The Mortgage Market’s Misleading Buy Signals
Introduction: The Danger of Buying on Fictional Signals
In today’s mortgage market, consumers are regularly bombarded with “headline rates”, slick illustrations, and alluring “best buy” tables. But buried within the details of these offerings lie calculations that can be actively misleading — Annual Percentage Rate of Charge (APRC), reversionary rates, and total cost over term; being the main offenders.
While these metrics were introduced with the aim of transparency, they risk distorting buyer decision-making. Too often, borrowers choose a mortgage product based on hypothetical, long-range assumptions — ignoring the far more practical reality that most borrowers don’t keep the same mortgage for 25 years; and likely shouldn’t. This article explains why it’s time to adopt new benchmarks.
What Are APRC, Reversion Rates, and Overall Cost — and Why Do They Mislead?
APRC (Annual Percentage Rate of Charge)
The APRC is intended to show the annual cost of a mortgage, averaged over the entire term (usually assumed to be 25 years), and including interest, fees, and charges. It’s meant to allow an “apples-to-apples” comparison between different mortgage products.
But this logic breaks down in practice. Most borrowers remortgage every 2 to 5 years. Few — if any — ride out their initial deal only to sit on their lender’s reversion rate for the next 20+ years. So, including that reversionary period in the APRC becomes not just irrelevant, but actively deceptive.
Moreover, by extending the calculation across decades, lenders can make a product look cheaper overall — even if it costs more during the period you’ll actually keep it.
Reversion Rates
The reversion rate is the variable interest rate you fall onto once your initial fixed, tracker, or discount deal expires. The rate is usually the lenders standard variable rate which itself is not formally tied to the Bank of England base rate and is entirely at the lender’s discretion to alter (although a few lenders may offer a reversion rate which is linked to the BOE rate with a significant margin applied).
The issue? Reversion rates can move significantly during the term of your initial deal. A lender whose SVR seems competitive today may be wildly uncompetitive two years from now. As the reversion rate is used in calculating the APRC, then the resulting figure is based on a complete fiction.
It also incentivises bad behaviour — the borrower who doesn’t switch products at the end of their term is effectively penalised, while the product looks better on paper to those who assume they’ll always remortgage. It’s a lose-lose.
Overall Cost Over Term
Mortgage illustrations show the “total cost” of a mortgage over the term, typically 25 or 30 years as well — treating the reversion rate as statis and assuming no changes in behaviour. Again, this assumes the borrower never switches lender, never redeems early, never moves house, and never makes overpayments. This is rarely the case.
And because this figure is calculated using the reversion rate for all years beyond the initial deal, it embeds the same misleading assumptions that plague the APRC.
Why the Reversion Rate Should Be Largely Ignored
For most customers, there is simply never a time to be on a reversion rate in day-to-day trading.
The circumstances where a reversion rate would be competitive are extremely rare. And even for someone who believes they are selling their home and have a new mortgage application in mind; the existing loan could frequently be converted to a deal with no early repayment penalties on a significantly lower rate and redeemed without loss.
If that house sale falls through though, and three months turn into a year, then that switch could save thousands and take a matter of hours to affect.
It’s extremely rare for a reversion rate to compete with new product offerings. So, unless you have such a small balance remaining on your mortgage that large changes in rates amount to differences of a couple of hundred pounds a year, the effort involved in switching is almost always warranted.
And yet: there is no regulatory obligation to advise customers to shop around before their deal ends, but there is an obligation to include outmoded cost indicators that bear little real-world value.
The Right Metric: Cost of the Initial Deal Period
If most borrowers remortgage every 2–5 years, then the most useful comparison metric isn’t the APRC — it’s the effective cost of the initial deal period, taking into account:
- Initial interest rate
- Product fees (including arrangement and valuation costs)
- Cashback or incentives
- Exit charges or early repayment charges (ERCs)
- Legal or broker fees (where applicable)
- Trailing interest (some lenders may lock you into a month of interest at the higher reversion rate at the end of the deal, equivalent to a hidden fee of a few hundred or even thousand pounds depending on loan size).
This provides a far more grounded basis for comparing one deal to another in a meaningful way — i.e., the way most borrowers actually behave.
But even this needs to be done properly. Comparing “costs” based on monthly payments alone ignores the amortisation structure — how your payments are split between interest and capital. A product with a slightly higher rate but lower fees might cost less overall over two years than a low-rate, high-fee option.
Why You Need to Use an Amortisation Calculator
Accurate product comparisons require more than looking at monthly payments or percentage rates. They require amortisation analysis — a breakdown of exactly how your loan is repaid over time.
