It claimed lenders’ justification for higher lending charges null and void and that people who save for a deposit are unfairly stung by HLCs.
First-time buyers are already struggling and no doubt the recent surprise base rate rise will mean they face even more difficulties getting on the housing ladder. Many first time buyers are forced to consider high loan-to-value (LTV) mortgages simply so they can afford to buy their first home. However, contrary to popular belief, many 95 per cent mortgages should be more accurately marketed as 97 per cent mortgages due to the effects of higher lending charges causing additional financial strain.
Lenders argue higher lending charges offer protection if a borrower defaults on the mortgage, however, analysis from moneysupermarket.com highlights that not all higher LTV mortgages carry these charges. In fact, you are nearly five times more likely to pay a HLC with a 95 per cent mortgage than with a 100 per cent mortgage. As the latter are intrinsically higher risk, this reasoning behind HLCs is rendered null and void.
There are nearly 170 products available for those looking for 100 per cent LTV borrowing and only 12 per cent of these include a higher lending charge. This is a stark contrast with the 95 per cent LTV market, where out of 1,010 products on offer, nearly half include a HLC. Consequently, even with a relatively low purchase price of £100,000, people need to fork out an average of an extra £1,700 to cover the HLC before they can benefit from the true savings of a 95 per cent LTV mortgage.
Louise Cuming, head of mortgages at moneysupermarket.com, said: “Our research clearly shows the real reason behind HLC is purely another income-generating ploy by lenders, which is infuriating. Fortunately, there are enough products in the market for people to choose one where they can avoid paying the HLC. However, if a borrower does opt for a product with the HLC, they would be much better off paying it all at the beginning of the term, rather than incorporating it into their home loan where they will be paying interest on it for years.
“It is imperative all borrowers conduct a true cost analysis in order to access the total financial cost of a mortgage. This takes into account additional outlay beyond the headline rate, such as arrangement fees, exit fees, valuation fees and cashback. All these extras can have a marked impact on the total amount payable over the whole term so it important to take time out to calculate the best options available.
“Indeed, opting for a 95 per cent mortgage or 100 per cent mortgage is not the only option for first-time buyers. In the past five years, the mortgage market has seen a growth in products specifically designed for first-time buyer such as the parental guarantor mortgage, the graduate mortgage, shared equity schemes and joint buying options.”
