APR — Annual Percentage Rate

What is the Annual Percentage Rate?

The Annual Percentage Rate (APR) is a standardised measure designed to help you compare the true cost of different mortgage deals. Unlike the headline interest rate, the APR factors in mandatory fees such as arrangement fees, booking fees, and valuation fees, spreading them across the full mortgage term to give a single comparable figure.

UK lenders are legally required to display the APR on all mortgage advertisements and offers, making it a useful tool for comparing deals on a like-for-like basis.

Why APR matters

A mortgage with a low headline rate but a high arrangement fee may actually cost more overall than one with a slightly higher rate and no fees. The APR helps reveal this.

For example, consider two deals on a £200,000 mortgage over 25 years. Deal A offers 4.2% with a £999 fee. Deal B offers 4.4% with no fee. The headline rate favours Deal A, but once the fee is included, the APR figures may be much closer, and Deal B could work out cheaper if you plan to remortgage within a few years.

How APR is calculated

The APR uses a specific formula mandated by the Financial Conduct Authority. It assumes you keep the mortgage for the full term and includes the initial deal rate followed by the lender's SVR for the remaining period. This is why the APR on a two-year fix often looks much higher than the advertised rate -- it blends in years of SVR payments.

Important caveats

The APR has notable limitations. Because it assumes you stay on the SVR after your deal ends and keep the mortgage for its full term, it does not reflect how most people actually use their mortgage. Most borrowers remortgage every two to five years and never pay the SVR for an extended period. For this reason, many advisers recommend comparing the total cost over your intended deal period rather than relying solely on APR. Use APR as one data point alongside the monthly payment and total cost over the deal period.