What is a Higher Lending Charge and will you
have to pay it?
If the amount you are borrowing is more than 75% of the purchase price or valuation, whichever is the lower, a
higher lending charge will be charged. The one-off sum is usually added to the loan, although it may be paid up
front if you prefer.
Part of this money is used by the society to obtain mortgage indemnity insurance, which acts as extra security
for our sole benefit. This insurance will not protect you if your property is subsequently taken into possession
and sold for less than the amount you owe.
You will remain liable to pay all sums owing including arrears, interest and our legal fees. If a claim is paid to us
under this insurance, the insurers generally have the right to recover this amount from you.
The majority of lenders including us only charge it to borrowers where the mortgage is over 90% of the value of
the property (LTV of 90%). However, different lenders have different policies, with some lenders not charging at
all, even on 100% loans, and others charging it on any advances over 70% LTV. Also, some lenders who would
normally charge it can have special mortgage deals where they don’t. Please ask us for details if you will have
to pay the Higher Lending Charge.
Most lenders calculate a Higher Lending Charge by referencing it to both the actual LTV and the amount they
are lending in excess of 75% of the property value. For example, a lender may make no charge on a 90% loan
but if you borrow 90.1% you will be charged on 15.1% of the property value (90.1% minus 75% = 15.1%). Thus
a small additional amount of borrowing over 90% can become very expensive.
For example, a 100% mortgage from a lender who charge a Higher Lending Charge will typically include a
charge cost of 3% of the mortgage amount, i.e. £3,000 on a £100,000 mortgage. Similarly, the typical charge
on a 95% mortgage, is about 1.5% of the loan value. Some of the most c