More than seven in 10 lenders are still hitting mortgage customers who have small deposits with higher lending charges (HLCs) which can add significantly to the cost of a loan.
Research from mform.co.uk shows that top 20 lenders are less likely to impose HLCs, and if they do, the size of deposit required to avoid the charges will be smaller.
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Typically, mortgage companies impose HLCs for borrowers who have deposits of 10 per cent or less but 29 lenders currently offer loans up to 95 per cent loan-to-value (LTV) without HLCs and 12 of them may consider mortgages in excess of 95 per cent LTV to first-time buyers without a higher lending charge.
HLCs range from between 7 per cent and 9 per cent, but can go as high as 12 per cent and are applied usually to part of a loan dependent on the LTV.
Bradford & Bingley, Cheltenham & Gloucester and Scottish Widows Bank all have specialist products in this category.
Increasingly borrowers have to pay HLCs as te squeeze on affordability from rising house prices means they have to take out bigger loans. Research from mform.co.uk shows around one in 12 people who plan to apply for a mortgage in the next three years say theyd be happy borrowing five times their salary or more.
Francis Ghiloni, mform.co.uk marketing and business development director, said; Affordability is the key issue in the mortgage market with borrowers focusing on how much they can borrow. That can mean people being willing to accept increased fees in order to secure the loan they need.
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However, people without substantial deposits still have choices and our research shows that it is often the bigger lenders who offer loans without higher lending charges. The rates charged also vary widely and mform.co.uk is the only service widely available to the consumer which will clearly display the effects of the charges on the total costs.
Most lenders will offer to add the HLC to the value of the loan which increases the cost of monthly repayments. As lenders charge different rates borrowers need to research the market carefully before accepting a HLC.
Ghiloni said: Customers should focus on the true cost of a mortgage at all times and HLCs are a major part of the fees and costs of some loans. Our analysis shows they could add around £3,750 on average to a £200,000 loan taken out where the borrower has a 5 per cent deposit.
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