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EASY-TO FOLLOW GUIDE TO SOME OF
THE MOST OFTEN USED TERMINOLOGY
Buying a new home can be bewildering at the best of times with all the jargon associated with it. Here at choicemortgages, we have produced easy to follow explanations for some of the most often used terminology as we strive to make buying a new home easier for you. |
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Agreement in Principle: This is where you can establish that a lender is willing to provide a mortgage subject to a satisfactory valuation report and proof of income. It does not cost you anything but it can speed up the house buying process.
Arrangement Fees: This is a fee that lenders may charge you for specific products and for processing your application.
Borrowing Capacity: This is the amount that the lender will allow you to borrow, it is normally based on an income multiple i.e. 3 or 4 x single income or 2.5 x joint income. This can vary significantly from lender to lender.
Buy to Let Mortgage: A loan secured against a property which will be let out for investment purposes.
Capped Rate: This is a variable rate mortgage where the rate cannot go above a set percentage, this is known as a capped rate.
Cashback: Some lenders will offer a percentage of the mortgage as a cashback which will be paid to the borrower either on or shortly after completion.
Contract: The document drawn up between the two parties solicitors involved in the sale and purchase, setting out the terms and conditions. This document requires signing by you before exchange of contracts can take place. When contracts have been exchanged, you become legally bound to purchase the property. Prior to this, either party can withdraw from the transaction at any time.
Credit Score: This computerized system decides if you meet the lenders lending criteria, it is based on many aspects of your lifestyle eg: time at address, time in current employment, are you on the voters role etc.
Credit Search: This is where the lender will check your credit history, they obtain this information from the main credit agencies such as Experian or Equifax, and you will need to give your authority for this.
Deposit: An amount of money payable when you exchange contracts normally between 5 - 10% of the purchase price.
Discounted Rate: This is where the variable rate is discounted for a period of time, the length of time and the amount of discount varies from lender to lender.
Early Repayment Charge (ERC): This is a charge that is levied by the lender if you fail to comply with the conditions that are set out by the lender for early repayment. This can vary depending on the lender.
Fixed Rate: This means a guaranteed rate of interest for an agreed period of time.
Flexible Mortgage: This allows you to overpay, underpay and even take payment holidays, the interest is normally calculated daily so the benefits are immediate and the savings can be significant.
Higher Lending Charge (HLC): The lender arranges this whenever the loan to value exceeds 75%. This is for the lenders own benefit but the borrower pays the premium. The policy covers the lenders loss if the lender ever had to repossess your property but not recover the full mortgage amount on the sale.
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Interest Only Mortgage: This is where you pay the interest only to the lender, you would then make a separate payment to an investment plan, so that you could build up a lump sum to pay off the mortgage at the end of the mortgage term. The investment plan used is not guaranteed to pay off the loan and you would be liable to make up the difference if there was a shortfall.
Loan to Value (LTV): The percentage of mortgage taken against the house valuation eg: Mortgage amount £90,000, House value £100,000 therefore LTV=90%.
Mortgage: A loan secured against a property.
Mortgagee: Lender.
Mortgagor: Borrower.
Re mortgage: Moving your mortgage to a different lender for a better interest rate. Or to raise money for home improvements, debt consolidation etc.
Repayment Mortgage: Where both interest and capital are paid back to the lender on a monthly basis. Your mortgage is guaranteed to be repaid at the end of the term provided that you maintain your mortgage payments throughout the mortgage term.
Self-certification: Is where evidence of income is not required, before taking out this or indeed any mortgage you must satisfy yourself that you can afford the payments.
Solicitors / Conveyancer: They are responsible for carrying out all the legal work that is involved in the transfer of ownership between the vendor and the new purchaser.
Stamp Duty: Is a tax that is charged on property purchases only, it is a percentage of the purchase price. The percentage that is charged varies on the purchase price of the property.
Not all properties attract stamp duty.
Survey / Valuation: The lender will instruct a surveyor to value your new home to ensure that it is adequate security for them. There are much more detailed reports that you should consider dependent on the age and condition of the property.
Tracker rate: This is where you track the Bank of England base rate by a particular margin. It is usually a percentage above or below the Bank of England base rate and the length of time and the margin you track by varies from lender to lender.
Variable Rate: The interest rate will go up and down, broadly in line with the interest rates in the economy as a whole. However, the variable rate is set by the lender and can vary dramatically between lenders.
Vendor: The person or developer selling the property.
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