Commenting, Simon Whittaker, finance director at Mortgages for Business, said: “I have been in discussions with the FSA for the past year trying to introduce some sanity to the matter of APRs. The response from the FSA has been that it consulted fully prior to the introduction of the new regulatory regime but that the ‘need to be consistent with the approach taken in the Consumer Credit Act’ overrode the challenges that were raised by the industry.”
Jonathan Cornell, technical director for Hamptons International Mortgages, also criticised lenders for retaining an APR. He said: “The APR is the great white elephant of the mortgage market. It is a pointless indicator, based on the highly unrealistic scenario of a client finishing their rate and being too stupid or lazy to switch products for a better rate, even with their existing lender, and spending the remaining 23 years or so on a standard variable rate (SVR) which remains the same.”
However, Samantha Bennett, spokesperson at the FSA, said the regulator was unable to get rid of APRs as it fell under European legislation. She said: “APRs are tied by a European directive from 1987, which has a specified methodology concerning credit cards and some mortgages. We consulted on this prior to regulation and lenders opted for a single system.”
Joe Rabbitt, head of intermediary development at Nationwide Building Society, defended lenders policies for using
APRs. He said: “The cost of borrowing should be as clear and transparent as possible. This applies in terms of the up front deal with clearly stated rates and fees and also longer-term value. Fewer people these days take SVR rates, and as such mortgage APRs may be increasingly misleading. But, in conjunction with clear deal pricing, APRs are another illustration of the overall value a lender offers.”