A mortgage amortisation calculator allows you to:
- Compare total interest paid during the initial deal
- Assess the impact of fees and incentives
- See how early repayment or overpayments affect the cost
- Plan refinancing strategies with real figures, not illustrations
Far too many borrowers simply take a rate and apply it to the loan balance without factoring in fees, repayments, or even time. That’s not enough.
A robust amortisation tool is essential if you want to optimise your borrowing strategy over time — especially if you’re the kind of borrower who proactively manages your debt.
Conclusion: It’s Time to Retire APRC in Favour of Real Cost Comparisons
The APRC and total-cost-over-term metrics served a regulatory purpose. They aimed to force consistency in advertising and encourage disclosure. But they’re now little more than a compliance formality — and in many cases, a dangerous distraction.
The industry — and borrowers — need to focus on real costs, over real horizons, and ensure that product comparisons reflect how people actually manage their mortgages.
Until we replace the APRC with something that captures that reality — ideally, a cost-over-initial-period metric backed by amortisation data — buyers will continue to be lured by the wrong signals, and some will pay thousands more than they needed to.
If you’re reading this article, a mortgage broker or lender has likely requested several years of SA302s and Tax Year Overviews from you as part of the documents required for an application.
An SA302 may be called a tax calculation or computation. It’s an abbreviated form of the complete tax return, showing the profits broken down into elements, like income from salary in paid employment or from UK land and property.
It clearly illustrates total profit by type and the tax owing after allowances; without including laborious details that went into the calculations of profits.
The tax year overview, on the other hand, is an accounting of balances owed. It shows your tax position as liabilities owed to HRMC, upcoming payments and penalties for late or overdue payments and how much of any bill is still due.
So you must provide both sets of documents where requested, as one evidences your income, the other your tax owing and payment history.
The process to get an SA302 depends on how you submit self-assessment returns.
How to get an SA302 and Tax Year Overview if you use an accountant or file postal self-assessment returns
If you use an accountant or file by post, you may not have access to HMRC online, which is usually the quickest way to get these documents. If you have never accessed your self-assessment returns via HMRC online, you should call HMRC in the first instance.
The telephone system provided by HRMC recognises the term SA302 and will generate and post these to you automatically with tax year overviews.
But the postal SA302s and tax year overviews can take up to two weeks to arrive (excluding any strike actions or seasonal delays).
So you should also contact your accountant and see if they can provide them faster. Most accountants’ software can generate something equivalent to SA302s, acceptable to most lenders, and accountants should be able to download tax year overviews from HRMC directly.
How to get an SA302 and tax year overviews if you submit self-assessment returns online
You can view and print up to 4 years of tax calculations using the steps below.
To download the SA302s
- Log in to your online account at https://www.gov.uk/log-in-register-hmrc-online-services. *
- You arrive at a splash page with several options below your name and tax reference number. Select ‘self assessment’.
- Select the link titled ‘view your payments’
- Follow the sidebar link titled ‘tax return options’ (at the bottom of the page for mobile users).
- Choose the year from the drop-down menu and click ‘Go’.
- Select the button titled ‘view return’.
- Follow the link ‘view calculation’ from the sidebar navigation menu (at the bottom of the page for mobile users).
- Follow the link ‘view and print your calculation’ at the bottom of the page.
- Select the button titled ‘Print your full calculation’ at the bottom of the page.
- Change the printer setting to “save as PDF”.
- Save the file somewhere on your machine.
- Use the back button on your browser to return to the tax return options page, and repeat the process to download three full years (or as many as you have, if less).
To download the tax year overviews
- Log in to your online account at https://www.gov.uk/log-in-register-hmrc-online-services. *
- You arrive at a splash page with several options below your name and tax reference number. Select ‘self assessment’.
- Select the link titled ‘view your payments’.
- Select ‘tax years’ from the sidebar-navigation menu (at the bottom of the page for mobile users).
- Choose the year from the drop-down menu and click ‘Go’.
- Follow the link ‘print your Tax Year Overview’.
- Change the printer setting to “save as PDF”.
- Save the file somewhere on your machine.
- select cancel from the print menu, and repeat the process for the remaining tax year overviews.
* We cannot be held responsible for the content of this external website.
Question; I want to buy a property and let a room or several rooms out; is this a buy-to-let?
There are two aspects to this question; legally, any property where you, or your direct family members, occupy more than 40% of the habitable space is considered a regulated residential mortgage.
So, a buy-to-let mortgage usually precludes you or a family member from occupying the home. Except for a limited number of “regulated buy-to-let” products, which only have niche uses.
