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Higher Lending Charge
This was previously called a Mortgage Indemnity Guarantee (MIG) but has been changed, under regulatory pressure, to the Higher Lending Charge HLC.
The logic behind the charge is this; The greater amount of money that you borrow compared to the value of the property, the greater level of risk the lender is taking. This is because it is more likely that the value of the property could fall below the amount that is owed on the mortgage.
The property value could drop either because it falls into disrepair by the owners, the general housing market crashes or other environmental factors such as a new power station being built next door.
If this happens then the lender is at risk as their security s less than the liability and if the customers do a runner, the lender is unlikely to recoup the amount owed.
For high loan to value loans therefore the lender may charge a HLC. In times gone by the amount of money charged was used to buy an insurance policy that covered the lender, in the event that the property value dropped below the loan amount and they were forced to repossess. In this event the insurance policy would pay out any difference to the lender. The insurance company would however, still chase the customer for the amount that it paid to the lender, even though it was the customer that paid the premium in the first place!
Over time (and a steadily rising property market) lenders stopped buying the insurance policies but still charged the HLC however in the increasingly competitive mortgage market the HLC became almost extinct, until now that is.
With falling property prices the HLC is back and may be added to a mortgage if you borrow over 85-90% of the property value
