Several high profile mortgage lenders have begun to revolt against higher lending charges and chastise those who impose them on their customers.
A higher lending charge (HLC) is a fee charged that a mortgage lender will charge to a borrower if the loan-to-value ratio on their mortgage exceeds certain percentage. Higher Lending Charges are also known as Mortgage Indemnity Guarantees (MIGs).
The money collected from the higher lending charge is usually used by the mortgage lender to purchase an insurance policy that will protect them against the borrower potentially defaulting on the mortgage.
Higher Lending Charges have been criticised in the past for not offering borrowers any protection. The insurance policy will reimburse the mortgage lender for the outstanding balance of the mortgage and any mortgage arrears incurred if the borrower defaults.
However, this does not release the borrower from their liability as the insurance company will pursue them for the funds instead of pursuing the mortgage lender.
While some mortgage lenders have stopped applying Higher Lending Charges, many have not. This has caused a rift between institutions with different policies as the mortgage lenders who choose not to charge their customers extra fees on high loan-to-value mortgages have begun to criticise those that do.
Various parties within the mortgage industry, including many brokers, are backing mortgage lenders who do not apply Higher Lending Charges. This is because the charge is levied on borrowers who cannot afford a large deposit. These borrowers, therefore, can least afford to pay an additional fee when securing a mortgage.
Mortgage brokers are arguing that because Higher Lending Charges are levied upon borrowers that are already considered to be high risk, it makes little sense to place an additional burden upon them.
Mortgage lenders who do charge the fee insist that it is not hitting borrowers who can least afford it and the fee can be added to the loan balance, thereby eliminating the need for borrowers to pay for it upfront.
If you are looking for a mortgage to buy a property, or if you are looking to remortgage a property you already own, ask your mortgage adviser if the mortgage lender they recommend will levy a Higher Lending Charge before you sign on the dotted line.
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