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As a Home Buyer you are often faced with lots of jargon and unfamiliar terminology, so here is a round up some of the most common terms and phrases in one handy guide.
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This isn’t a comprehensive list but should be enough to get you started. Don’t forget we are always on hand to go over any of the terms listed or any others that you come across.
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Annual Percentage Rate (APR)
The APR shows the total cost, including interest and fees, that is paid on your borrowing. It is usually displayed as a percentage of the loan amount.
Arrears
Money that’s owed and should already have been paid.
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Base rate:
Also known as the ‘bank base rate’ (BBR), the base rate is the rate of interest set by the Bank of England which influences most interest rates.
Certain mortgage deals, such as trackers, are directly affected by the base rate. Similarly, lenders’ SVRs (standard variable rates), while not directly linked to BBR, can sometimes be adjusted as the Bank of England moves its rate.
Balance Outstanding
The amount you still must repay on your mortgage.
Bridging Loan
A loan lent by your bank or another lender to cover the gap between two transactions, such as buying a property before your current home has been sold.
Broker
A specialist who can give you professional advice on mortgages. Some brokers work in estate agencies, while others may be independent.
Building Survey
When you’re buying a property, the buyer might want to arrange for a surveyor to inspect the building to identify any faults, structural problems, and any other potential issues. This is different from the survey carried out for a mortgage valuation, which is carried out by the lender.
Buildings Insurance
An insurance policy covering the cost of repairing or rebuilding your home if it suffers serious damage in a storm, fire, flood or other disaster.
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Collateral
An asset that can be used as a guarantee against a loan. For example, if you take a mortgage loan your house will be used as collateral, and if you were to default on the mortgage, the house could be repossessed by the lender and sold to repay the mortgage.
Completion
When the sale has been completed and you’ve become the legal owner of the property.
Completion Date
The date when the legal process of buying a house has been completed, the documents and funds have been distributed to the right people and the estate agent is told to give you the keys to the property.
Contents Insurance
An insurance policy covering items that aren’t attached to the property, such as furniture, appliances, and personal possessions, in case they’re accidentally damaged or stolen.
Contract
An agreement between the buyer and seller outlining the terms and conditions of the sale. This will be drawn up by your Conveyancer or Solicitor.
Conveyancing
Conveyancing is the legal transfer of property from one owner to another. The conveyancing process starts when a buyers' offer on a property gets accepted by the seller. The legal process continues until the buyer get the property keys.
Decision in Principle
A document from your mortgage provider telling you how much they might be prepared to lend you.
Deeds
A legal document stating who owns a property.
Deposit
The amount of money a buyer is contributing to the purchase price. Usually, a mortgage covers the rest. You will have to pay a deposit on exchange of contracts a few weeks before the purchase is completed, and the money is received from the mortgage lender.
Depreciation
The amount a property’s value declines by. There are many factors that could cause this such as economic factors, anti-social problems in the local area, structural damage, outdated decoration, Japanese knotweed, boundary disagreements are just a few.
Disbursements
Disbursements are items paid to your Conveyancer or Solicitor to pay to other organisations as part of the house-buying process. This may include local search fees and Land Registry fees.
Draft Contract
An early version of your contract, covering details such as the agreed sale price of the property, the address and the names of the seller and buyer.
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Early Repayment Charge (ERC)
If you switch to a different mortgage or pay off some or all of your mortgage while you are still in the ERC period, you may have to pay a sum to your lender. Some mortgage products have no ERC period, or an allowance for over-payments. Speak to an adviser or broker for guidance on whether this will affect you.
Equity
Equity is the total value of the property excluding the amount that you owe on the mortgage.
Exchange of Contracts
The point at which contracts are exchanged and you’re legally committed to completing the purchase.
Freehold
An arrangement that gives you outright ownership of a property and the land it is standing on.
Fixed Rate Mortgage
A home loan with a fixed interest rate for a specified period, usually 2,3 or 5 years.
Fixtures and Fittings
Fixtures are items that are fixed to the property, such as walls, and fittings are items that aren’t attached, such as furniture.
Full Structural Survey
A comprehensive report on the condition of a property, looking at everything from the roof and walls to the plumbing, electrical wiring and drains. This could be crucial for anyone purchasing an older property.
