Higher lending charges to cost borrowers £200 million in 2006

24.04.2006 A report from Nationwide Building Society estimates that borrowers will spend £200 million unnecessarily on higher lending charges in 2006. It is predicted that nearly 100,000 borrowers will be affected with each borrower on average paying a charge of £2,000.

The Higher Lending Charge
Nationwide has abolished its higher lending charge but many High Street lenders still charge the fee for customers who want to borrow more than 90%, or in some cases more than 75%, of the value of their property. The fee is usually around £2000 and covers the lender in case borrowers default on their loans.
Although the borrower pays this fee, they receive no direct benefit from it, other than it enabling them to borrow a higher Loan To Value (LTV) proportion from some lenders.

First-time buyers
The higher lending charge is a particular concern for first-time buyers as it is a significant additional cost at a time when they also need to find a deposit and meet legal and other costs involved with moving home. In many cases, most first time buyers also have to pay stamp duty where they wouldn’t have to if it had been increased in line with house price growth. The duty would only have to be paid if the property was bought for £190,000 or more making first time buyers in a difficult position to afford the higher lending charges.

Lenders
Some lenders also charge a substantial higher lending fee on top of higher interest rates – effectively charging borrowers twice to offset the risk of higher LTV lending at a time when repossessions and arrears are at low levels. Nationwide’s executive director, Stuart Bernau has said; ‘Not only are higher lending charges unwelcome for homebuyers, they are also avoidable. Consumers need to be aware that the headline interest rate is not all they pay - they must also take into account the fees and charges that form part of their mortgage deal.’