My name is Malcolm Murphy and for many years I have worked in the consumer finance industry here in the UK. The last 4 years have been spent working as the Head of Online Sales for a financial research company supplying banking data to many of the UK's leading consumer finance websites. During this time I have learned all of the tricks used by other consumer finance websites. http://www.thebestbestbuys.com is a no-nonsense consumer finance website that people in the UK can trust. You can find our blog at, http://thebestbestbuyscom.blogspot.com/ You can also find us at: http://www.squidoo.com/thebestbestbuys
APR or Annual Percentage Rate of Interest was devised as a way of allowing consumers to compare different financial products. This was and still is a great idea. However, there are a number of issues when it comes to using APR to compare mortgages. Both credit card and unsecured personal loan APR give a fair and reasonable indication of the annual cost and more importantly appear consistent across providers.
Not so with mortgages, there can be wild and mystifying differences in the APR from one mortgage to the next. At the top of the mortgage best buy tables the APR can be higher than the ones below it. So is it a best buy? It may well be. It is therefore fair to assume that APR is failing in its task of helping consumers to compare mortgages.
The reasons for the differences are pretty straight forward:
- Each Provider Calculates APR slightly differently
- The way interest is applied i.e. daily, monthly, annually
- Inclusion or Exclusion of certain fees
But is there anything more sinister going on? Have the product marketing teams been massaging figures a little too much?
Unfortunately for the conspiracy theorists among us the answer is a big fat no. There are providers that add every cost associated with the mortgage. There are also providers who calculate the APR on all the required areas as they are not required to apply certain costs.
The simplest answer to all this is to standardise the calculation by using the “True Cost” instead of APR. Insist that all providers have to base APR on the total of all costs, including legal fees, survey fees, exit fees, all admin fees, transfer of fund fees, etc. All mortgage best buy tables should be obliged to rank their table according to “True Cost”.
My own observation is that when people are looking for a mortgage they are conditioned to look at the headline rate and not the APR. This is very different to how a consumer goes about comparing other financial products such as credit cards or unsecured personal loans.
My suggestion to anyone out there looking for a mortgage is, think about 4 key bits of information:
- Headline Rate
- Fees
- APR
- When the deal stops what happens?(extended tie-ins, move to the providers Standard Variable Rate, discounted rate, etc)
After this initial comparison you have to check out the finer details, it is dull but it is necessary. The devil is always in the detail.
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