When 1+1 equals 3; Illegal mortgage adverts proliferate...

Posted on 15 April 2013 by Ray Boulger

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When 1+1 equals 3; Illegal mortgage adverts proliferate...

In today’s Metro the Post Office, which is an Appointed Representative of Bank of Ireland (UK) Ltd, has a front and back page 4 page wrap around with a non compliant mortgage advert, which suggests a pretty slap dash approach to checking the accuracy of its financial promotions, the responsibility in this case of Bank of Ireland (UK) Ltd.

On the back page it promotes its 5 year (to 31/5/18) fixed rate of 2.63%, available up to 60% LTV, albeit with a rather measly maximum loan size for a 60% LTV mortgage of only £500,000. The revert to rate is stated as 4.49%, which is described as Bank of England Base Rate plus 3.9%.

Apart from the fact the terminology is wrong (The Post Office is far from being the only culprit in this respect) because the Bank of England changed the name it gives this rate from Base Rate to simply Bank Rate some years ago, the important point is that when I went to school 0.5% + 3.9% used to equal 4.4%. Therefore either the revert to rate of 4.49% should be 4.4%, the Post Office is quoting the wrong margin over Bank Rate or it thinks Bank Rate is at 0.59%.

Bearing in mind that this is the bank which recently, with the FSA’s implied consent, announced a massive increase in the term tracker rates for 13,500 of its borrowers, this adds to the idea that Bank of Ireland (UK), and hence the Post Office (its only UK outlet for mortgages), has some difficulty when it comes to understanding tracker rates.

Another exceptionally bad example of non compliant mortgage advertising is from Fairview Homes, which on recent Wednesdays in the Evening Standard and Fridays in Metro has had several adverts offering an “amazing” 2.74%APR mortgage “available through a High Street lender” using the Help to Buy scheme. Bearing in mind the wide circulation of these papers in London it is rather surprising that someone at the Financial Conduct Authority has not seen one of these many adverts and spotted that they are non compliant and prevented further publication.

One thing about this advert which is true is the use of the word ”amazing.” In fact so amazing that no such mortgage exists. The only actual product available for a shared equity purchase which has even a remote resemblance to a rate of 2.74%APR is Nationwide’s 2.74% 2 year fixed rate, available up to 75% LTV with a £999 fee, or £499 for FTBs. I suspect therefore that is the mortgage on which the advert is falsely based.

The advert refers to a 35 year term, obviously with the perfectly legitimate intention of showing monthly payments as low as possible, but makes no reference to the revert to rate or fees. Assuming it is based on the Nationwide mortgage referred to above the actual APR will be nearly 50% higher than claimed.

Furthermore, although Nationwide offered mortgages in conjunction with the now redundant FirstBuy scheme it is not yet offering mortgages for Help to Buy.

Thus this advert appears to break all three of the FCA’s basic requirements for financial promotions. It is certainly not clear or fair and it is definitely misleading!

Categories: Bank of England, Mortgages, Regulation, Interest rates

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