Nationwide urges lenders to abolish HLC

Amanda Jarvis

March 27, 2006

It's predicted nearly 100,000 borrowers will be affected with
each borrower on average paying a charge of £2,000. After the government only made a very modest change to stamp duty thresholds, it remains important that lenders take action to help first time

buyers take their first step onto the property ladder.
Nationwide abolished its higher lending charge more than five years ago but many High Street lenders still charge this fee for customers looking to borrow more than 90% – or in some cases more than 75% – of the value of their property. The fee – typically around £2,000 – covers the lender in case borrowers default on their loans. Although the borrower pays this fee, they receive no direct benefit as a result, it simply enables them to borrow a higher Loan To Value (LTV) proportion from some lenders.

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. While it can be added to the mortgage, over 25 years, a £2,000 higher lending charge could end up costing borrowers around £3,800. 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 which is why first time buyers can least afford higher lending charges.

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 historically low levels.

Nationwide's executive director, Stuart Bernau, 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.

“The stamp duty announcement made at last week's budget is at least a step in the right direction but the size of the increase is disappointing. Taking into account the bunching around stamp duty thresholds, we estimate only around 30,000 buyers will benefit from this change, which still leaves the average buyer paying stamp duty. With first time buyers paying an average of more than £128,000 on their property they could end up spending nearly £4,000 on higher lending charges and stamp duty alone.”

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