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Home loans charging £140m over the odds

House buyers in the UK are paying £140 million in unnecessary higher lending charges, according to research by Nationwide Building Society.

Purchasers who borrow more than 90 per cent of the value of their property are typically hit by a higher lending charge - formerly know as a mortgage indemnity guarantee.

The charge is designed to cover the lender in case the borrower defaults on their loan.

But Nationwide says the affect of a higher lending charge is to penalise the very people who are already struggling to raise a deposit and meet legal and other costs involved in moving such as stamp duty.

The building society estimates that around 50,000 first time buyers were affected by higher lending charges in 2004, in addition to another 44,000 existing homeowners.

Nationwide executive director, Stuart Bernau said: "Borrowers need to beware of higher lending charges and should ask if such a charge would apply to them. Some lenders are penalising the very borrowers who can least afford it.

"More and more first time buyers are struggling to raise the deposit to buy their homes - another cost of around £1,500 is the last thing they need. Prospective borrowers should shop around for their mortgage and always ask the question: 'Will I be paying a higher lending charge?'. If they come to Nationwide, they can be confident the answer will be no."

Nationwide is one of a number of lenders that does not have a higher lending charge, although like other lenders it does charge higher rates on borrowing over 90 per cent. Others mortgage lenders that do not have higher lending charges include Leeds & Holbeck building society and Egg.

Those that do have a higher lending charge will often allow borrowers to add it on to the cost of their mortgage, although borrowers will then be paying interest on the charge for the duration of their mortgage.