I am in complete agreement with the Financial Services Authority’s (FSA) principle seven, but because I am, I ‘get out of my pram’ when the FSA insists we put out misleading information to clients and prospective clients in advertising and information in the Key Facts Illustrations (KFI).
Let me go through my ‘hit list’ of those things where I believe the FSA is wrong in forcing us to put out misleading information relative to APR’s.
I think most people in the industry now agree what a completely misleading piece of information an APR is. You can have one deal and compare it with another deal in the prime market which is intrinsically the same, but the one with the lower on-going standard variable rate (SVR), etc, will appear better value on the APR than the one with the higher, which is not necessarily true.
Furthermore, because there will be so many variables over what is a long-term rather than a short-term loan, and is assumed in the calculation that you stay with the lender for the whole term of the mortgage, at its SVR or similar tracker rate, the reality is, you won’t. So that is misleading information that we are forced by the regulator to give clients
To compound this nonsense, the FSA insists on having as item five, ‘Overall costs of the mortgage’. Taking this into account, the fact it will cost an extortionate amount, which is meaningless because the mortgage will likely to be changed many times over the years on remortgaging house moves, etc, and you will not be paying the lender’s SVR. So, if it is in reality inaccurate information, then it’s misleading. Why not compare the cost of renting a property for 25 years and doing a comparison – it is just as justifiable as you have to live somewhere.
As for the lame excuse that it’s an EU directive, we should tell Europe that, as far as UK mortgages are concerned, we are not prepared to give misleading information to the consumer and we won’t. Europe can do what it wants as we in the UK will just not follow it if it’s plain wrong and misleading in relation to mortgages. What’s wrong with our leaders in the FSA and government? Are they too scared to stand up to Brussels in the name of the British consumer?
As for advertising in the non-conforming market and having to put in the representative APR, how can that be anything but totally and completely misleading?
So providing of course you can understand the formula for calculating this, in goes the representative APR on your advertisement for your adverse mortgages. Does that represent the near-prime, light adverse, medium, adverse, heavy adverse, don’t call us, we’ll call you adverse, or what? Well, it represents it all. So if a near-prime case comes along, the client will look at the APR and think, ‘sounds a bit high’, while the guy who just is out of bankruptcy, thinks it sounds like a good deal. So does it mean anything to anyone unless they are the APR average prime? No. APR is completely misleading and is information that helps nobody because it is based on a misleading formula in the first place.
APR should be killed, and then hung drawn and quartered, handed to Mr ‘Meddlesome’ and returned to Brussels.
Danny Lovey
The Mortgage Practitioner
