Higher Lending Charge
Higher Lending Charges are becoming more infrequent and nowadays many mortgage lenders make a point of advertising that they do not charge a Higher Lending Charge.
What is a Higher Lending Charge?
A higher lending charge (formerly known as a 'Mortgage Indemnity Guarantee [MIG] fee') is a fee that a lender will charge for lending high risk mortgages. A high risk mortgage is considered a loan-to-value [LTV] of 75% or more. The greater the amount of borrowing against a property's value, the greater risk to the lender as there is less chance they will recover their money in the event of repossession.
In the past, mortgage lenders would take out an insurance policy to protect themselves in the event of a shortfall and they could not recover their money. The policy is solely for the benefit of the lender but the premiums would be charged to the borrower. These charges were quite significant and were usually in the region of 6-8% of the amount over the lender's HLC threshold.
e.g. A 100% mortgage of £200,000 where the lender's HLC threshold is 75% would mean the borrower would need to pay a Higher Lending Charge of £4,000 (£50,000 x 8%).
Today, the majority of lenders do not charge Higher Lending Charges due to market competition and instead either foot the bill themselves or take more caution with their lending criteria to compensate for the additional risk and you must check with the individual lender to see if a higher lending charge applies.
Advice regarding Higher Lending Charges
- Higher lending charges can be quite significant and should therefore be considered along with the other costs and fees when choosing a suitable mortgage product
- Not all lenders charge a higher lending charge, however, no higher lending charge does not necessarily mean a better deal
- A higher lending charge is a fee a mortgage lender will charge a borrower in exchange for lending a high risk loan
- Higher lending charges are typically 6-8% of the amount over the lender's normal lending threshold
- Not all lenders will apply a higher lending charge
- A lender charging a higher lending charge is not necessarily offering a worse deal and you must consider all costs and fees before deciding which product is most suitable
For more information about 'Mortgage Higher Lending Charge', you can call us on 020 8783 1337 or submit an online quote.