Nearly a million borrowers are likely to pay higher lending charges (HLC) this year, according to new research that has led to criticism from a financial expert.
Data from Nationwide has revealed that 100,000 extra borrowers will pay nearly £2 billion in HLCs, bringing the total to around 900,000 by the end of 2006.
Going under a variety of titles, such as indemnity premium, insurance guarantee premium, additional security fee, the charges are there to protect the lender in case of default. Criticising this as a charge on first time buyers (FTBs), Rachel McKay, mortgage analyst at moneyfacts.co.uk, said: "Times are trying enough for many first time buyers, those most frequently hit by higher lending charges, without being faced with another up front cost at a time when they can ill afford it."
Over 6,400 residential mortgages are available in the UK from 135 lenders which Ms McKay says can lead to a "minefield" for potential FTBs when making the right choice.
She said that some 70 per cent of lenders charge a loan to value ratio of anywhere between one per cent and 12 per cent which creates an HLC.
As this may apply to repayments over 25 years, even a £1,500 fee at 7.5 per cent would grow to £3,252 by the end of the term.
Some providers also apply their insurance terms to the whole of the loan amount rather than above a certain fee, something that Ms McKay calls "archaic" in the age of credit checking technology.
With the UK having enjoyed a stable economy for the past few years, Ms McKay criticised mortgage lenders for hitting borrowers with even more charges as many struggle to get onto the housing ladder. To read more about Mortgage News, click here.
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