Mortgages. Higher Lending Charges Are Outrageous.
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Outrageous Higher Lending Charges on Mortgages
After painstakingly saving for a deposit on your new home, you might think you're all set. Unfortunately, there are still several additional expenses to consider. Surveyor and solicitor fees are just the start. The government requires stamp duty, starting at 1% of your property's price, and if your home costs more than £250,000, this rate increases (details at the end). You might breathe a sigh of relief, thinking you're finally a homeowner, but not so fast.
Out of nowhere, your mortgage lender sends you a bill for an additional £1,500. This is called a Higher Lending Charge (HLC), applying if you borrow more than 90% of your home’s value. Around 75% of lenders enforce this fee, and £1,500 is the average amount charged.
Here's the kicker: this money doesn’t benefit you at all. It’s a type of protection insurance for the lender, not for you. The HLC covers the lender if you default, your property is repossessed, and the sale doesn’t cover the outstanding mortgage balance. Though theoretically, it should cover the shortfall, in practice, many lenders assume this risk themselves. Essentially, it’s an extra fee to mitigate lending risk.
Importantly, an HLC doesn’t absolve you of responsibility. If your home is repossessed and there’s a shortfall, you’re still required to repay it, and the lender will pursue you for that money.
While most lenders allow the HLC to be added to your mortgage, this isn’t a real advantage. It means you’ll pay interest on this charge, and over 25 years, that can cost you nearly £2,700!
In our view, HLCs should be obsolete. If lenders suspect you’ll default, they shouldn’t approve the loan. With today’s advanced credit checks and risk assessments, lenders already take steps to protect themselves. Additionally, you might face a higher interest for a 90%+ mortgage, effectively being charged twice for the same risk.
The Nationwide Building Society, a lender that doesn’t impose HLCs, revealed that over the past five years, some 800,000 borrowers paid £1 billion in HLCs, with over 500,000 being first-time buyers, mostly young people striving to afford a home. We believe these charges are just another way for lenders to boost profits. The HLC was previously known as a Mortgage Indemnity Guarantee, but it’s merely a name change.
It's time for the Office of Fair Trading to investigate, similar to their intervention with credit card charges. Recently, the OFT compelled many credit card companies to reduce fees by up to 40%. Such action could work wonders for tackling Higher Lending Charges, making homeownership more accessible.
Current Stamp Duty Rates in the UK:
- Houses under £125,000: No Stamp Duty
- Houses £125,000 to £249,995: 1%
- Houses £250,000 to £499,995: 3%
- Houses over £500,000: 4%
Note: HM Inland Revenue rounds house prices to the nearest £5. A house sold for between £249,996 and £249,999 will be rounded to £250,000, incurring a 3% Stamp Duty on the entire price.
Information is accurate as of the April Budget 2006.
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