Regulations introduced in March 2016 have changed the way websites such as MoneySuperMarket present quotations for mortgages.
When you run a mortgage quotation, the results you see on our mortgage tables will include a column head ‘Overall cost for comparison’. This will include a percentage rate (for example, 4.5%) presented as: 4.5% APRC representative.
So why the change, and what does it mean?
The new figure has been introduced by the Mortgage Credit Directive (MCD), a European Union regulation intended to harmonise the rules for home financing across the EU.
APRC stands for ’Annual Percentage Rate of Charge’. Here’s how it works – along with details of other changes being brought in by MCD.
What is APRC?
The APRC has been introduced as a way to illustrate the whole cost of your mortgage, including any fees. The idea is that you’ll be able to see how much the mortgage would cost you if you kept the loan for the full term of the deal.
As an example, let’s take a fixed rate mortgage deal on MoneySuperMarket where you have a 35% deposit to put down, and want to borrow for 25 years.
Yorkshire Building Society has a competitive two-year fixed rate deal, fixed at 1.14% for 24 months.
Our tables show that interest figure – 1.14% – alongside the initial monthly repayment cost (which is determined by the amount you borrow, and for how long).
We also show you the interest rate the mortgage reverts to once the two-year fixed term ends (4.99%).
Thanks to the new regulations, you’ll now also be shown the APRC, which is 4.6% in this case.
What can I do with this information?
The APRC is the effective rate of interest you’d pay if you stuck with this loan for 25 years. It takes into account the initial rate, the main rate after the two-year fix comes to an end, along with any associated fees.
The fact is, most people choose their mortgage on the basis of the introductory interest rate, and plan to remortgage once that comes to an end.
That means the APRC is a useful indicator of total potential costs if you stayed with the same deal, but the initial rate is probably more important, as it shows how much you’ll pay in the crucial early years, before you remortgage.
What else is new?
The MCD has also brought in new rules if you’re an ‘accidental’ landlord, for example if you’ve inherited a property, or if you plan to let out a property that you have previously lived in as your main home.
Accidental landlords will now be regulated by the city regulator, the Financial Conduct Authority (FCA), for the first time, which means they will face much stricter income and affordability checks than before, in line with those that are required when you apply for a residential mortgage.
Professional landlords, who are generally those who own more than one buy-to-let property and operate as a limited company, will however continue to fall outside the scope of FCA regulation.
This means that rather than going through these landlords’ finances with a fine-tooth comb, lenders will continue to base their decision whether or not to offer a buy-to-let mortgage on the property’s rental yield.
Has anything else changed?
One of the other major changes brought in by the MCD is to second charge mortgages. These are secured loans that use your property as security. This type of loan used to come under consumer credit rules, but will now fall under the scope of the FCA.
What this means is that all secured loans of this type will be brought in line with ‘normal’ mortgages, so when you apply for a second mortgage, you’ll be subject to the same affordability checks and stress tests as you would with any residential mortgage.
All mortgage advisers must now mention the option of a second charge mortgage to you if you are looking to extend your borrowing. Advisers who want to describe themselves as “independent” have to include second charge mortgages in the services they offer, and will have to hold the correct permissions to provide this type of business.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.