What is APRC and how does it apply to a mortgage?

To understand the cost of a mortgage deal, it’s important to understand the different rates quoted. The Annual Percentage Rate of Charge (APRC) is a rate that must be included in any mortgage quotes shown to you, according to Mortgage Credit Directive rules introduced by the European Union to standardize regulations for home financing across the EU.

What's Included?

What does the APRC show?

The APRC estimates your mortgage cost for the entire loan term, including the standard variable rate that would apply after any promotional period and additional expenses such as arrangement fees. It considers both the initial and subsequent interest rates.

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When searching for a two-year fixed rate mortgage, the deals you’re offered should show multiple rates. This includes the initial rate during the fixed period, your variable rate after the fixed period ends, and the APRC. These rates give you an idea of what you’ll pay during each stage of the mortgage and the overall cost for comparison.

What is the APRC2?

When a lender recommends a mortgage deal or makes an offer, they must provide an ESIS document that explains the mortgage details. The MCD requires a second APRC, called APRC2, to be included in the ESIS. This is necessary if the mortgage includes a variable rate at any point during its term (such as a tracker rate or standard variable rate).

The APRC2 shows the loan cost using a 20-year high-interest rate as an example. This rate can be based on a benchmark provided by the city regulator (FCA) or a relevant external reference rate.

Which rate is most important when choosing a mortgage?

When comparing mortgages using APRC and APRC2, remember that many people choose to remortgage when their initial rate ends. This allows them to take advantage of competitive mortgage deals instead of switching to their lender’s often more expensive standard variable rate.

For many homebuyers, the initial rate is more important than the APRC when selecting a mortgage because the initial rate indicates the starting interest rate. At the same time, the APRC reveals the rate if you maintain the same deal.

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It is recommended to seek professional advice if you are unsure which mortgage deal would be the most cost-effective option.

Frequently Asked Questions

1. What is APRC?

APRC stands for Annual Percentage Rate of Charge. It shows you, as a percentage, the annual cost of a secured loan or mortgage over its lifetime. It brings together all charges (such as fees and variable interest rates) calculated for your secured loan or mortgage for the full term without changing it³.

2. Why has APRC been introduced?

The purpose of APRC is to show you all the costs of your mortgage, including any broker fees. This way, you can see exactly how much you’ll be paying over the full term of the mortgage².

3. How useful is the APRC?

The APRC shows the rate you’ll effectively pay if you stick with this mortgage for its whole term. But many people are only interested in the two- or three-year deal, having the intention to remortgage again to avoid going onto the standard variable rate. So, while the APRC can provide a useful guide as to how much you’d pay if you were never to change the terms of the deal, the initial rate is probably the one that is still the most important².

4. What is the difference between APRC and APR?

The acronym APR stands for ‘annual percentage rate’ and it’s pretty similar to the APRC. In fact, it’s a single figure that takes into account the interest rate, as well as any fees you’ll need to pay when you first borrow the money. The main difference between APRC and APR is that the former offers you a more comprehensive picture of your plan, as it considers the fact that your interest rate will probably change in the long run².

5. How do I get a mortgage with low APRC?

There are many different factors that can determine whether you get a favourable APRC or not. For instance, having a good credit history will boost your chances of benefitting from a low APRC, as it shows that you’re a reliable borrower who keeps up with repayments. The size of your deposit will have an impact too².

6. How is APRC calculated?

When you take out a mortgage, you’ll probably be offered an attractive introductory rate. This will only last for a set period, after which you’ll be moved onto the provider’s standard variable rate, which will likely be much higher. The APRC takes both the introductory and long-term interest rate, together with any fees, and calculates a percentage³.

7. How useful is the APRC for comparing the cost of mortgages and secured loans?

It has its limitations. The APRC is calculated to assume that you keep the same mortgage/secured loan and provider for the length of the loan and that interest rates don’t change³.

8. Who introduced APRC?

APRC was introduced by the Financial Conduct Authority (the UK financial regulator) in 2016 to provide a more realistic view of how much a mortgage will cost over the long term⁴.

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