These buy-to-let products are rarely preferable as most residential lenders allow you to take a lodger or two, subject to certain limitations, and are generally less expensive.
It is vital to check with your lender if they allow lodgers, as some won’t. But most require that lodgers occupy the home as a friend and don’t have a self-contained unit like a granny annexe, although a small lock on a bedroom door is unlikely to be a big problem.
Lenders often request that no formal tenancy agreement is in place and that the lodger signs a “consent to mortgage form”. These are important to limit the lodger gaining complex legal rights to remain in the property, even in a non-payment dispute.
Where this gets confusing; is reading your mortgage offer conditions which usually state that subletting is prohibited!
This likely refers to precisely that point; making a formal tenancy agreement with a lodger can grant them rights that are prejudicial to you as the homeowner: and the mortgage lender if they ever had to repossess.
If you want to let a self-contained unit like a granny annexe, particularly with a formal tenancy; there are now lenders who will allow this, though they are few and far between with most still refusing this type of arrangement. But we can help you arrange a mortgage for letting an annexe using lenders that range from the very competitive end of the market upwards.
If you want to purchase or part-occupy a multi-unit block (a block with several self-contained flats) then this is possible, but there are very few lenders entertaining these transactions; you will benefit from using a mortgage adviser as most of those lenders will only offer products through qualified brokers.
These are the legal aspects relating to the mortgage conditions; the second part of the question relates to health & safety, local planning bylaws, protections for tenants and insurance.
At any point where you take a lodger, it will be your responsibility to ensure that you comply with any by-laws regarding letting in your locality, which may include local licensing schemes.
You might need to get regular gas safety inspections or take alternate home insurance.
Where multiple lodgers reside with you: this may fall under requirements for houses of multiple occupation or “HMO” licensing, which can involve requirements around fire protection and electrical installations, among others.
It is vital to take all these aspects seriously. Failure to comply with HMO licensing can incur fines in the tens of thousands of pounds, and the rules are well enforced. Breaching your mortgage conditions could result in the repossession of a property.
And finally, for those in a leasehold property, you need to ensure the terms of your lease do not prohibit you from taking a lodger or sub-letting. Breaching your lease agreements can again end in repossession.
If you need help with any of these types of transactions, contact us for more information.
Covid-19 has had a massive impact on the mortgage marketplace, with some lenders withdrawing altogether and thousands of products withdrawn from sale. The outlook is not as gloomy as you may imagine if you need to remortgage.
If your current deal is about to end, ends later this year, or if you want to
remortgage to consolidate commitments and reorganise your finances, what options are there, and what should you do?
If your mortgage deal is ending soon
Firstly, if your current deal ends imminently, whilst there has been a reduction in the number of lenders and products, many of those withdrawn are for house purchases or higher-risk lending.
Most lenders continue to offer product-transfer deals for existing customers; many still offer remortgage deals for new customers, and we can arrange these for you without any advice fees. So we can typically advise you on options from the whole of the market and your current lender simultaneously.
If your income has fallen, this might affect your ability to change lenders but would not prevent you from transferring deals with your existing lender.
If your mortgage deal is ending within the next 6-months
For anyone whose existing deal ends by late Autumn, now is an ideal time to think about remortgaging.
Several lenders’ remortgage deals are valid for six months, so you can apply well in advance, taking advantage of the low current rates and arranging everything ready to switch over as soon as the current mortgage deal expires.
There are several reasons why doing this now could be wise. Firstly, although lenders have not passed on the full rate reduction made by the Bank of England into new fixed-rate mortgage deals, there is a good chance that this never happens.
With vast financial losses in every industry, it is difficult to imagine lenders vying to cut into vital profit margins when rates are already at all-time lows.
Conversely, we could see a reduction in house prices or even lenders pulling out of the market entirely, creating a situation where you were better off applying today than in several months.
No one has a crystal ball to predict how the market will progress over the year, but the likelihood of rates getting significantly better than today seems dim.
Consolidating credit commitments into your mortgage
This is where the remortgage market has already shrunk significantly. So, if you want to trim down your outgoings and reduce your typical monthly commitments, it may be wise to act now rather than wait.
Be aware, though, that consolidating credit commitments into a mortgage often presents poor value for money. And may be more expensive than alternative options, like balance-transfer deals or converting credit card debts into a personal loan.
It is also important to note that you often convert unsecured credit commitments into one secured against your home. That means you stand to lose your most precious asset if you default, where previously, there may have been no risk of this at all.
We can help you understand whether a debt-consolidation remortgage is the correct solution for you.
