Mortgages. Higher Lending Charges Are
Outrageous.
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 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, 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
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, 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 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!

The Nationwide Building Society, who incidentally do not charge
HLC's, recently reported that during the last five years £1
billion has been charged in HLC's by some 800,000 borrowers. It
also found that just over 500,000 were first time buyers –
largely youngsters struggling to buy a home. We believe that
HLC's are just another money making ploy for the mortgage
lenders. By the way, the Higher Lending Charge used to be
called a Mortgage Indemnity Guarantee, but they are all the
same - only the name is different!

We think it's time for the Office of Fair Trading to open up
the box and take a look inside in the same way as they did with
credit cards. The OFT recently ordered many credit cards to
reduce their charges by up to 40%. A bit of that magic would do
wonders for Higher Lending Charges!

Current Stamp Duty rates on house purchases 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%

*HM Inland Revenue rounds up house prices to the nearest £5.
Therefore, a house sold for between £249,996 and £249,999 will
be rounded up to £250,000 and they'll charge you 3% Stamp Duty
on the lot!

Information correct as from the April Budget 2006.


About The Author: Brokers Online are a large uk based finance
website specilising in Mortgages, (
http://www.life-assurance-bureau.co.uk/mortgages/ ) Loans, (
http://www.life-assurance-bureau.co.uk/loans/ ) and Credit
Cards ( http://www.life-assurance-bureau.co.uk/credit-card/ )