How the APRC is worked out and what it includes

The APRC is the figure that tells you what a mortgage costs across its whole life, not just during the deal you were quoted. It stands for Annual Percentage Rate of Charge, and it is the rate you use to compare different mortgages¹. It takes in the interest rate, the mortgage term length and the applicable charges, and it assumes the lender's standard variable rate applies once the initial deal ends².

That is why it is usually higher than the rate you will actually pay at first. The APRC is higher because it considers what you will pay after the initial deal ends, including the lender's standard variable rate and any fees². A mortgage APRC indicates the overall cost of borrowing across the whole term of the mortgage, provided the interest rate does not change³.

Every mortgage shows one. All mortgages will show an APRC⁴, and it is the only figure that lets you put two deals side by side on a like-for-like basis. What it is not is a prediction of your own bill: it is an indicative guide, built on assumptions set out in the rules, and it can look quite unlike the monthly payment you will make in the first two or five years.

What the APRC is: one rate for the whole cost of a mortgage

The APRC is the total cost of your mortgage loan, including all costs, arrangement fees and interest charges, shown as a percentage rate⁷. It is the total cost of the mortgage shown as a yearly percentage of the amount you borrow⁵. Where a lender prints "overall cost for comparison" beside a deal, that is the APRC.

Its purpose is comparison. Using APRC, you can compare the full cost of the mortgage for its entire term against others². It is an indicative guide to help you compare the cost of different mortgage deals, taking into account interest rates payable both during the initial product period and after, and fees⁸. You can also use APRC to compare mortgages, as a rate that includes any fees or charges too⁹.

It is worth separating APRC from the interest rate, because the two answer different questions. The interest rate shows how much it costs to borrow money, expressed as a percentage and usually applying for a set period, while the APRC includes fees and any changes in rates over the entire mortgage term². The APR, or Annual Percentage Rate, is often used for loans and credit cards and might not give a clear picture of long-term costs, while APRC shows the total cost of a mortgage for its full term including all fees².

The APRC also helps you understand the total cost of a mortgage during its term, because it considers any lender fees, interest rates and legal charges¹⁰. One lender describes it as the full borrowing costs of a mortgage for the year, including annual interest rates and standard fees¹¹. The wording varies between lenders, but the idea does not: one number, covering the whole term, for comparing deals.

What goes into the APRC calculation

The APRC covers all the extra fees and charges included in your mortgage costs². The lender's own list of what it folds in runs to arrangement fees, valuation fees, legal fees, broker fees, product fees, and the interest rates, both initial and long-term². Arrangement fees are charged by your lender for setting up your mortgage².

Those fees are not trivial. Mortgage arrangement fees are typically between £500 and £1,500, and borrowers can usually choose between paying the arrangement fee up front or adding it to the loan¹². Valuation costs vary with the property: one building society's combined RICS home buyers and mortgage valuation is £715 including VAT and a £25 administration fee for a purchase price not exceeding £500,000, and £2,250 including VAT and the same £25 administration fee where the purchase price does not exceed £3m, from 1 October 2023¹³.

What the APRC leaves out matters just as much. The APRC only includes the charges and costs set by the bank, so expenses from other parties such as estate agents and solicitors are not included². Stamp duty, removal costs, searches and your own legal bill sit outside the figure, even though they are real costs of buying. For those, see mortgage fees and charges and the wider guide to buying a home.

The calculation also rests on a loan value. Lenders state the amount the APRC is based on: one retirement lending product uses a £230,000 loan value¹⁴, and a renovation mortgage uses £190,000¹⁵. That is why the APRC on an illustration is tied to the loan size in the example, not to whatever you happen to borrow.

APRC and the initial rate: how each one behaves when rates change

The initial rate and the APRC behave in completely different ways. The initial rate is what you pay for a set period, usually two or five years. The APRC is an average across the whole term, and it assumes the deal ends and the lender's standard variable rate takes over.

The figure is based on the full mortgage term. It factors in your introductory rate, followed by the lender's standard variable rate once the initial deal ends². That is the single biggest reason the APRC sits above the deal rate: the standard variable rate is normally higher, and it is assumed to apply for the remaining years.

The rules fix the assumption. The calculation of the APRC must be based on the assumption that the regulated mortgage contract is to remain valid for the period agreed and that the lender and the consumer will fulfil their obligations under the terms and by the dates specified in the contract¹⁶. In other words, the APRC assumes the mortgage runs its course, with no early repayment, no remortgage and no product switch.

There is a separate rule for lifetime mortgages. Where the APR is calculated for the purpose of a financial promotion, it must be assumed that the credit is being provided for a period of 15 years beginning with the relevant date¹⁷. That is a different assumption from the full-term basis used for a standard mortgage, and it is one reason later-life figures are not directly comparable with ordinary residential ones.

