Nationwide has estimated that since it abolished its higher lending charge back in September 2000, borrowers in the UK have paid over 1bn in unnecessary higher lending charges.
Despite Nationwide’s stance to make mortgages more affordable, most high street lenders still charge a higher lending fee for customers looking to borrow more than 90%, or in some cases more than 75% of the value of their property. Typically around 1500, the fee covers the lender in case borrowers default on their loans. Although the consumer pays this fee, they receive no direct benefit as a result, it simply enables them to borrow a higher loan to value from some lenders.
Nationwide estimates more than 800,000 home-buyers have paid this unnecessary fee in the last five years, with nearly 500,000 of them being first-time buyers. This fee 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, meet legal and other costs involved with moving home and, in many cases, pay stamp duty. And while it can be added to the mortgage, over 25 years, a 1500 higher lending charge will end up costing around 2700.
On average, a first-time buyer spends 128,918 on their first property and, as most only have 10,000 as a deposit, the majority will find they’re borrowing 92% of the value – thus incurring higher lending charges. These first-time buyers will spend nearly 15,000 over the first two years in mortgage payments including the higher lending charge. As the average wage is 26,278, less than 20,000 a year, after tax, this makes taking that first step onto the property ladder a real financial challenge.
Most lenders, including Nationwide, manage the risk of higher value loans by charging higher interest rates. But some lenders, including Halifax and Abbey 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 executive director, Stuart Bernau, says: “Despite the negative publicity around higher lending fees, it is clear that many borrowers continue to find themselves faced with this charge at a time when their finances are already stretched and they are at their most vulnerable. Another cost of around 1,500 is the last thing they need.
“The figures are quite staggering, with around 800,000 borrowers paying one billion pounds over the last five years. Major lenders risk being accused of blatantly profiteering by charging both a higher lending charge and higher rates for those needing to borrow more than 90% of the value of the property. Prospective borrowers should shop around for their mortgage and always ask the question: “Will I be paying a higher lending charge?’ If they come to Nationwide, they can be confident the answer will be no.”