Home buyers to get fairer picture of mortgage costs

HOME BUYERS will get a fairer picture of how much their mortgages will cost under a series of regulations unveiled yesterday by the Government, which aim to impose a standard way of calculating the annual percentage rate (APR).

Stephen Byers, Secretary of State for Trade and Industry (DTI), said the regulations "will put an end to misleading advertising practices".

The reforms implement an EC directive and come in three parts. First, APRs must reflect the total cost of a low-start mortgage over its entire life. For instance, under existing rules a 25-year mortgage with an introductory rate of 4.8 per cent for the first two years only could be advertised as 4.8 per cent APR. This is despite the fact that after two years the rate will switch to the lenders' standard rate (currently 7.2 per cent). Under the new rules the mortgage lender must make it clear that the APR will be 6.9 per cent over the entire period of the loan.

Second, the cost of compulsory payment protection insurance, which is required for most endowment mortgages, must be included in the interest rate calculation. The lack of such a rule has made endowment mortgages seem more attractive.

Third, a standard method of working out the APR must be used by all lenders. Under existing rules, an APR of 9.99 per cent could be expressed as 9.9 per cent. The new rules mean this has to be expressed as 10 per cent. The rules will be implemented from the start of 2000. They were welcomed by both lenders and consumer groups.

Sophie Gumple of the Consumers' Association said: "It's good that this long-running problem is being sorted out. From now on the APR will reflect the total cost of a low-start mortgage loan over its entire life. There will be less confusion in an already confused market."

Michael Coogan, director general of the Council of Mortgage Lenders, said: "This is a helpful move by the DTI to put right the problems that the previous APR regulations have perpetuated for so long."

The Treasury is also expected to announce before Christmas new legislation that will force lenders to scrap their existing voluntary mortgage code in favour of a statutory rulebook run by the Financial Services Authority, the financial regulator.

This would introduce, among other things, an ombudsman scheme for people who take out mortgages of below pounds 25,000.

peopleStella McCartney apologises over controversial Instagram picture
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
Ronaldinho signs the t-shirt of a pitch invader
footballProof they are getting bolder
William Hague
people... when he called Hague the county's greatest
indybestKeep extra warm this year with our 10 best bedspreads
ebooksAn unforgettable anthology of contemporary reportage
voicesBy the man who has
people... and stop them from attacking people
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?