Higher lending charges: Who needs them?

Ian_Skinner_2

I certainly don't.

I recently discovered that Nationwide are offering a tracker with a start rate of 4.67% for two years, with a loan to value of up to 95% without them levying a higher lending charge. Does anyone else know of similar products offered by other lenders that have comparable or more competative rates?

I am a first time buyer and keeping upfront costs down is important to me. I figure that even though the interest charged over two years is higher, it will still work out costing less if I avoid a HLC and then refinance after the discount period has expired.

I would like to hear what people think of my plan?

MarkyMarkD

Ian, you've just fallen for Nationwide's hype.

Nationwide DO charge a HLC. They just spread the cost of it over your loan, and unfairly (and stupidly) over-charge those customers who choose, for their own good reasons, to opt for a longer term product - which may be the best choice for a first time buyer, in many circumstances.

If you choose the product you are talking about at 90% LTV, you pay 0.30% less than if you borrow 95% LTV. So effectively the HLC is 0.60% of the money you are borrowing - or £600 per £100k. This is cheaper than most other lenders who charge HLC, though.

But if you choose the lifetime tracker product, you'd pay the extra 0.30% for the whole term of the mortgage. That could cost you approximately 0.30% x 25 years x 0.5 x £100k (very rough calculation) = £3,750. Which is frankly ridiculous.

Other lenders charge something like 7.5% of the borrowing over 75% - or 1.5% of the total borrowed if you borrow 95% LTV, which is £1,500 per £100k. More than it costs on a Nationwide 2 year product, the same as it costs on a Nationwide 5 year product, and vastly less than it costs on a Nationwide lifetime product.

Their pricing differentials for products with no reservation fees are equally unfair - as above, it's 0.30% extra to avoid the reservation fee which will cost FAR more over the life of the lifetime product.

The only effect these things can have is to wrongly encourage first time buyers to opt for short term products, leaving them at risk of being unable to afford the loan if rates increase a few years down the line.

And if you plan at the outset to refinance after two years, you need to factor in the remortgaging costs which will be c.£1,000. All in all, you won't necessarily be any better off than paying a £1,500 HLC elsewhere IMHO (as long as that other lender has best buy rates).