Jargon busting

 

When you are buying your first home or even your 10th home the amount of jargon that is banded about from all parties can be baffling! From the estate agent, solicitor and your mortgage adviser they all have their own terms that cover what they do and different parts of the process, so rather than leaving you feeling perplexed and feeling like you want to tear your hair out we created this comprehensive jargon busting sheet for you. 

 

Below you will find a full list of all the jargon terms you will likely hear throughout the course of your property purchasing journey and we explain in simple terms exactly what they mean. 

 

Conveyancer is the official term for the solicitor who will handle the legal process of changing the legal ownership of the property from the current owner to you. 

 

Is the tax that you pay on certain property transactions depending on the circumstances and the purchase price. 

 

Is a fee that some mortgage products have attached to them, you can choose to pay this upfront from your own funds or add it to your mortgage. It’s important to note that if you add it to your mortgage, you will pay interest on that fee over the life of the mortgage. 

 

This is the calculation that provides you with a % which is the size of the loan compared to the value of the house. The loan to value will determine what interest rates are available to you, the lower the loan to value the better the rates. 

 

Mainly applies to fixed rate mortgages, this is a charge that lenders impose if you leave your fixed rate mortgage early either by clearing the mortgage early when you sell or remortgage. This charge gets added to your balance when you repay it to cover the interest the lender will lose as a result of your leaving early. 

 

Mortgage in principle 

This is your certificate to show to an estate agent or vendor (seller) that you have been approved for a mortgage initially. It’s not a guarantee you have been accepted but a good indicator that when you apply for a mortgage you will be approved. It gives vendors confidence that you can proceed with the purchase. 

 

Once you have submitted a full mortgage application and the lender has approved this based on what they can see they will issue a formal mortgage offer. The mortgage offer will outline the terms of what they have approved such as the property address, loan amount and rate etc. 

 

Towards the end of the process you will sign the mortgage deed, this is a page of the mortgage offer that you sign to say that you agree to the terms laid out in the mortgage offer. This comes from the solicitor later in the process. 

 

The vendor is the official title for the person selling the property. Think ‘vendor’, think ‘seller’. 

 

Mortgage advisers can be ‘tied’ or ‘independent’. If an adviser is tied, they may be tied to one lender or small group of lending options. If an adviser is independent, they are not tied to any lender or group but instead have access to the wider market giving you a lot more lending options. 

 

Rather than a deposit coming from your own funds, you can use a gifted deposit from a family member. When they say gifted, that’s exactly what it means. It’s a gift. They will not require that you pay them back and they will have no interest legal or financially in the property you are buying 

 

Is exactly what is says on the tin, if interest rates go up or down your interest rate won’t change and therefore your repayments wont change. Typically, you can fix the rate for 2,3 or 5 years. 

 

This is the rate that your fixed rate mortgage deal will move onto when you fixed rate period ends. Every lender has a standard variable rate, and it is typically 3% above the Bank of England base rate which at the time of writing would mean a rate of 7%. 

 

For an interest only mortgage you would only pay the interest owed each month instead of paying back the capital you borrowed each month. At the end of the mortgage term you would still owe the amount you borrowed and would need to find a way of repaying this in full. 

 

Unlike an interest only mortgage you repay the debt you borrowed each month. Each payment you make repays a small portion of what you have borrowed, and with your final payment you have paid off the remaining balance of the mortgage meaning the house is now entirely yours. 

 

A guarantor is somebody who could go on the mortgage with you as someone who will make payments if you fail to do so. These were typically in place for people with poor credit applying for a mortgage as they didn’t have the track record to support a mortgage application. These are very rare now and replaced with ‘joint borrower, sole proprietor’ mortgages today. 

Debt to income ratio 

This is the level of debt you have compared to the amount of money you earn in a year. If you earn £100,000 per year and have £50,000 of unsecured debt (credit cards and loans etc) you would have a debt:income of 50%. Some lenders have a set % for debt:income that they can accept on their applications. 

 

When you submit a full mortgage application it is reviewed by an underwriter who decides if your application is approved or not. Their process of checking this is called underwriting. 

 

At the point of exchanging contracts your purchase or sale becomes legally binding. It is at this point the legal process has been completed, all checks have been done, and all parties are happy. Contracts are written up and then exchanged so all parties have a copy of what is agreed. These contracts are then exchanged, and the transaction is legally binding with a completion date to be set to move in and out of the property. 

 

Once you have exchanged contracts you will then set a completion date. This is the date that all money changes hands and the transaction is complete. On this date you will be notified that you can collect the keys and move into your new property. 

 

The Bank of England is the central bank of England who lend money out to lenders to lend to customers. Their main responsibilities are controlling inflation and ensuring the safe and ethical standards of the financial system in this country. 

 

The base rate is the rate in which the Bank of England lend money to lenders. The lenders will then take this money and add their profit margin to it and then lend this onto customers. The fluctuations in the base rate will determine the rate in which customers borrow money. 

 

Is a charge paid on a leasehold property to the freeholder. If you buy a leasehold property, you buy the property itself but do not own the land that that property sits on. In most cases you will pay an annual charge to the freeholder for this which can be anything from £1 per year up to any figure the freeholder decides. 

 

For leasehold properties or properties that share communal areas such as blocks of apartments, you can find that they pay a service charge to the freeholder or management company for the upkeep of the communal areas. This is often paid monthly and covers things such as the entrance, the bins and an elevator. In a block of apartments each apartment will pay a monthly fee towards the upkeep of these areas. 

 

If you buy a leasehold property, you buy the property itself but do not own the land that that property sits on. You still have the authority to do as you please with the property but some decisions may need approval from the freeholder. 

 

If you own a freehold property, you have absolute power over the building and the land that it sits on giving you complete control to use the property and its land as you wish providing it falls within the restrictions outlined on the land registry. 

 

Is the process or finding a new mortgage deal, either at the end of your current deal or moving to a new lender to secure new terms. Remortgaging requires that you move from your current lender to a new lender. 

 

Just like with a remortgage, but instead you are staying with your current lender to find a new rate with them. Often on a like for like basis (keeping your remaining loan and term the same) but on a new rate with your current lender. 

Porting a mortgage 

Is the act of transferring your current mortgage over to a new property. This is done to avoid early repayments and/or to keep a preferential interest rate you have already secured.