The A to Z of Mortgages
Buying a property is an incredibly exciting time however some of the terminology used by mortgage advisers, lenders and solicitors can seem like a completely different language!
To help you get to grips with the mortgage process we have produced this glossary, which is full of terms that we believe you will find useful when purchasing a property:
Arrangement Fees
A set up fee which you pay to the lender of your mortgage. Most lenders allow you to choose between adding the arrangement fee onto the mortgage and paying the fee upfront. While it may seem tempting to delay paying, if you do choose to add it on to your mortgage then you will pay interest on it. The arrangement fees will vary and can be up to £2,000.
APRC
This stands for Annual Percentage Rate of Change which is referring to the total cost of the loan. All costs are included along with interest charges and arrangement fees. This allows you to be able to see how much the mortgage would cost you for the full term if you were to stay with the same deal.
Booking Fee
While your mortgage application is going through you may be charged a fee of around £99 by the lender. However some lenders do not charge for this at all. This fee can also be known as a ‘Booking’, ‘Application’ or ‘Reservation’ fee. If for some reason you end up not progressing with the mortgage then it will not be refunded.
Bridging Loan
A bridging loan is a temporary loan which allows you to purchase a new property before your existing one has been sold.
Completion Date
This is the date in which the money for your mortgage is transferred and you get the keys to your new home. There are a few variables which could delay your completion date including when the money is passed from your solicitor to your buyer’s solicitors. If the money hasn’t gone through by 3pm on your completion date, it will be delayed until the next working day. Another factor which could impact your completion date is if you are involved in a chain of buyers and sellers and one falls through.
Conveyancing
This is the process of legally transferring a property from the seller to the buyer. Your solicitor will deal with the transfer of ownership for your new property, check that all the paperwork is in order and investigate any environmental or planning permission restrictions which could cause you problems in the future. There will be a fee payable to your solicitor for this process which can be around £500 - £1,500; some lenders however offer to pay this fee as part of their mortgage deal.
Decision in Principle
A certificate or statement from a lender which states the set amount that they are prepared to lend to the borrower based on the basic information which has been submitted.
Deeds
A title deed is the legal evidence of the ownership of the property.
Deposit
This is a lump sum which you as the buyer put forward towards the cost of the property. As the size of your deposit increases the range of mortgage rates available to you will improve.
ERC
If you decide to repay your mortgage early or make a payment which is more than your overpayment allowance then you will be charged an early repayment charge (ERC). The fee charged is normally a percentage of the loan.
Exchange of Contracts
The exchange of contracts is legally binding, once this has happened neither party can withdraw without financial penalties being enforced.
Equity
This is the difference between the market value of the property and the amount of mortgage owed. As house prices rise many homeowners have found they can have quite a considerable amount of equity in their properties.
Full Structural Survey
A full structural survey (which can also be referred to as a Building Survey) is a survey of a property involving all parts of the building such as walls, electrical wiring, the roof, foundations, plumbing, joinery, drains and garden. This will highlight any maintenance issues and give the buyer an indication of the costs involved in fixing the issue. As this is the most comprehensive type of property survey it is also the most expensive.
Gazumping
This can be a highly frustrating process for homebuyers. It is when after accepting an offer the seller then accepts a higher offer from someone else.
Home Buyers Report
This report, previously known as the Homebuyers Survey and Valuation (HSV), is recommended for newer homes and is the most frequently undertaken survey. It gives an in depth insight into the condition of the property and offer professional advice on whether you should go ahead and purchase the property.
Instruction
This refers to a seller of a property formally asking an estate agent to start the sales process on their property.
Joint Mortgage
A joint mortgage is a mortgage that has more than one person responsible for paying the mortgage, for example a couple who have purchased a property together.
KDW Mortgages
Independent mortgage advisers with over 35 years experience in securing the best mortgage for our clients. Speak to an adviser at KDW to find out more about how we can help you.
Leasehold
This is when you are given ownership of a property but not the land it is built on. Leaseholds are traditionally offered for 999 or 99 years and ground rent will be payable to the landlord.
Loan to Value
Commonly referred to as LTV, this term is used by lenders to describe the ratio of the loan to the value of the property purchased.
Maintenance Charge
This charge is payable to the landlord/leaseholder of the property for maintaining communal areas and gardens. If you are purchasing a flat it is always checking what the maintenance charge will be as this will have an effect on your monthly outgoings.
Mortgage Offer
This is a written offer from a mortgage lender which will formally state the amount that they are going to lend to you to purchase a property.
Negative Equity
This occurs when prices of properties fall and the property is worth less than the amount outstanding on the mortgage.
Offer
Once the lender has undertaken their checks and completed a valuation of the property they will send you formal document which confirms that your loan has been agreed along with a breakdown of the mortgage costs and terms. This is referred to as a ‘mortgage offer’ and copies will be sent to your solicitor so they can move on to the next stage of finalising the purchase of your property.
Part Possession
This refers to the situation when a property is being sold but the tenant has a legal right of occupation.
Quote
Some lenders will give you a quick quote via their website based on a few basic questions. However to find out more about the best mortgage for you, then you should speak with an independent mortgage adviser.
Repossession
When the mortgagee fails to meet their mortgage repayments the mortgage lender will begin a legal process called repossession where they take ownership of the property. This is only ever taken as a last resort if an agreement hasn’t been reached with the lender to clear the arrears.
Stamp Duty
This tax applies to anyone buying a property or land which costs more than £125,000 (as of October 2016). The amount of stamp duty which is payable is on a sliding scale based on the price of the property or land and is paid to the government upon purchase.
Survey
This is an inspection of your property undertaken by a qualified surveyor. There are three types of survey, Valuation report, Homebuyers report and Full Structural survey. Further details of each survey are available within this glossary.
Transfer Deed
A transfer deed is a document which is used to transfer a property from its current legal owner to the new legal owner.
Under Offer
The stage when the offer for a property has been accepted by the seller of the property but contracts are yet to be exchanged.
Variable Interest Rate
If your mortgage has a variable interest rate this means the interest that you are charged will vary as the market interest rate changes resulting in a variation of your payments.
Vendor
A vendor is the legal name for the seller of a property.
Valuation Fee
When buying a property your mortgage lender will undertake a basic survey of the property to ensure that the property is adequate security for the amount they are lending in the mortgage. The cost of the lender undertaking this survey is called the valuation fee and the amount of the fee will vary.
We hope you have found this glossary useful. If you have any questions please do not hesitate to contact our mortgage team by calling 01727 85 22 99 or emailing mortgages@kdw.co.uk
Your home may be repossessed if you do not keep up repayments on your mortgage.