New Mortgage Changes

March 23, 2016 1:30 pm Published by

New changes came into effect within the mortgage market on the 21st March 2016 in the guise of the EU Mortgage Credit Directive.

We may now be presented with 2 different documents if we are provided with a range of lenders and products.  These documents have been known until the 21st March as Key Facts Illustrations.

They are now either a Key Facts Illustration Plus or an ESIS Illustration.  Both documents will provide the same information but in different formats dependant on which document the lender has chosen.

One of the major changes to these documents is the overall costs of the borrowing.

As borrowers we have been aware for a long time that lenders will show us and APR rate which is the “annual rate charged for borrowing expressed as a single percentage number that represents the actual yearly costs of funds over the term of the loan”.  This was shown as the cost per pound borrowed.

The APR’s have now been replaced by APRC rates “Annual Percentage rate of Charge”.  The rates that have been used in order to calculate the new APRC rate are as follows: The highest average Bank of England Base Rate over the last 20 years (currently 7.5%) minus the current Bank of England Base Rate (currently 0.5%), plus the lenders Standard Variable Rate.

i.e. 7.5% – 0.5% + 3.99% this would show an APRC rate of 10.99% along with the monthly payment based on this rate.

These rates could be classed as  “shock rates” to show what interest rates may rise to in the future and to ensure that borrowers are aware of the risks associated with those rises.  This will also enable borrowers to compare the overall cost of borrowing in the future.

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This post was written by Debbie Brown

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