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High Mortgage Fees For First-Time-Buyers

Feb 5, 2008
Mortgages are not without their pitfalls and the first-time-buyer mortgage market is no different. First-time-buyers who are not able to put down a deposit on a property are being hit with huge fees and higher interest rates by some leading lenders.

While banks and building societies seem to be helping first-time-buyers get onto the property ladder by issuing special mortgages that lend up to 100% of a property's value, borrowers are being forced to pay higher lending fees on these products, which can cost around 1,500, and are unable to get access to the cheap interest rate deals offered to other borrowers.

Borrowers who have the required deposit are able to secure mortgage products with interest rates more than one per cent lower than the specialist products developed for new property owners which are made available through the same lenders.

First-time-buyers are widely considered to be the borrowers who can least afford to pay such costs when applying for a mortgage. In recognition of this, many lenders have now stopped charging higher lending fees on products aimed at people who are trying to get a foot on the property ladder because of the extra financial burden.

Some lenders, however, have not scrapped such fees and continue to charge them on mortgage products that have loan-to-value ratios above 90 per cent.

The higher lending fee pays for an insurance policy which protects the lender if the home is repossessed and the bank makes a loss when selling it. It does not, contrary to popular belief, provide any protection to the borrower.

With the average property price in the at an all-time high, the majority of first-time-buyers are struggling to find the traditional 10 per cent deposit required to buy a property, which would help prevent them from paying a higher lending charge. For those individuals who manage to save up enough money to fund part of the ten percent deposit required, they may still be required to pay a higher lending charge.

For example, if a buyer had a 5 per cent deposit for a house worth 100,000, they would require a 95,000 mortgage. For the money borrowed above 75 per cent of the property price, 20,000, the bank will charge a higher lending fee.

Some lenders allow the fee to be added to the mortgage, but interest will be payable on it over the life of the loan, which could double the cost of the higher lending fee over the long-term. Additionally, if the borrower has not paid off enough of their loan balance by the time they are due to remortgage their home they may be forced to pay another higher lending charge.

If the home owner chooses to add the second higher lending charge to the mortgage balance they may effectively be paying off two fees at once if they have failed to pay off the first higher lending charge that was added to their home loan. This is a frightening situation which can be rectified by the borrower paying for their mortgage fees in cash.

First-time-buyers should therefore be careful in choosing their mortgage product when attempting to get a foot on the property ladder and should attempt to cash for any fees that are charged.
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