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Terminology used in Purchasing a Property
INTRODUCTION
When you buy your first Home the terms used by your mortgage
broker and solicitor may baffle you This simple
first time home
buyer guide explains the meanings to the various Jargon they use.
Advance
This is the term given to the mortgage itself.
Annual interest
The annual percentage rate (APR) represents a measure of the
total cost of borrowing, and its aim is to allow a fair
comparison, between different lenders, of the overall cost
of lending. The APR could be calculated daily, monthly or on
an annual basis.
Annual Percentage Rate (APR)
The total charge for the loan including fees and interest
expressed as a percentage rate.
Applied or Nominal Interest Rate
The rate used to calculate the interest due on your
mortgage.
Arrears
Mortgage payments, which have not been paid, and are overdue
this should be amended as soon as possible as your home will
be at risk if the mortgage is not paid.
Bank of England base rate
The Bank of England sets or reviews their interest rate on a
monthly basis and this is the main factor influencing
interest rates charged by mortgage and other lenders.
Buildings insurance
Covers your actual building (bricks and mortar) and is
usually required as soon as you exchange contracts on your
house.
Building survey
A full inspection of the property by a surveyor on behalf of
and normally paid for by the buyer.
Buy to let/ let to buy
A buy to let mortgage is a designed for investors, the whole
purpose of the mortgage is it is off set against the rental
income of the property, as this is a investment mortgage you
may find that the interest rate that you are paying is at a
slightly high rate then the norm,
You the rental income must be the same or grater then the
mortgage repayment to get this loan. Unless you can prove
that you can afford the additional repayments. If you can
not afford the additional repayments all is not lost as you
can still purchase the property but you will have to pay a
larger deposit.
A let to buy mortgage is very similar accept you are
releasing equity from your home to buy another property.
Again the mortgage repayments will be offset against the
rental income.
Important information
Although in principle the buy to let mortgages are a very
good way of securing an investment, you have to keep up all
repayments as your home or investment property may be at
risk if you do not keep up the repayments. You have to make
certain that you are in a position to pay the additional
mortgage for long periods of time if you do not rent the
property out, or you have tenants that refuse to pay there
rent.
as with all loans they need to be paid back
Capped rate
An interest rate charged for a set period of months or years
which can go up and down with the variable rate, but there
is a maximum (capped) interest rate which it cannot go
above. For example if you have a capped rate at 5% you will
not pay more than 5% interest for the term of the
agreement.
Cash back
A payment you receive when you take out a mortgage. It may
be a fixed amount, or a percentage of the amount of the
mortgage.
Closing administration charge
A final charge made by the lender to cover their
administration costs when a mortgage is fully repaid.
CCJ (County Court Judgment.)
A decision reached in the County Court, which can be for not
paying debts. If you pay off the debt, the CCJ is satisfied
and a note is put on your records to say this.
Completion (buying)
This is the day that property legally becomes yours (subject
to mortgage repayments) you will be notified by your
solicitor that the funds have been transferred and you can
pick the keys up.
Completion (selling)
As above but the property is no longer yours and you will
have to release the keys and make the property vacant once
the funds have completed (a time for you to vacate the
property should be arranged)
Contents insurance
Insurance that covers your personal belongings
Contract
A written agreement between the seller and the buyer of a
property.
Conveyance
Solicitor or licensed conveyancer will be responsible for
drawing up contacts and dealing with all the legal
implications.
Conveyancing
The legal work involved in the sale or purchase of land and
property
Credit search
A check the lender makes with a specialist company to find
out whether you have any County Court Judgments or a record
of not paying loans, credit-card bills and so on.
Critical
Illness
Insurance that generally pays out a lump sum if you are
diagnosed with a life-threatening illness or disease you
should read through the terms and conditions of each policy.
Decreasing term
assurance
This is life assurance that pays out an amount if you die
during the term of the policy. The amount of cover reduces
each year. So, this is tailored to cover repayment mortgages
where the amount you owe the lender reduces each year.
Decreasing term assurance is usually cheaper than level term
assurance.
Deposit
The deposit paid towards the total price of the property,
normally payable at exchange of contracts. (The deposit
tends to be between 10% and 15% however a smaller/larger sum
may be negotiated)
Disbursements
A solicitor's expenses - for example, for stamp duty, HM
Land Registry fees, searches, faxes that you will have to
pay
Discounted
mortgage rate
A guaranteed reduction in the standard variable mortgage
rate. This often lasts for an agreed period.
