The FCA is asking for views by 31st October on how to refine its retail conduct rules, without reducing support and protection for consumers. It specifically says it wants to simplify its retail conduct rules and “address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit.”
In respect of the mortgage market my principal suggestion would be to abolish the requirement to quote an APRC, or any other form of APR.
An APR is helpful in comparing the cost of some types of borrowing, such as unsecured loans, where the interest rate is normally fixed for term and any fees are known up front. However, for mortgages, except perhaps for fixed for life mortgages, including Lifetime Mortgages, the APRC is not only not helpful, but positively misleading.
One technical consequence of the APRC being misleading is that it renders all ESIS and mortgage offers non-compliant as the FCA requires all communications to be “fair, clear and not misleading.”!
The basic problem with the APRC of course is that is makes assumptions which everyone, including the regulator, knows will be wrong. If borrowers generally simply reverted to a lender’s SVR for the remainder of the term after an initial deal the APR could be a useful way of highlighting a high revert to rate.
In the real world even the small proportion of borrowers who haven’t historically chosen a product transfer or remortgage at the end of their initial deal (or to move home) is likely to be even smaller in a Consumer Duty world, where lenders have a regulatory requirement to deliver good outcomes for retail customers at every stage of the customer journey.
Despite the APRC becoming a mandatory requirement over 8 years ago I suggest that few mortgage market participants, let alone borrowers, could explain accurately how it is calculated. However, MCOB helpfully provides an equation to calculate the APRC, which for the benefit of any nerds reading this is as follows:
