Mortgage consumers have paid over £1bn in unnecessary higher lending charges over the last five years, according to Nationwide Building Society.
Nationwide estimates more than 800,000 home buyers have paid the fee with nearly 500,000 of them being first time buyers, since September 2000.
Steven Bernau, Nationwide executive director, describes the figures as “quite staggering”.
He says: “Major lenders risk being accused of blatantly profiteering by charging both a higher lending charge and higher rates for those needing to borrow more than 90% of the value of the property.”
Nationwide says most High Street lenders still charge a higher lending fee for customers looking to borrow more than 90% and in some cases more than 75% of the value of their property.
It claims the consumer receives no direct benefit from paying the fee – it simply enables them to borrow a higher loan to value from some lenders.
The building society says it is a particular problem for first-time buyers because although the fee can be added to the mortgage a £1,500 higher lending charge will end up costing around £2,700 over 25 years.
Ray Boulger, senior technical manager at Charcol, says he broadly agrees most people should not pay the charge but he adds it is “not that simple” because lenders impose higher interest rates instead of the fee.
He says people who want a short-term mortgage should avoid the charge, but people who want a mortgage for longer than five years may find it cheaper to pay the fee rather than a higher interest rate.
Boulger points out Nationwide charges an extra 0.8% interest rate instead of the higher lending charge which for a five year deal costs the borrower around the same amount.
Nationwide admits it imposes higher interest rates but says some lenders, including Halifax and Abbey, impose a higher lending fee on top of higher interest rates which effectively charges borrowers twice.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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