Research by finance website Fool.co.uk suggested that borrowers with a 5 per cent deposit could end up paying more for their mortgage overall than those with a 4 per cent deposit because of the HLCs that are imposed on 90 to 95 per cent loan-to-value (LTV) products.
Fool.co.uk said the fee disappeared on 96 to 100 per cent LTV products, despite lenders’ claims that the fees were imposed to protect their risk. It said many borrowers did not take HLCs into consideration when comparing deals because the cost was complicated to calculate.
Jane Baker, mortgage expert at Fool.co.uk, said: “This goes against the grain as it makes sense to pay the largest deposit you can manage. It’s essential to look at deals in their entirety, taking into account all the costs.”
Louise Cuming, head of mortgages at moneysupermarket.com, added: “It’s scandalous. Lenders say that HLCs are there to protect their risk, but some will charge HLCs at 95 per cent and not at 100. It’s clear to me that the HLC is there to boost profit and has little to do with risk. It’s not transparent and the sooner lenders admit it, the better.”
Bernard Clarke, communications manager at the Council of Mortgage Lenders, said: “If a lender does this, then it would have to justify it to customers.”
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