Mortgages, True Costs Revealed - Higher Lending Charges

By: Liam G

This is a fee levied by the lender if a considerable portion of the property's value is borrowed. Lenders generally use this money to take out insurance to cover them if the borrower defaults on the mortgage.

The exact amount charged will depend on the value of the property and how much is being borrowed. Most lenders will apply a HLC on mortgages that exceed 90% of the property's value.

However, they generally base the exact figure on the proportion that is being borrowed over 75%.

This is easier understood though an example. Consider the following - if someone wanted a 91% loan on a property worth ?100,000 then the HLC would be a percentage of the ?16,000 difference between ?75,000 and ?91,000.

The HLC percentage varies from lender to lender, with 8% being about average. At this rate, the HLC will be ?1,280 for the privilege of borrowing ?1,000 over the 90 per cent threshold.

It is common practice for lenders to offer to add the HLC to the mortgage repayments. Although this may seem like a good idea, it is important to remember that this would then mean the HLC incurs interest, based on the APR of the mortgage.

As is mentioned above, the threshold of the HLC varies from lender to lender. Typically it's around 90%. However, Newcastle Building Society's HLC threshold is 85% and Lambeth, Darlington and Cheshire building societies start charging at 80%.

It is not all doom and gloom though, as a great deal of lenders don't charge a HLC at all! There are also a number of ways that HLC can be avoided all together. They include borrowing just below the threshold or saving longer and putting down a bigger deposit.

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