Consumers could benefit from a new way to compare the cost of home loans.
A dynamic annual rate (DAR) could bring greater transparency to the costs of servicing a mortgage, according to research published by the Council of Mortgage Lenders (CML).
The proposed new interest rate measure would be calculated over the period of time the loan is likely to be kept and would also take into account associated fees and charges.
At present, lenders are required to quote rates in terms of annual percentage rate (APR), which is calculated on the assumption that the mortgage will be held until maturity and does not take account of arrangement fees.
However, most homeowners repay the mortgage in full at the end of an offer period -- two, three or five years, for example -- and re-mortgage onto another product.
Frank Chacko, a consulting actuary at Grant Thornton and CML research partner, said a DAR would show the true cost of a mortgage and allow products to be compared on a like-for-like basis.
The new measure would also help borrowers see how future changes in interest rates would affect the costs associated with different mortgage products and when product switching would save them money.
CML Director-general Michael Coogan said: 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.
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.
A CML spokesman said it would gauge the level of interest in the research.
We are certainly not advocating it. It's a piece of research to reflect upon: nothing more than that.