A higher lending charge (HLC), historically known as a mortgage indemnity guarantee (MIG), is a fee that some lenders charge when the loan-to-value (LTV) ratio exceeds a certain threshold — usually 90% or 95%. The charge pays for an insurance policy that protects the lender (not you) against the risk of loss if you default and the property has to be sold for less than the outstanding mortgage.
HLCs have become much less common in recent years, as most lenders now build this cost into their interest rates for higher LTV products rather than charging a separate fee. Where it is still applied, the charge can be significant — typically 1.5% of the amount borrowed above the threshold. For example, on a 95% LTV mortgage of £190,000 on a £200,000 property, the charge might apply to the portion above 75% LTV (£40,000), costing around £600.
It is important to understand that the HLC protects the lender, not you. If the property is repossessed and sold at a loss, the insurer can still pursue you for the shortfall. The charge can sometimes be added to the mortgage balance, but this increases the overall cost.
You buy a £200,000 property with a 5% deposit (£10,000), borrowing £190,000 at 95% LTV. The lender charges an HLC of 1.5% on the borrowing above 75% LTV. The amount above 75% is £40,000 (£190,000 minus £150,000). The HLC is £600 (1.5% of £40,000). This can be paid upfront or added to the loan.
Key Points
- Charged on high LTV mortgages, typically above 90%
- Pays for insurance that protects the lender, not the borrower
- Historically called a mortgage indemnity guarantee (MIG)
- Less common today — many lenders build the cost into the rate instead
- The insurer can still pursue the borrower for any shortfall after repossession