A scenario where the loan is higher than 75% of the property value triggers a higher lending charge of 5%. If the property value is £192,000 and the loan is £166,000, how much is the higher lending charge?

A scenario where the loan is higher than 75% of the property value triggers a higher lending charge of 5%. If the property value is £192,000 and the loan is £166,000, how much is the higher lending charge?

• A. £987.50
• B. £1,100
• C. £1,300
• D. £1,450

Answer: (B)

Higher lending charge is applied to the portion of the loan that goes over the 75% loan-to-value threshold, at 5%. First find 75% of the property value: 0.75 × £192,000 = £144,000. The amount borrowed above this threshold is £166,000 − £144,000 = £22,000. The charge is 5% of that excess: 0.05 × £22,000 = £1,100. So, the higher lending charge is £1,100. The loan-to-value here is about 86%, which is above the threshold, but the charge itself is calculated only on the portion exceeding 75% LTV.

Higher lending charge is applied to the portion of the loan that goes over the 75% loan-to-value threshold, at 5%. First find 75% of the property value: 0.75 × £192,000 = £144,000. The amount borrowed above this threshold is £166,000 − £144,000 = £22,000. The charge is 5% of that excess: 0.05 × £22,000 = £1,100. So, the higher lending charge is £1,100. The loan-to-value here is about 86%, which is above the threshold, but the charge itself is calculated only on the portion exceeding 75% LTV.