Thanks to the complicated variety of rates and fees on offer it can be hard enough working out whether a mortgage is a good deal, but inaccurate adverts slipping through the net are making things worse.
The adverts have prompted industry insiders to question whether the new financial regulator will clamp down.
Since 6 April the Financial Conduct Authority, has been responsible for checking financial promotions are correct. However, lenders and homebuilders seem to be getting away with incorrect information.
The Post Office has since corrected its advertising mistake.Inaccuracies have been spotted in several adverts.
One was a Post Office advert promoting a five-year fixed rate mortgage at 2.63 per cent, available up to 60 per cent loan-to-value.
After the fixed rate expires, the mortgage reverts to a tracker with the revert-to rate stated as 4.49 per cent, which is described as ‘Bank of England base rate plus 3.9 per cent’.
The Post Office sells Bank of Ireland mortgage products and so the Bank of Ireland has regulatory responsibility for the advert.
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Ray Boulger of mortgage broker John Charcol says the advert suggests the Bank of Ireland has ‘a pretty slap dash approach’ to checking the accuracy of its financial promotions.
He said: ‘When I went to school 0.5 per cent plus 3.9 per cent used to equal 4.4 per cent.’
‘Therefore either the revert-to rate of 4.49 per cent should be 4.4 per cent, the Post Office is quoting the wrong margin over bank rate or it thinks bank rate is at 0.59 per cent.’
A Post Office spokesperson apologies for any confusion caused by the ‘rate error.’
Meanwhile another advert advertised a mortgage rate that doesn’t exist.
COMPARE MORTGAGE COSTSIf you want to compare mortgages including fees, This is Money’s True cost mortgage calculator can do the work for you.
It allows borrowers to add in the cost of mortgage fees and calculate how much a deal will really cost them over the initial fixed or tracker period and the whole lifetime of the mortgage.
Fairview New Homes advertised one-bed flats in South Norwood, South-East London, from £152,995.
The advert claimed that with a 5 per cent deposit and 20 per cent equity loan via Help To Buy, mortgage payments on the property would be ‘just £428 a month’ assuming a mortgage with an ‘amazing’ APR of 2.74 per cent.
Small print on the advert states that the ‘mortgage is indicative available through a High Street lender on a similar FirstBuy scheme.’
Rules about financial promotions state adverts are only allowed to mention interest rates currently on the market –and there’s not a first-timer buyer mortgage with an APR of 2.74 per cent available.
Mr Boulger said: ‘The closest one is Nationwide which has a two-year fix at 2.74 per cent – but it’s not the APR as after two years the rate reverts to Nationwide’s standard variable rate at 3.99 per cent so the APR would be about 3.9 per cent.
‘Also Nationwide hasn’t yet agreed to Help To Buy although it probably will in due course.’
The temptingly low monthly payments stated in the advert were also subject to some not-so-attractive small print.
Instead of using the typical 25-year mortgage term, payments were calculated over 35 years.
Although first-time buyers might be keen on lower initial payments, taking out a mortgage for this length of time will result in a much bigger interest bill.
Ashley Brown, director of independent mortgage broker Moneysprite, says the 35-year term should set alarm bells ringing.
He said: ‘It's clearly in the interest of the home builder to make their product look as attractive as possible.
‘By stretching the mortgage over 35 years, rather than a typical 25-year period, it can make the deal appear more affordable than it actually is. The reality is that over the term of the mortgage, you are going to be paying thousands of pounds more in interest for the privilege of lower monthly mortgage payments.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, did the sums to show the difference an extra 10 years of payments would make.
Fairview New Homes made optimistic claims for Help to Buy mortgages.He calculated that borrowing £150,000 over 25 years on a repayment basis at a rate of 2.74 per cent would mean paying £691.19 a month and a total of £207,359.60.
If you increased the term to 35 years the monthly payment falls to £555.73. However, the total cost rises considerably to £233,407.23, an extra £26,047.63.
'Cash-strapped borrowers may be tempted to lower their monthly payments but remember there is a cost to pay in the long run,’ says Harris.
‘If you have no option but to take out a 35-year-term, it makes sense to try and shorten the term when you come to remortgage, or perhaps overpay, in order to clear the balance more quickly and reduce the interest you pay.’
The FCA refused to comment on individual adverts but stated that financial promotions should be ‘fair, clear and not misleading’.
Fairview New Homes declined to comment.
