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I find it interesting that Hamptons International Mortgages has called for the annual percentage rate (APR) on mortgage products to be scrapped - I sometimes think the same about secured loans.

As we all know (or should do), the APR is used to give an indication of the cost of a loan over the entire term of the mortgage, so for example, with a two-year fixed rate at 5% with a £499 fee that then switches to standard variable rate (SVR) - currently at 6.75%, the APR would work out at around the 6.80% mark over a 25-year term.

Hamptons argues that - as consumers become wise to the concept of re-mortgaging to get a better rate, the system is flawed because: -

• The movement of standard variable rates in the future over two decades is impossible to predict, meaning that the calculation of APR is flawed
• Secondly, as re-mortgaging increases, the length of time a customer spends on the SVR (the one they took the mortgage out at) decreases dramatically, again rendering the APR calculation inaccurate.

Jonathan Cornell, technical director for Hamptons International Mortgages, commented: “I’m baffled as to why APRs have lasted as long as they have, as I cannot think of anyone within the industry who feels they are a good measure of value. It is a shame that such a flawed measure of value is forced to be given such prominence on advertisements and key facts illustrations. I don’t think many customers actually understand them either. In the interests of “Treating Customers Fairly” we should be removing meaningless jargon and worthless measurements such as the APR entirely.”

I suppose the argument from the OFT and FSA will be that the APR is used as a gauge the competitiveness’ of APR rates at the time the mortgage is taken out and there is no realistic alternative to it.

Having said that, I do think the APR rate is flawed for secured loans too. For one thing the APR rate doesn’t typically include the Payment Protection Insurance (PPI) for the secured loan - it only has to, if the PPI is compulsory - which it never is. This means a Company with a headline APR rate less than a competitor might not necessarily be the cheapest option if their PPI is more expensive.

The use of an APR rate for secured loans also makes some ‘rate comparison’ sites like MoneySuperMarket pretty pointless too. It’s not as though you’re buying a new Digital Camera and know the specific model number in advance and can therefore compare prices accurately. With a secured loan the actual rate you will pay isn’t known until after the loan application is actually processed - there are just so many factors involved.

However I suppose at the end of the day people just want money and are easily duped or possibly don’t even care about the headline rate.