Your Money: Dispute puts APR on trial

TWO of the country's largest mortgage lenders, the Abbey National and National Westminster Bank, will be in the High Court this week to defend their policies on the way they report annual percentage rates (APRs).

A man with a mission, Bob Imre, an Exeter trading standards officer, has been pursuing the lenders over the way they show the APR on a fixed-rate mortgage. He contends they should give an APR based on the result of, say, two years at the fixed rate plus 23 years at current variable rate.

In one case, the decision went against NatWest, and the bank decided to appeal. Then, when a decision went in favour of Abbey National, the trading standards officer decided to appeal - so the two cases are being heard together to settle the matter once and for all.

The crux of the argument is that Abbey National maintains that when the fixed rate is below the variable rate, it is reasonable to assume that variable rates will fall.

It cites the recent example of a two-year fixed rate at 13.7 per cent launched when variable rates were around 15 per cent. However, at the end of the fixed-rate period, variable rates were well below the fix.

Mr Imre says APRs have to assume that variable rates do not change. Lenders cannot always offer fixed rates below prevailing rates, so they should stick with what is known.

The arguments just go to show what an unreliable indicator APRs can be. They try to oversimplify a complex world and only serve to obscure what is really going on. But they have been seized on by regulators, and lenders are forced to use them.

On credit cards, the APRs ignored the interest-free period that used to be a standard feature. Now it is a rarity. But the loss of that interest-free period was not reflected in any change in the APR.

On fixed-rate mortgages, borrowers do understand that the rate will only be held for the set time, and then they have to take their chances - there may be a new fixed rate, at an unknown level, or they may have to opt for the variable rate, whatever that may be, or they may even pay off the mortgage.

As long as the extra charges that are wrapped up in the APR, such as setting- up fees, are made explicit, there is no need to use APRs on these loans.

APRs were extremely useful to highlight the expense of borrowing long term on credit cards when the interest rate was commonly quoted as a monthly rate, but they have exhausted their usefulness as a blanket weapon with which to beat the lenders.

IF THE Government really wants us all to buy more gilts, it will have to do better than the 26-page booklet currently going into Post Offices.

If the condescending manner of the booklet aimed at 'small investors' does not put you off, all the warnings about how the value of gilts can go down probably will.

ELEVEN million people receive the married couple's allowance, which is being given a radical shake-up from next week.

Instead of being paid to the husband, with wives only allowed a nibble if the husband's salary is not flush enough to make full use of the pounds 1,720 allowance, couples can decide to split the allowance equally or give it all to either partner. And the wife can claim half of it as a right.

The deadline for telling the Revenue that you intend to change the status quo is tomorrow - but there is a month's grace before Form 18 actually has to be delivered.

You might think a lot of people would be interested in all this. After all, if 11 million are receiving it, that touches 22 million people. Not all of them will be taxpayers, and certainly in many cases, where both partners are on the same tax band and able to use all the allowance, the split will not make them, as a couple, any better off.

But questions of justice and fairness come into play, which mean that many couples could be expected to act.

Yet the Revenue only printed 100,000 copies in the first print run in July, followed by a further 255,000 in October, and a chunkier 1 million in March. Can that really be all that is needed?

FOLLOWING my column of 7 February, Securitised Endowment Contracts, which offers a mortgage endowment valuation service, has asked me to point out that it is bound by Fimbra rules. Its service provides a scale of possible maturity values based on insurance companies' future terminal bonus rates (for which assumptions range from nil growth to maintenance of the current level).