Question - How do I calculate how much my Higher Lending Charge is?

lornaj1973

Hi there,

I'm not impressed with the information I'm getting from my mortgage advisor so I wanted a second opinion - so I've come to the experts!

My mortgage for my new home will include a Higher Lending Fee ( or MIG ).
Property valued at £138000, I want a mortgage of £130000.

The Halifax have told me that the Higher Lending Charge is 7.25% on anything above 90% of the property value. (90% of property value is £124200)

So - I have worked out the MIG at 5800 @ 7.25% = £420.50

Is that correct? Or am I missing something......?

Thanks in advance.

LisaT186

Its charged back to 75% so difference between £103,500 and your borrowing of £130,000 ie £26500

So 7.25% of £26,500 = £1,921.25

lornaj1973

Thanks for your reply. I'm even more confused now!

Why is charged back to 75%? The Halifax told me that anything above 90% is charged at 7.25% so I'm not sure where the 75% comes into it?

Thanks.

LisaT186

A higher lending charge is only paid when you are borrowing over 90% of the property value, but the lender has to cover from 75% of the value for the insurance policy. It is standard across the board unfortunately for those who charge it.

Leon_W

Lisa is correct.

If you have a 10% deposit then Halifax say no more than "Halifax will pay the HLC fee"

If you don't have the 10% deposit (which you do not) then the fee is charged at 7.25% on the amount over 75% LTV. Don't ask me why because I don't know, thems are the rules !

I don't know why your broker has suggested using Halifax in your circumstances anyway. I've been doing this for many years and NEVER placed a client with a Higher Lending Charge unless it was ABSOLUTELY neccessary (ie: due to poor credit and nobody else accepting them).

Your post is brief and there may be a valid reason for using the Halifax in this case but I would ask the broker why.

There are plenty of lenders that do not make this charge even at high LTVs such as yours and I would seriously be looking at alternatives. Even if the rate on the mortgage is slightly higher it could work out MUCH cheaper in the long run.

Are you taking a 2 year deal ? £2k is a lot to pay.

LisaT186

Good point Leon!

MarkyMarkD

Yes, it's seems daft to pay almost £2k to borrow the marginal £5,800. If you can possibly avoid it (by choosing a lender who doesn't charge HLC, for example) then it's worth doing so IF you want a short-term rate.

If you want a longer-term (5 years or more) rate, then it might be cheaper to pay HLC. For example, Nationwide charge more in extra interest on higher LTV loans than others charge in HLC, if the term is longer, because they charge the same extra amount per year for each year of the fixed/discounted term.

E.g. for your loan, with Halifax you pay 7.25% x £26,500 = £1,921.25.

With Nationwide on a 2 year product, you pay 0.40% per annum extra = 0.80% on the whole £130,000 = £1,040. So that's better value.

But with Nationwide on a 5 year product, you pay 0.40% per annum extra = 2.00% on the whole £130,000 = £2,600 (or slightly less on a repayment mortgage because your balance will fall slightly over this period). So that's worse value.

And even more unreasonably, with Nationwide on a lifetime tracker product, you pay 0.40% per annum extra FOREVER = up to 10% of the average balance on your loan over 25 years = something like £6,000+. Madness!

I cannot for the life of me understand why Nationwide are effectively incentivising first-time buyers (who are borrowing 95% or so) to buy short-term fixed/tracker products, when the best advice for many such buyers may be to fix for 5 years.

lornaj1973

Thanks everyone. I understand this now.

Unfortunately I need to stay with the Halifax for another year as I'm tied into my mortgage with them. If I leave, I'll be paying a redemption fee which I'm not going to do.

I will be paying a higher deposit to avoid the higher lending charge - just means I'll need to wait for that new kitchen I had my eye on!

Thanks again for your help.

Leon_W

Fair enough.

It makes sense to find the extra cash by hook or by crook to avoid the HLC.

If you are only tied to the Halifax for an extra year are you effectively porting your existing mortgage and taking a top up ? The reason I ask is that you should really try and avoid any tie ins on the top up part as you will have effectively two mortgages running with different end dates !

regularsaver1

is the early repayment charge less than the higher lending charge?

lornaj1973

Yes - I'm porting my mortgage and taking a discounted offer with the Halifax for the top-up part through my broker.

I was considering paying the redemption to get away from the Halifax altogether but it's £2k+ and I really don't want to give them anything if I can help it. The sooner I'm no longer tied to them, the better......

Thanks again.