technical director for Hamptons International Mortgages, said: I’m baffled as to why APRs have lasted as long as they have, as I cannot think of anyone within the industry who feels they are a good measure of value. It is a shame that such a flawed measure of value is forced to be given such prominence on advertisements and keyfacts illustrations.
I don’t think many customers actually understand them either. In the interests of treating customers fairly, we should be removing meaningless jargon and worthless measurements such as the APR entirely.