Out of approximately 120 mortgage lenders in the UK, three quarters still charge a Higher Lending Charge (HLC).
Nationwide BS recently reported that 800,000 borrowers have paid one billion pounds in HLCs over the last five years.
The HLC offers a measure of protection to the lender if a borrower defaults on the mortgage, but it is important to emphasise that, although the customer has to pay the premium, it is the lender that benefits from any payout.
As well as this, the customer should be aware that the insurer could pursue them for reimbursement of any monies that have been paid out in respect of a lender's claim.
Rachel McKay, Assistant Head of Mortgages at Moneyfacts.co.uk comments: "With mortgage arrears and repossessions at low levels compared with the era of 'boom and bust', it raises the question as to why the majority of lenders are still charging HLCs.
"Whilst it is appreciated that the risk for the lender is greater with higher LTV advances, lenders can price their products accordingly, rather than the customer, in many instances a first time buyer, being faced with a hefty upfront fee of £1,500 or more at a time when they can ill afford it.
"With either a rising or stable property market being the norm in the UK in recent years, it would be interesting to know how many claims have been made against what appears to be a somewhat outdated form of insurance."
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