Drawdown date
The date when the contracts have been completed and the
mortgage starts.
Down sizing
This is the term given to people selling there property for
something of less value, it may either be a smaller property
or it may be in a less expensive area.
Equity
The difference between the value of the property and the
amount of any mortgage or home loan secured against it.
For example
The property value (PV) = £250,000 the mortgage and other
loans secured on the home = £150,000 (ML) this will leave
you with £100, 000 equity (£) or your money. PV – ML = £
Exchange of contracts
In England and Wales (not Scotland), the point when both
buyer and seller are legally bound to the transaction.
Endowment mortgage
Sometimes used to describe an interest only mortgage
supported by an endowment policy.
Endowment policy
A combined life assurance and investment policy often taken
out at the start of a mortgage to run for the same term,
which should cover the borrower for any outstanding mortgage
if they should die and should provide a lump sum at the end
of the policy term to repay all or part of the outstanding
mortgage.
Estate agency
fees
The amount the estate agent charges the person selling the
property. This is usually worked out as a percentage of the
sale price, and may be negotiable. Based on a typical fee of
2%, the estate agent selling the property for £100,000 would
receive £2,000.
Fixed rate
This means that the amount of interest that you are paying
is fixed for a period of time, after this time you will
revert back to the standard variable rate.
Fixtures and
fittings
Any item that is attached to a property is legally part of
the property any free standing objects can be removed upon
request or bought the vendor will send you a fixtures and
fittings list when you agree a price on the property.
Flexible
mortgage
A type of mortgage where you can make extra payments and
even under payments without paying a charge or penalty.
Freehold
Outright and full ownership of the property and land.
Gazumping
When before the exchange of contracts a seller accepts a new
offer on their house, having already accepted an initial
offer.
Ground rent
An annual charge payable by leaseholders to the freeholder
of the land - normally due for flats or apartments. You can
find out how much this is by contacting your estate agent
Guarantor
A person who promises they will pay the borrower's debts if
the borrower fails to pay the arrears
Homebuyer's report
This is when a professional surveyor checks the structural
state of a property. This is more detailed than a valuation
but less detailed than the structural survey. The report is
optional and you pay the bill; but this report should pick
up possible problems and may give you the chance to
negotiate a lower price.
Income
multipliers or multiples
The size of mortgage that lenders will offer will often be
worked out by multiplying your income each year by a set
figure. If you are the only person taking out the mortgage,
the usual maximum income multiple are three/four times your
yearly income. So if you earn £20,000 and could borrow three
times this amount that will equal £60,000 (this is not set
in stone multiples are vary from lender to lender. If you
are taking out a mortgage with someone else, the multipliers
might be three times the main income plus one times the
second income. Or it could be two-and-a-half times the two
incomes added together. (Lenders may consider including all
or part of any regular bonuses or commission you receive as
your income.
Interest only mortgages
A mortgage where only interest is paid during the mortgage
term. The capital (original amount borrowed) will still need
to be repaid at the end of the term, usually from the
proceeds of an investment plan such as an endowment policy.
Land Registry Certificate
Provides details of the property including a plan and, if
the property is leasehold, a copy of the lease.
Land Registry fee
A fee paid to the Land Registry to register ownership of a
property.
Leasehold
he right to possession in the property (but not full
ownership of a property) for an agreed period of time
(normally the full term is 99 to 999 years but it is not
uncommon to find that you have a partially expired lease for
example 83 years remaining). Once the lease has expired the
ownership will remain with the freeholder. This is not as
bad as it seems and you are entitled to extend the lease
once you have lived in the property for 3years.
Lessee
The tenant that is granted a lease.
Lessor
The landlord that grants the lease.
Life assurance
An insurance policy that pays a lump sum on death, normally
to cover the repayment of a mortgage if the borrower dies
during the term.
Loan to Value (LTV)
The size of a mortgage as a percentage of the value of the
property (or its purchase price)
Local authority search
Questions to the local authority regarding plans for new
road building, planning permission for any building work
previously carried out, connection to the mains sewer, etc.
