The calculator, believed to be the first of its kind available to intermediaries, provides a simple method of working out the cost of an HLC, including the additional interest charged as a result of adding the HLC to the mortgage. This calculator thus helps mortgage intermediaries to accurately compare the rates of mortgage products with and without HLCs and so give best advice to their clients.
For example: On a loan of £200,000 at 90% LTV a Higher Lending Charge, including the interest accrued, could be more than £2,500, which is the equivalent of increasing the rate by 0.66% over the first two years.
Commenting on the ‘True Cost Calculator’, Ian Giles, Marketing Director at Kensington Mortgages, said: “Intermediaries have told us that they want transparency to assist them in giving best advice and that headline rates with HLCs can be misleading. Kensington Mortgages believes in transparency; higher lending charges should not be used as a hidden income stream and lenders who charge a higher lending charge but fail to provide good products will find their practices hard to justify to the FSA.
“We’ve developed our ‘True Cost Calculator’ for intermediaries to use if they want to work out just whose product is the most competitively priced, taking HLCs into account. We fully support industry sourcing engines who have been offering intermediaries comparison tools in this area and hope that our calculator further highlights to intermediaries the true effect of
HLCs on headline interest rates.”
John Charcol’s Senior Technical Manager, Ray Boulger, agrees: “Despite belonging to the dark ages HLC’s are taking a long time to die. It is hard to avoid the impression that their continued use by some lenders in preference to tiered interest rates is primarily designed to disguise the real cost of a mortgage. In today’s FSA regulated world the transparency offered by tiered interest rates rather than imposing an HLC will increasingly be seen as an important Treating Customers Fairly consideration”.
Simon Mouncher, Director at EM-Financial, added his thoughts to the issue: “We welcome Kensington Mortgages’ True Cost Calculator and will be adding it to our website to enable our brokers to accurately compare the rates of mortgage products with and without HLCs. The calculator will make it a lot easier for our brokers to be certain they are giving best advice to their clients at all times, which is so important in today’s regulated environment.”
To use the ‘True Cost Calculator’, intermediaries will need is the following information:
Loan amount – the amount the applicant wishes to borrow
Property value – the value of the proposed house purchase or remortgage
Initial rate – the rate which applicants pay at the start of the mortgage
HLC charge from? – the LTV above which the HLC is charged
HLC charged at? – the rate at which the HLC is charged
Minimum HLC – the minimum charge put in place by the lender for cases which go above the ‘charged from’ LTV.
When all of the above information has been entered into the calculator the results will be displayed into the following output boxes:
Total amount to pay – this figure in this field would show the total £ value that the customer will have to pay to the lender
Total % value – the % value in this field is the £ value from the previous field expressed as a percentage of the loan amount. This % can be added to the initial rate and will reflect the new pay rate if an HLC were not applicable
% per year – the figure in this field would show the % value added to the pay rate per year
Initial rate with HLC added – The rate in this field would show the pay rate which would be applicable if the HLC was not charged as a £ value, but instead added to the rate over the initial rate term.
