Finding your way through the mortgage maze can be tricky with lots of words and phrases you may be unfamiliar with. To help you we’ve come up with explanations for the most commonly used terminology.
The money you borrow to buy your property.
Agreement in Principle (AIP)
A document given by a lender that gives an indication of whether they would be willing to give you a mortgage and how much for. Even if an Agreement in Principle has been given you will still need to go through a full mortgage application, which could still be declined based on personal circumstance.
This stands for Annual Percentage Rate (APR)/Annual Percentage Rate of Charge (APRC) and is the rate you use to compare different mortgages. The APR/APRC is calculated based on several things, including the interest rate you’ll be paying, the length of the mortgage term and any charges applicable on your deal.
Arrangement, booking, completion and product fees
Fees that a lender may charge as part of setting up your mortgage.
Buy to let (BTL)
Currently not available through the West Brom, these are mortgages used to buy properties for renting purposes. They are very similar to residential mortgages but are normally assessed on how much you’ll earn from the rental income rather than your salary.
The amount of money you borrow and pay interest on.
The point where you become the legal owner of your property and finally get the keys to your new home.
Condition report (a RICS Home Survey - Level 1 report)
This is a top-level property review. If you’re looking for a more detailed report, then you’ll need either the homebuyers report (a RICS Home Survey – Level 2 report) or a full buildings survey (a RICS Home Survey – Level 3).
This is the document that you sign to become the legal owner of your new property. Once signed, you’ll then ‘exchange contracts’ with the person selling the house and you’ll be fully committed to buying the property.
The term used to describe the legal process of buying or selling a property.
The fee payable to a solicitor, or licensed conveyancer, to carry out the legal part of buying or selling a house.
A search of your credit history, undertaken with your permission, to check your borrowing record. The check uses information held by a third party and helps the lender decide whether to lend you the money you need.
During the conveyancing process there are certain fees that are payable to a third party. These include Stamp Duty and Land Registry fees and will be paid through your solicitor or licensed conveyancer.
Early repayment charge (ERC)
A fee that may be payable on your mortgage if you pay it off early. In some instances, it may still be payable even if you’re moving to another mortgage deal with the same lender so it’s always best to check. If an ERC applies it will clearly say so in all your documentation.
This is the difference between the value of your property and the amount of your mortgage. If the value of your property has fallen below the amount of your mortgage this is called ‘negative equity’.
Exchange of contracts
The point at which you become legally committed to buying the property.
Full building survey (a RICS Home Survey – Level 3)
This is a thorough and complete inspection of the property carried out by a qualified surveyor. It is the most expensive type of report and often has to be requested by the person buying the house. However, if there’s a problem with your property it is most likely to be discovered by this type of survey.
This is when you own the property and the land it stands on.
This is a person who will guarantee that the payments will be made on someone else’s mortgage.
Higher lending charge (HLC)
This charge is sometimes made if you borrow over a certain Loan to Value (LTV), usually 90% as this is seen as carrying a higher risk for the lender. The charge can sometimes be added to your mortgage loan, rather than paid up front, but it will incur interest if you choose this option.
Homebuyers report (a RICS Home Survey – Level 2 report)
This is a comprehensive property review that provides an assessment of the property. If you’re looking for a more detailed report, then you’ll need a full buildings survey (a RICS Home Survey – Level 3).
A document that has to be issued to you as part of the mortgage process. The information in it has to be the same across all lenders so you can easily compare a financial service, product and costs from different providers, which is why it’s important you take time to read it to make sure you’re happy with
Sometimes you may come across the term ESIS. This is an abbreviation for the official name of the Illustration.
This is the money you’re charged, by the lender, for borrowing money. It’s payable on the full amount of your loan, and the amount you pay back is determined by the interest rate and the length of your mortgage.
Jointly and severally responsible
When you buy a property with somebody else, the contract you sign states that all parties are ‘joint and severally responsible’. This means that you are 100% responsible for the loan and so is the other person on the mortgage. This also means if one of you can’t or won’t pay your share, the other person is expected to pay for all of it.
Land Registry fee
When buying a house you need to register your new ownership of the property with the Land Registry. To do this they will charge a fee, which you’ll pay through your solicitor or licensed conveyancer.
There are situations where you own a property for a certain amount of time but not the land it stands on. This is known as leasehold.
The charge made by solicitors and licensed conveyors to handle legal paperwork involved in selling and buying property.
Loan to value (LTV)
This is the amount you want to borrow as a proportion of the value of the property you’re buying.
The legal document that gives the lender the rights to your property.
Mortgage exit or sealing fee
A charge that is sometimes made at the end of your mortgage when the property is released to you.
The amount that you have to pay back, usually monthly, to the lender for the money you borrowed.
The length of time you have to pay back your mortgage.
Offer of advance
The formal offer from a lender to provide you with a mortgage.
When you pay your mortgage off in full.
Usually used for interest only mortgages, this is a savings plan or other investment such as an Individual Savings Account (ISA) or pension policy, designed to pay a lump sum at the end of a set period. It should cover the capital still outstanding but you have to keep track to ensure this will happen.
When you take out a mortgage, your property is used as security for the loan. This means that if you don’t make your regular mortgage payments, the lender has the right to take possession of your property.
Standard or basic valuation
This is a basic report with a limited inspection and is a minimum requirement on most mortgages. If you are looking for a more detailed report, then you’ll need either a homebuyers report (a RICS Home Survey – Level 2 report) or a full buildings survey (a RICS Home Survey – Level 3).
A tax that you pay when buying properties valued above a certain amount. There are a number of levels so please check with HM Revenue & Customs (HMRC) to see if your property is affected.
This is the legal document that details who owns the property.