Mortgage firms are bracing themselves for the impact of the Treasury
consultation into mortgages which could force them to calculate interest
repayments on a daily basis.
Lenders argue the move would cost them thousands of pounds updating
computer systems so they could make daily calculations and would force them
to charge higher rates.
The Treasury is considering forcing lenders to use the Australian method
of calculating interest on the outstanding balance each day.
It estimates borrowers are being overcharged £350m a year because most
lenders fail to take account of capital repayments immediately.
Most lenders, including Halifax and Abbey National, update a borrower's
outstanding balance annually but some lenders, such as Bank of Scot land
and Standard Life, credit repayments at the date they are received.
A borrower with a £70,000 25-year repayment mortgage at 6.85 per cent
could save £1,725 if the lender employs the Australian method.
A Treasury spokesman says: “There may be compelling evidence to recommend
all lenders calculate interest repayments in the same way.”
Standard Life Bank managing director Jim Spowart says: “It could force
lenders to add as much as 50 basis points on their APR calculations.”