Changing your mortgage term
You do not necessarily have to wait to remortgage to alter your mortgage term and, therefore, your monthly payments (for anyone on a repayment loan).
If this is something you want to look at, you can speak to your lender, and you may be able to do this midway through an existing deal, even if you have early repayment penalties.
Again, you can possibly change the term when you remortgage or product transfer, and if you want to reduce your outgoings in this way, get in touch to discuss your options.
If you are in financial difficulty
If you are experiencing difficulty making payments, your first port of call should be your existing lender to discuss options to prevent you from getting into arrears, including the government’s payment holiday scheme.
If there is a risk of you defaulting on obligations like a credit card, loan, hire purchase or other non-secured credit commitments, then consolidating these into your mortgage is a potential solution.
But this increases the risk of losing your home by converting unsecured commitments into secured debt.
We can help you get an understanding of whether consolidating commitments is a solution that could be viable for you.
But you should consider speaking to stepchange.org & the Citizens Advice Bureau about the implications of getting into arrears on either type of commitment and other options that may be available, such as an IVA.
The coronavirus has caught governments, businesses and consumers off guard, so the situation is continuously changing, but there is good news for most people.
Firstly, for those who want to remortgage during the current lockdown, to consolidate commitments, or whose current deal is due to end soon, mortgage lenders are still lending, and our advice service goes on as normal. We can work with you entirely over the phone and online.
We will follow this article shortly with a discussion of the Bank of England Base Rate reduction and how this affects borrowers looking at a new mortgage. But for those with existing mortgage offers, there is further information below.
Due to the lockdown, most lenders have ceased physical valuations temporarily, so lending will likely rely on an electronic valuation (i.e. an estimate based on previous sale prices and local market trends, like estimates on sites like Zoopla).
That may mean you have difficulty if you have spent significant sums renovating a property and want to consolidate commitments into your mortgage.
Reports of lenders closing funding are based on a handful of small specialist lenders (new to the marketplace anyway) ceasing to offer new lending. Some larger lenders have limited their purchase lending loan-to-value limits, but purchasing currently seems unlikely.
Managing mortgage payments and difficulties in paying your mortgage
The most important thing for you as a consumer is that if you believe you will have difficulty paying your mortgage, you should contact your lender as soon as possible. Discuss with them the options they have for helping you manage payments.
On residential loans, i.e. properties occupied mainly by you or your family, the lender is legally obliged to try and prevent you from going into arrears.
That means they must consider offering solutions such as a temporary switch to interest only, if suitable, or consider alternatives like increasing the term or taking a payment holiday.
You should engage with them early as going into arrears will incur costs that may be non-refundable, avoidable, and any arrears recorded on credit reports are unlikely to be removed in future.
Arrears will also worsen future costs and the options available when you remortgage.
Bear in mind that any proposed solution will likely cost you more in the long term. So, it’s not a gift or freebie, and it may not make sense if you have plenty of savings to carry a short-term drop in income.
The situation is less clear for those with buy-to-let mortgages, especially as many will be interest only, and therefore, payment holidays are the only temporary solution available. It is unclear if the government’s statement about payment holidays will apply to commercial lending.
You should still contact your lender early to discuss what assistance they may offer if you are facing difficulties or non-paying tenants.
Lenders are unlikely to want to take punitive action against otherwise good borrowers for a problem that will affect them across their whole lending book, so they are likely to be magnanimous.
Registers of Scotland Shutdown
We have become aware of clients whose sales are pending soon and are experiencing difficulty due to the government closing the Registers of Scotland (the Scottish Land Registry).
Discussions between The Law Society and the Scottish Government are ongoing, and it seems likely that a solution is imminent. Until this point, Scottish sales will not be able to complete.
Bank of England Base Rate Changes
If you are considering a new mortgage, I will write shortly to expand on how the changes to the Bank of England Base Rate affect choices on new mortgage products.
For those people who are about to complete their mortgage soon, they present a dilemma.
Fixed-rate mortgages are unlinked to the BOE base rate, so the reduction in this has not yet passed through to most fixed-rate mortgages, although one or two drops have popped up.
As lenders will be extremely hard hit by the lockdown, they might seek to increase their margin on lending, so these rate reductions might never be passed onto fixed rates fully.
That means most borrowers can either wait to see fixed rates come down (when they could even go up) or switch to some form of variable product, such as tracker rates, which have reduced as they follow the BOE rate.
However, no one currently offers tracker or variable-rate mortgages with any cap or upper limit that I know of, and given that this is a time of unprecedented global turmoil, wild changes to interest rates are not outside of the realms of realistic possibility.
