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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Thu May 10, 2007 1:07 am Post subject: BORROWERS WILL WASTE OVER £220 MILLION THIS YEAR |
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BORROWERS WILL WASTE OVER £220 MILLION THIS YEAR
Nationwide urges lenders to abolish higher lending charges
Nationwide Building Society estimates that in 2007, borrowers will spend a staggering £220 million unnecessarily on higher lending charges. Nationwide predicts nearly 110,000 borrowers will be affected with each borrower paying, on average, a charge of around £2,000. After the government failed to make any changes to the nil stamp duty threshold in this year's Budget, it remains important that lenders take action to help first time buyers take their first step onto the property ladder.
Nationwide abolished its higher lending charge nearly seven years ago but many high street lenders still charge this fee for customers looking to borrow more than 90% of the value of their property. The fee, typically around £2,000, covers the lender in case borrowers default on their loans. Although the borrower pays this fee, they receive no direct benefit as a result, it simply enables them to borrow a higher loan to value (LTV) proportion from some lenders.
The higher lending charge is a particular concern for first time buyers as it is a significant additional cost at a time when they also need to find a deposit and meet legal and other costs involved with moving home. While it can be added to the mortgage, over 25 years, a £2,000 higher lending charge could end up costing borrowers over £4,300*. In many cases, most first time buyers also have to pay stamp duty where they wouldn't have to if the nil threshold had been increased to £210,000 in line with house price growth.**
Nationwide's divisional director, Matthew Carter, says: "Not only are higher lending charges unwelcome for homebuyers, they are also avoidable. Consumers need to be aware that the headline interest rate is not all they pay, they must also take into account the fees and charges that form part of their mortgage deal.
"With first time buyers paying an average of more than £145,000 on their property they could end up spending around £5,500 on higher lending charges and stamp duty alone. We therefore urge homebuyers to shop around and ask lenders whether they impose a higher lending charge before making a commitment."
For further information:
Zoe Stevens, telephone: 01793 655423 zoe.stevens@nationwide.co.uk
Tamsin Hemsley, telephone: 01793 657500 tamsin.hemsley@nationwide.co.uk
Notes to editors:
*Assumes a constant rate for 25 years of 7.25%
**Stamp duty
The Chancellor announced in March 2006 that the stamp duty nil threshold would be increased from £120,000 to £125,000. Nationwide estimates that, taking into account the bunching around the stamp duty thresholds, around 30,000 more buyers will be exempt from stamp duty by this change.
According to Nationwide's House Price Index, the average house price (at end Q1 of 2007) was £175,554 and the average first time buyer house price was £145,801.
Stamp duty has not kept pace with house price inflation. Figures below show that if the stamp duty nil threshold had increased in line with Nationwide's House Price Index it would be over £210,000. Stamp duty nil threshold If increased in line with Nationwide HPI If increased in line with Nationwide FTB HPI
1993 £60,000 £60,000 £60,000
2005 £120,000 £190,000 £195,000
2006 £125,000 £210,000 £222,000
From 1993 until 2005 stamp duty has been applied to homes costing more than £60,000. In March 2005 this threshold was increased to £120,000. It was further increased to £125,000 in 2006. In 1993, the average house cost £51,500 and only 18% of first time buyers paid the tax ? even in London more than half the first time buyers were exempt from stamp duty. Nationwide believes that removing the burden of stamp duty from the majority of first time buyers and bringing the threshold back into line with house prices would help meet the government's target of one million new home owners.
Higher Lending Charges
Lenders charge on the loan amount above 75% loan to value (if the total borrowing is greater than 90%).
Higher lending charges are also known as 'Mortgage Indemnity Guarantees'.
Figures based on a purchase price of £145,801 & 95% LTV advance of £138,511 (£145,801 = Average first time buyer house price from Nationwide index at Q1 2007)
Lender Cost Percentage (payable on loan amount between)
Halifax £2114 7.25% (75 - 97%)
Alliance & Leicester £2187 7.50% (75 - 95%)
Abbey £2,141 8.00% (75 - 95%)
Natwest £2,129 7.30% (75 - 95%)
RBS £2,610 8.95% (75 - 95%)
At NatWest and Royal Bank of Scotland, the higher lending charge increases if you borrow between 95.01% and 100% LTV:
Lender Percentage (payable on loan amount between)
NatWest 10.30% (75 - 100%)
RBS 12.00% (75 - 100%)
Competitor comparison of higher lending charge based on borrowing £95,000 on a £100,000 purchase price property (95% LTV)
Lender Cost
Nationwide Nil
Halifax £1,450
Abbey £1,469
NatWest £1,460
RBS £1,790
Alliance & Leicester £1,500 |
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