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Summary
Higher Lending Charges are often charged if your mortgage is 90% or more of your property's value. We think the charge is a form of profiteering by the lenders and should be abolished. This article explains why.
Author: Michael Challiner
After you scraped together a modest deposit for your new home you
may think you're home and dry. Think again. On top of there's the surveyors and ( cheap mortgages ) solicitors to pay. Then the government want a slice. You've got to pay stamp duty at 1% of the property's price (if the house costs more than £250,000 the rate of stamp duty increases – see the information at the foot of this article). Phew! You're lucky you'll just make it – you'll be a homeowner at last!
Then out of the blue the mortgage lender sends you a new bill – another £1,500 please Sir. They've called it a Higher lending Charge (HLC) and it's charged if you borrow more than 90% of the value of the house. About 75% of all mortgage lenders charge it and £1,500 is about the average they ask for.
And guess what – they money you pay won't benefit you in any way whatsoever! Not one jot. You're being charged for a form of protection insurance that protects the mortgage lender, ( online car insurance ) not you. The HLC pays the lender if you default on your mortgage, your property has to be repossessed and the sale proceeds are less than the outstanding balance on your mortgage. In theory the HLC then pays out the shortfall to the lender but in practice many lenders carry the risk themselves so the HLC is just an extra fee to offset a higher lending risk.
But an HLC doesn't let you off the hook! If your home is ( car insurance policy ) repossessed and there's a shortfall, you still have to pay the shortfall back to your lender - they're sure to chase you for the money.
Whilst most of the lenders who charge HLC's will readily agree to add the charge to your ( mortgage rates ) mortgage, that's little consolation. In any case this means that you'll end up paying interest on top of the charge. Then, over a 25-year term, your HLC will have cost you closer to £2,700!
In our opinion HLC's should have died out with the dinosaurs. If a ( term assurance ) lender is worried you'll default, they shouldn't have lent the money in the first place. And with all today's hi-tec credit checks and the risk based assessments used to process your application, you'd think the lenders were doing enough to protect themselves. In any case you may also end up paying a small interest premium for a 90% plus mortgage – so in practice you're being charged twice for the same risk!
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