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| EU mortgage rules will create confusion, industry experts warn | EU mortgage rules will create confusion, industry experts warn |
| (3 days later) | |
| Mortgage lenders may soon have to tell borrowers the maximum interest rate they have charged during the past two decades when they advertise their loans, in a move that industry figures have warned could cause "absolute confusion" among consumers. | Mortgage lenders may soon have to tell borrowers the maximum interest rate they have charged during the past two decades when they advertise their loans, in a move that industry figures have warned could cause "absolute confusion" among consumers. |
| Proposals in an EU mortgage credit directive agreed in April and expected to be approved by the European parliament later this year require mortgage lenders to display an additional interest rate figure on all literature. | Proposals in an EU mortgage credit directive agreed in April and expected to be approved by the European parliament later this year require mortgage lenders to display an additional interest rate figure on all literature. |
| This is an annual percentage rate (APR) calculated using the highest rate the lender's standard variable rate (SVR) has reached in the previous 20 years, and will need to be displayed as prominently as other interest rates. | This is an annual percentage rate (APR) calculated using the highest rate the lender's standard variable rate (SVR) has reached in the previous 20 years, and will need to be displayed as prominently as other interest rates. |
| This would apply to all products which have a fixed period of less than five years – covering most of the mortgages sold in the UK. Once passed, mortgage providers will have until 2015 to comply with the legislation. | This would apply to all products which have a fixed period of less than five years – covering most of the mortgages sold in the UK. Once passed, mortgage providers will have until 2015 to comply with the legislation. |
| A senior figure at one high street lender, who did not wish to be named, said basing the APR figure on past rates would be misleading and make product comparisons more complicated for consumers. | A senior figure at one high street lender, who did not wish to be named, said basing the APR figure on past rates would be misleading and make product comparisons more complicated for consumers. |
| "It will cause absolute confusion among customers because it will need to be given equal presence on advertising. Rates quoted will become largely dependent on circumstances which the customer may not experience at all during the life of their mortgage." | "It will cause absolute confusion among customers because it will need to be given equal presence on advertising. Rates quoted will become largely dependent on circumstances which the customer may not experience at all during the life of their mortgage." |
| Data from the Council of Mortgage Lenders shows that the average SVR for mortgages was 7.67% in 1993, and that figure stayed above 6% until 2001. By comparison in 2012 the average SVR was 3.43%. | Data from the Council of Mortgage Lenders shows that the average SVR for mortgages was 7.67% in 1993, and that figure stayed above 6% until 2001. By comparison in 2012 the average SVR was 3.43%. |
| Ray Boulger of mortgage broker John Charcol said the EU had misunderstood the importance of APRs when comparing mortgages, as customers were unlikely to stay with one lender for a full mortgage term. | Ray Boulger of mortgage broker John Charcol said the EU had misunderstood the importance of APRs when comparing mortgages, as customers were unlikely to stay with one lender for a full mortgage term. |
| "I think it is a completely mad idea," he said. "Everybody in the mortgage industry, apart from some regulators in the EU, knows that APRs are grossly misleading in nearly every case. | "I think it is a completely mad idea," he said. "Everybody in the mortgage industry, apart from some regulators in the EU, knows that APRs are grossly misleading in nearly every case. |
| "If you take someone on a standard two-year fix who has a good, steady job and plenty of equity, there is every expectation that in two years they can do a product transfer or a remortgage. The APR is therefore not that material in assessing the mortgage deal." | "If you take someone on a standard two-year fix who has a good, steady job and plenty of equity, there is every expectation that in two years they can do a product transfer or a remortgage. The APR is therefore not that material in assessing the mortgage deal." |
| Alejandro Olmos Marcitllach, assistant to directive rapporteur Sánchez Presedo, said the EU was introducing the rules to curb misleading practices in other parts of Europe. | Alejandro Olmos Marcitllach, assistant to directive rapporteur Sánchez Presedo, said the EU was introducing the rules to curb misleading practices in other parts of Europe. |
| "We have seen cases throughout Europe where the APR on variable rate mortgages was misleading because a few years later the number was completely different. We acknowledge the solution is not perfect." | "We have seen cases throughout Europe where the APR on variable rate mortgages was misleading because a few years later the number was completely different. We acknowledge the solution is not perfect." |
| EU nations have also expressed concerns over the legislation, which was intended to foster cross-border lending and drive up standards. | EU nations have also expressed concerns over the legislation, which was intended to foster cross-border lending and drive up standards. |
| Latvia and Luxembourg both voted against the wording of the text, calling the directive a "missed opportunity". "Both professionals and consumers stand to lose as a result of this text, which has no added value," a statement from the two countries said. Austria described the bill as "counterproductive". | Latvia and Luxembourg both voted against the wording of the text, calling the directive a "missed opportunity". "Both professionals and consumers stand to lose as a result of this text, which has no added value," a statement from the two countries said. Austria described the bill as "counterproductive". |
| Existing mortgage lenders have expressed concern that new entrants to the market will be able to avoid displaying a second APR as their products would have no historic rates. | Existing mortgage lenders have expressed concern that new entrants to the market will be able to avoid displaying a second APR as their products would have no historic rates. |
| Boulger added that the mortgage market had seen so much change in the past two decades that it was unfair to predict the future based on past rates. | Boulger added that the mortgage market had seen so much change in the past two decades that it was unfair to predict the future based on past rates. |
| "It is important for consumers to look at the scenario when the initial rate finishes, but 20 years ago was a totally different ball game. If we go back to 1993 we had a situation where Bank rate and mortgage rates were extremely volatile," he said. | "It is important for consumers to look at the scenario when the initial rate finishes, but 20 years ago was a totally different ball game. If we go back to 1993 we had a situation where Bank rate and mortgage rates were extremely volatile," he said. |
| "In 10 years' time, because we've had a long period of low interest rates, it will create a misleading maximum and it has the potential to confuse customers even more." | "In 10 years' time, because we've had a long period of low interest rates, it will create a misleading maximum and it has the potential to confuse customers even more." |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| Yorkshire BS | |
| Yorkshire BS | Yorkshire BS |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |