Mortgages. Be aware of the higher lending charge sting.

ou've worked hard to get the deposit together for a new property, and you could be forgiven for thinking that the worst is over. But don't forget, there are more charges to pay for. There's the stamp duty to pay for, which is 1 of the property price, and you've also got to pay the solicitors and the surveyors. If your house is worth more than £250,000, you'll have to pay out even more on stamp duty, which we will talk more about at the end of this article.You thought it was all over, but then are another bill arrives in the post. It's for £1500, and it’s to cover the higher lending charge. What is this charge? It's the price you pay for borrowing more than 90 on a mortgage, three quarters of mortgage lenders charge it and they usually ask for around £1500. Unbelievably, you won't see any benefit from that money. The higher lending charge is a form of protection to the mortgage lender, insurance against your house being repossessed and the subsequent sale falling short of the original sale price. The higher lending charge, in practice, hardly ever gets used, because the lenders usually end up carrying the risk themselves. And if your home is repossessed at a price less than what you paid for it, you will still have to cover the shortfall. The lender won't let you get away with that! Luckily, the majority of the lenders will allow the higher lending charge to be added on to your mortgage at the outset. However, you'll still have to pay interest on that, which means over 25 years, that could be an extra £2700 to pay.We think that the higher lending charge should be banned. It is not fair for a lender to insure themselves against the possibility of you defaulting on your mortgage. If they don't want to lend to you, then they shouldn't. They do enough credit checks on you to be able to tell if you're going to cause them problems -- at least, they should! It really is an extra and unnecessary charge, because with a mortgage of over 90, you end up paying more in other charges anyway.The Nationwide Building Society does not charge a higher lending charge, and they recently publicised the fact that homeowners have paid out £1 billion over the last five years on this particular charge. That means 800,000 borrowers have paid this charge. 500,000 of them were first-time buyers, the very people that really couldn't afford to pay the charge. The higher lending charge was previously called the mortgage indemnity guarantee - they may have changed the name, but we haven't been fooled!The Office of Fair Trading recently made some changes within the credit card industry, forcing a number of credit card companies to reduce their charges by up to 40. We think it's time they took another look at the mortgage industry too.Stamp Duty rates in the UK – house purchasesUp to £125,0000£125,000 - £250,0001£250,000 - £500,0002Over £500,0004*The price for your house will be rounded up to the nearest £5, so if you buy a house for £124,996 then it will be rounded up to £125,000, and you’ll still have to pay a 1 duty.

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