Money News
Despite the Portman Building Society announcing last week that it would no longer apply a higher lending charge to its fixed rate mortgage range, more than three quarters of mortgage lenders still charge a higher lending fee, a figure that hasn't changed over the past 12 months, according to Julia Harris, analyst at moneyfacts.co.uk.
Harris notes that typically the fee ranges between 7% and 8%, but can stretch as high as 12% in several cases. And while a fee may only apply to LTVs in excess of, say 90%, for example, most lenders will back charge this to a lower LTV of, say, 75% to 80%.
For example, say you borrow 100% on a property valued at £100K. With a fee of 12% applied to LTVs over 90%, but back charged to 75% means in effect you'll be charged £3000.
Being subjected to a HLC can be a very costly addition to the fees already associated with housebuying, and can make the initial savings on a competitive rate vanish almost immediately. Make sure you check out the full terms of any new mortgage deal, as the fees are often hidden beneath a great headline rate.
Harris notes that some lenders will insist on the HLC being paid upfront, while many others will allow this to be added to the loan. However, there can be a slight conflict of interests, when a lender charges a fee for a high LTV but is prepared to increase this by adding additional amounts to your mortgage by way of a fee levied against a high LTV.
Put another way, the actual amount repayable for a fee of £3K on a 25 year repayment mortgage, at an interest rate of 5% added to the mortgage, would mean an additional £17.54 per month, paying back in total £5,262.
Whilst the HLC offers a measure of protection to the lender if a borrower defaults on the mortgage, it is important to emphasise that, although the customer has to pay the premium, it is the lender that benefits from any payout. As well as this, the customer should be aware that the insurer could pursue them for reimbursement of any monies that have been paid out in respect of a lender's claim.
If a borrower was unable to repay their mortgage, for example, and the lender was required to sell the property, the deficit would first be covered by the insurance paid for by the HLC. But if this wasn't sufficient the borrower could be liable for any shortfall. Hence, property value = £70K, mortgage value = £100K and insurance cover = £20K, would mean the borrower still being liable for 10K.
The following mainstream lenders do not charge higher lending fees: Bradford & Bingley, Buckinghamshire BS, Cambridge BS, Capital Home Loans, Catholic BS, Cheltenham & Gloucester, Chesham BS, Co-operative Bank, Coutts & Co, Cumberland BS, Derbyshire BS, Ecology BS, Egg, First Direct, Future Mortgages, Heritable, Hinckley & Rugby, HSBC, ING Direct (UK), Intelligent Finance and Lloyds TSB Scotland.
Other lenders include: Market Harborough BS, Monmouthshire BS, Mortgage Express, Newbury BS, National Counties BS, Northern Bank (NI), Northern Rock, Prudential Banking, Scottish Widows Bank, Smile, Standard Life Bank, The One Account, UCB Home Loan Corporation, Vernon BS, Victoria Mortgages and Woolwich
06 December 2006 © Moneyextra.com
Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.