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Is there any need to levy higher lending charges?

Halifax and Abbey have hit back at Nationwide after it accused them of levying unnecessary lending charges.

Stuart Bernau, executive director at Nationwide, says both lenders run the risk of being accused of blatant profiteering by levying a higher lending charge and higher interest rates for those needing to borrow more than 90% of the property’s value.

Nationwide says it believes that since it abolished its higher lending charge back in September 2000, borrowers have paid over 1bn in unnecessary higher lending charges.

But both Halifax and Abbey defend their higher lending charges. Halifax says only a small proportion of borrowers who pay the charge at all and, like Abbey, adds that the charge is an acknowledgement of the greater risk involved.

So, Mortgage Strategy asks: “Is there a need for lenders to levy a higher lending charge for those wanting to borrow more than 90% of the property’s value?”

Bob Sturges, Money Partners – The problem with the HLC is its lack of transparency. Even financially sophisticated borrowers do not understand what it is and who stands to benefit in the event they default. Those unfortunate enough to do so are usually horrified to learn they receive little or no benefit themselves. HLCs also work against first-time buyers at a time when they are being left behind in the home ownership stakes.

Melanie Bien, Savills Private Finance – Higher lending charges are outdated and unnecessary, even if a borrower is after more than 90% LTV. Though some lenders insist on HLCs to protect themselves, as long as the valuation is accurate and the lender has taken the client’s affordability into account when deciding how big a loan to give them, the likelihood of the borrower defaulting and the lender having to sell the property for less than the outstanding mortgage amount is much reduced.

Mike Sims, Britannia – If a customer borrows over 75%, an HLC has to be paid. Britannia will pay this charge for the customer if the mortgage is no more than 90%. But if a customer borrows over 90%, the customer will pay the charge. The HLC is an insurance and therefore it protects the membership as a whole.

James Cotton, London & Country – There’s no denying that lenders take on more risk with high LTV loans and should therefore structure their products accordingly. But I think using tiered interest rates is a fairer, more transparent way of passing on that risk to borrowers, rather than imposing a higher lending charge.

Ray Boulger, John Charcol – Abbey and Halifax both say they need to charge higher lending fees but the fact that three of the five top lenders don’t shows that’s rubbish. The bottom line is that it’s the lender’s prerogative to impose different lending and interest rates for different clients but equally it’s the broker’s prerogative to choose the most competitive deal by looking at the whole deal and the long-term costs.

Sally Lauder, Alliance & Leicester – Most lenders implement some sort ofhigh risk lending protection, either by a higher lending charge or by charging a higher interest rate where the LTV is greater than 90%. Some lenders do both, which could be seen as excessive. HLCs are charged to protect the lender but in most cases they only apply to a small percentage of borrowers and can be added to the loan.

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