Mortgage Indemnity Guarantee (Mig)
An insurance policy that the bank make you take out under
certain circumstances to guarantee your Mortgage payments.
Mortgage
Generally a home loan with property as security.
Mortgagee
The bank or building society that is providing you with the
mortgage
Mortgagor
The borrower of the loan. (You)
Mortgage term
The period of time over which the mortgage loan is to be
repaid.
Multiple
agencies
When more then one estate agent tries to see the property.
Negative equity
When the value of the property has fallen and is less than
the mortgage or loan secured on it.
NHBC guarantee
Normally a 10-year guarantee from when built, provided by
the National House Building Council.
Payment Protection
Insurance that pays your monthly mortgage payments, should
you lose your income through sickness, injury or
unemployment.
Principal
The total amount of the loan on which interest is to be
calculated.
Re-mortgage
Repaying one mortgage by taking out another new loan secured
on the same property.
Interest only Mortgage
A Mortgage where the borrower only pays interest on the loan
to the bank and pays no capital repayment.
Repayment mortgage
A mortgage where the capital borrowed is gradually repaid
over the agreed term along with the interest.
Self-certified
mortgage
You confirm how much you earn, and the lender does not need
any references. This mortgage is normally recommended to
self-employed people and to those that cannot prove their
income.
Service charge
This is the fee that is charged on a monthly/quarterly or
annual basis this fee will pay towards the maintenance of
the building cleaning of windows and upkeep of grounds.
Service charges only apply to leasehold properties although
not all leasehold properties will have a service charge. The
fee is payable to the maintenance company
Share of freehold
This is normally found when all the residents from a block
of flats or converted House buy the freehold from the
landlord; there is still a lease in place, as this is needed
for legal reasons and to ensure the upkeep of the building.
Stamp duty
A government tax payable on exchange of contracts on
properties of a certain value.
The current rate of stamp duty is:
£0 - £60,000 nil
£60,000.01 - £250,000 1%
£250,000.01 - £500,000 3%
More than £500,000 4%
(Stamp duty is not worked out on a sliding scale basis; the
price you pay for the property will determine the stamp duty
bracket you fall under.
For example
Purchase price £255,000 = 3% = £7650 you must take this cost
in consideration when calculating your overall costs).
(Full)
structural survey
This is the most wide-ranging check of the outside and
inside of a property. A professional surveyor carries this
out, and it should pick up all but the most hidden faults.
The structural survey is optional and you will have to pay
the bill, but it provides the greatest protection for the
potential buyer in terms of the information it provides. It
also gives you cover against negligence by the surveyor.
Sole and joint
sole agency agreement.
This is an
estate agency contract for selling your property, sole
agency means that you agree to use only one agent to sell
the property, this tends to be at a discounted rate from the
multiple agency agreement, you will be fixed to use this
agency for a set period of time and you will have to give
written notice to get out of the agreement I would advise
that you read the small print as many agency agreements may
have a 12 week fixed period with a two week notice period,
this means that although your 12 weeks are over the agency
is still able to market the property until you give them
their written notification. (Make certain you do this before
giving the property to another agency as you may be liable
to two fees) joint sole agency is the same as above however
you have two agencies working for you. (With joint agency
they should split the fee down the middle however this is
not always the case and the winner tends to take all).
With all agency
agreements read the small print if you are not sure what it
means ask a solicitor or an independent source
Subject to contract
This phrase is used before the exchange of contracts
allowing either party to withdraw without incurring a
penalty. (After the exchange has been completed and you
decide not to proceed you can lose your deposit)
Surveyor
The person qualified by the Royal Institution of Chartered
Surveyors to carry out valuations and surveys of properties.
Tie in Term (or redemption period).
The period of time you would need to remain on certain
mortgage terms to avoid an early repayment charge. This is
normally proportional to the time period of a special offer
For example
If you have a
two years fixed rate mortgage the redemption period should
be 2 years however this is not always the case so please do
read the small print if you have a two year fixed rate with
a four year redemption period you may want to shop around
for a better deal.
Title deeds/title documents.
Legal documents that prove ownership of a property.
Transfer deed
A document
that, once you sign it, actually transfers the ownership of
the property to you.
Variable rate
The interest rates the lender charges goes up and down, with
your interest payments changing accordingly.
Vendor
This is the name given to the person who is selling the
house.
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