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Sub-prime row on charge hike

Mortgage intermediaries are angry over higher lending charges for sub-prime loans which only make clear the final pay rate at completion.

Association of Mortgage Intermediaries director Chris Cummings says there is a danger that lenders are bringing in charges to recover some of the costs of regulation.

Platform Homeloans, Preferred Mortgages and Mort-gages Plc all impose HLCs while GMAC, SPML and Kensington do not. HLCs are charges imposed when clients ask for a mortgage for a higher loan to value than the maximum value allowed by the headline payment rate.

Cummings is concerned that lenders are not alerting borrowers to HLCs until completion. The HLC may be mentioned in the KFI small print but it is not immediately clear to clients, he says.

HLCs could also be seen to subsidise lower published rates, which could be confusing for customers. Charcol senior technical manager Ray Boulger says logic suggests some lenders are not highlighting the charges.

For example, a two-year loan at 5.95 per cent with an HLC of 7.5 per cent would cost £13,150. The equivalent rate including the charge would be 6.78 per cent.

Cummings says: “I feel this could cross two FSA principles – first, firms’ due regard for clients’ information needs and second, the principle of treating customers fairly.”

The Mortgage Practice sole trader Danny Lovey says: “I avoid HLCs like the plague. It is a commercial decision made by the lender but I choose not to use them.”

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