New way of advertising mortgage rates proposed

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The Council of Mortgage Lenders (CML) has proposed that the interest rates on mortgages - including those for landlords - should be displayed in a new manner.

Currently, interest rates are advertised based on the Annual Percentage Rate (APR) model, but the CML report suggests that this can sometimes be misleading.

APR is calculated on the assumption that loans will be held until maturity, but as some landlords and consumers opt to pay their mortgages off early, the rate does not reflect the true cost of the borrowing.

Instead, the CML suggests that lenders should adopt the Dynamic Annual Rate (DAR) model. This rate is calculated for any period of time for which the loan may be kept and takes into account all payments and charges over the period for which the mortgage is held.

"The Dynamic Annual Rate provides a useful basis for discussion on the ways mortgage lenders can make consumer information as comprehensive, accessible and meaningful as possible," explained Michael Coogan, CML director general.

"The DAR itself does not provide all the answers, but it is a useful measure for consumers who are uncertain about how long they will hold their mortgages, and the intermediaries who advise them."

Separate figures from the CML indicate that gross mortgage lending dropped by six per cent in August.

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