Many lenders impose a higher lending charge (HLC) for borrowers looking to borrow more than 90 per cent of the value of a property and in some cases, more than 75 per cent of the value of the property. The HLC covers the lender in case borrowers default on their loans.

The HLC is of 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, says Nationwide Building Society (BS).

Nationwide BS scrapped its HLC more than five years ago and is criticizing lenders who still make a charge at a time when repossessions and arrears are at historically low levels.

Stuart Bernau, Nationwide’s chief executive directors, 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 the mortgage deal.”

HLCs can be added to a mortgage, but interest will be charged for the term of the mortgage, which means that a £2,000 charge could end up costing borrowers around £3,800, assuming an average rate of 5.89 per cent over 25 years.