Because the standard variable rate is baked in, the APRC moves when that rate moves, even if your initial deal is fixed. It also means the APRC is sensitive to how long the deal lasts: a two-year deal leaves more years on the standard variable rate than a five-year deal, which tends to push the APRC up. For how the standard variable rate itself works, see standard variable rate mortgages.

Why the APRC is higher than the rate you will actually pay at first

The APRC is higher because it considers what you will pay after the initial deal ends². A borrower on a two-year fix pays the deal rate for two years and then, on the assumption built into the figure, the standard variable rate for the rest of the term. Averaged out, that produces a number above the deal rate.

The gap widens with fees. Because arrangement, valuation, legal, broker and product fees are all folded in², a deal with a low headline rate and a large arrangement fee can carry a higher APRC than a deal with a slightly higher rate and no fee. That is the point of the figure: it stops a low rate with heavy charges from looking cheaper than it is.

The gap also depends on the term. A longer term spreads the fees over more years but leaves more years on the standard variable rate assumption. A shorter term does the opposite. Neither is automatically better; the APRC simply reflects the term used in the illustration.

Where a borrower changes the shape of the loan, the APRC moves too. One lender's illustration shows that on an outstanding balance of £200,000 paying interest of 6% with 25 years remaining, moving to interest-only payments for six months takes the APRC from 8.68% to 8.69%¹⁹. The change is small, but it shows the figure responds to the payment profile, not just the headline rate.

Why two mortgages with the same initial rate show different APRCs

Two deals can share a headline rate and still carry different APRCs, because the figure is built from the interest rate, the mortgage term length and the applicable charges¹. Fees, term and the lender's standard variable rate all feed in, and any one of them can move the answer.

The published figures show how wide the spread runs. Among building society products, a two-year discount carries an APRC of 7.10%²⁰, the same lender's version at a higher loan to value shows 7.20%²¹, and its version at a higher loan to value again shows 7.40%¹⁹. A two-year fixed rate owner occupier switch product shows 7.3%²², and a First Homes two-year fixed rate shows 7.7%²³. A five-year fixed rate switch product shows 6.7%²⁴, while a five-year fixed rate interest-only product shows 7.1%²⁵.

The pattern is not simply "longer deal, lower APRC". A self-build mortgage shows 6.80% for the term of the loan²⁶, and an Accord Mortgages product transfer example shows 6.6% on a mortgage of £100,000 over 21 years with a rate fixed until 31 January 2029, while its additional loan example shows 6.5% on a loan of £40,000 over 22 years with a rate fixed until the same date²⁷. Different loan sizes, terms and fee structures produce different answers even within one lender.

Loan to value is one driver. A 2 Year Help To Buy fixed rate mortgage shows an overall cost for comparison of 7.6%²⁸, and an AIB (NI) first time buyer example shows an APRC of 6.45%²⁹. The rate you are offered, the fee you pay and the term you take all land in the same figure, which is exactly why it is useful for comparison and useless as a quote.

Is a lower APRC always the cheaper mortgage for me?

No. The APRC is an indicative guide to help you compare the cost of different mortgage deals⁸, not a statement about your own circumstances. It assumes the mortgage runs for its full term at the rates and fees used in the illustration, and that both parties fulfil their obligations on the dates specified¹⁶.

That assumption is the weak point for many borrowers. If you plan to move home, remortgage or switch to a new deal with the same lender before the initial period ends, the standard variable rate years in the APRC may never happen for you. In that case the fees you actually pay, and any early repayment charge, matter more than the APRC. See early repayment charges and remortgaging.

The APRC also cannot tell you whether a deal suits your plans. A product with a low APRC and a long fixed period may carry a higher early repayment charge than one with a higher APRC and more flexibility. A product transfer with your existing lender may show a competitive APRC but leave you on a term you would rather shorten. For the mechanics of switching without moving lender, see product transfers.

What the APRC is good for is the first cut. It puts fees and the post-deal rate into one number, so a deal that looks cheap on its headline rate but carries heavy charges does not slip through. After that first cut, the ESIS illustration shows the monthly payments, the fees and the total amount payable in full, and that is the document to read line by line before deciding.

Where to get help

If a mortgage illustration is unclear, or you think a lender has not shown the APRC correctly, you can complain to the lender first. If the complaint is not resolved to your satisfaction, the Financial Ombudsman Service can look at it independently. The mortgage rules and your rights page sets out the standards lenders must meet, and complaining to the Financial Ombudsman explains the process and the time limits.

Free, impartial guidance on mortgages and on comparing deals is available from MoneyHelper. If you are struggling with payments, the mortgage arrears page sets out what to do and where to get free debt advice.