Higher Lending Charge / HLC

This fee, also known as the Mortgage Indemnity Guarantee (MIG), Additional Security Fee or Mortgage Advance Premium, is charged if your mortgage has a high loan-to-value (LTV) ratio. The LTV measures the size of the amount borrowed in relation to the property's value. It is stated in terms of a percentage. For example, if your mortgage is £187,500 but your property is worth £250,000, your LTV is 75 %. Most mortgage lenders charge HLC if your LTV is 80 % or more, which means that almost all one hundred percent mortgages and one hundred and twenty-five percent mortgages will carry this fee. Since large loan amounts are more of a risk to lenders, by charging this fee, they:

• dissuade you from borrowing a large percentage of the property's value, and
• reduce the risk for themselves if you become unable to repay your loan
  
  

This is because larger LTVs can increase the chance that you will have negative equity in the future, which occurs if the amount you owe on your mortgage exceeds the value of your property. If you fail to make repayments and the lender is forced to repossess your home, the sale of the property may not pay off your mortgage. By charging this fee, they reduce the immediate financial impact to themselves. Nevertheless, even if your lender uses this fee towards making up the difference between the property's value and the loan, you are still required to repay any remaining difference.

HLCs vary between lenders and also depend on the value of your property and the amount you borrow. Generally you are charged roughly £1,500 for every £100,000 you borrow. This is because most lenders charge you based on the proportion you borrow above 75 % or 80 % of the property's value. For example, if your house is worth £250,000 and you borrow 90 % (£225,000), you are borrowing £37,500 more than the 75 % amount of £187,500. Typically, the charge is between 7 % and 8 % of this difference. Eight percent of £37,500 is three thousand pounds. Essentially, this represents two £1,500 charges: one for each £100,000 you borrowed.

It is sometimes advised to avoid this fee by choosing a mortgage and lender where it is not charged, but naturally, you should consider the whole mortgage package before you make a final decision. In most cases, saving up for a deposit is a much cheaper option, since more lenders will be willing to offer you a mortgage, and as such, it should be easier to find a good deal.