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Gazumping
Gazumping is when someone else makes a higher offer on a house you are in the process of buying. Even if you have an offer accepted on a new home, someone can make a larger offer at this late stage in the process.
A rival bidder could also come in with a similar offer but state they can complete the sale more quickly. For example, if they aren’t in a property chain, but you are.
If the seller accepts the offer, it means you miss out on the home and you are gazumped.
Guarantor
A guarantor is a person - such as a parent - who legally agrees to make the mortgage payments if the borrower finds themselves unable or unwilling to meet repayments.
Higher Lending Charge
A fee charged by some mortgage providers if you take out a mortgage which is a particularly high percentage of the value of the house (usually 90% or higher), due to the larger risk this may carry for a lender.
Home Buyer’s Report
A report outlining the general condition of a property to identify if there are issues such as subsidence and damp that could mean repairs are needed in the future.
Instruction
When a seller appoints an estate agent to put their property on the market.
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Interest Rate
The percentage of your mortgage that you pay your lender annually in exchange for borrowing the money.
Joint Mortgage
A mortgage with more than one person named, such as a husband and wife.
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Key facts illustration (KFI)
This is a document that clearly sets out all the details of a mortgage that the borrower will need to know.
Land Registry Fees
A fee to the Land Registry that must be paid when you register that you’re the owner of a property.
Lease
A contract that means you can occupy a property for a specific period of time and will probably have to pay ground rent to the freeholder every year.
Loan-to-Value (LTV)
Loan to value – or LTV – is the ratio of the value of the home you want to buy and the loan you'll need to buy it, shown as a percentage. Having a low LTV means that you have more equity in your home and can mean that lower interest rates are available to you. A higher LTV is a greater risk to lenders if the property market drops and therefore the interest rates available will usually be higher to reflect this.
Local Authority Search
An application to the local authority for details on any issues that may affect buying or selling a property. This could include the property being situated in a conversation area, subject to a tree protection order or being a listed building.
Lump-sum Reduction
Where you pay off a large part of your mortgage early.
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Mortgage
A type of loan where you borrow money from a lender specifically to pay for a property. The loan is secured against your property, and you will need to make monthly payments to pay back the loan over the agreed term. If you can’t keep up with the scheduled repayments, the lender has the right to start repossession proceedings.
Mortgage Offer
The formal offer given by a mortgage provider detailing how much they will lend you.
Mortgage Valuation
An assessment carried out by the mortgage lender to confirm the value of the property.
Negative Equity
This is when a house or flat’s current market value is less than the balance of the mortgage, and it’s normally caused by falling property prices. If you’re in negative equity you could find it hard to move house or remortgage.
For example, if you have a mortgage balance of £220,000 and the property is now worth £200,000, you would be in negative equity.
Offer
A non-binding bid made by someone who wants to buy a property.
Off-plan
A property that hasn’t yet been built, and only detailed plans for it currently exist.
Offset Mortgage
A home loan linked to your savings, where they are used to reduce the amount of mortgage interest you pay.
Part Exchange
Where you trade the value of your current property against a new-build house.
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Redemption
The process of paying off all or part of your mortgage, along with other related fees, for example by selling your property or remortgaging to another lender.
Repayments
The amount you must pay back each month to your mortgage provider.
Repossession
A mortgage lender can look to repossess your home if you can’t maintain the repayments on your mortgage. However, this tends to be a last resort if you and your mortgage lender can’t come to an agreement to get back on track with your repayments.
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Sale Agreed
The buyer has made an offer that’s been accepted by the seller of the property, but this is only a verbal agreement and not contractually binding.
Searches
When your Solicitor or Conveyancer works with the local authority to find out any information that may be relevant to a new owner, such as local development plans.
Stamp Duty
A tax set by the government that you must pay when you buy a property over a certain price.
Standard Variable Rate (SVR)
A lender’s SVR is the rate you will go on to once any initial product rate ends. Your mortgage broker can advise you on the best options as your product comes to an end.
Subject to Contract
The property owner has accepted an offer made by a buyer, but it’s not yet legally binding as no paperwork has yet been completed.
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Title Deeds
Legal documents that prove you are the owner of a property or piece of land.
Tracker Rate
A tracker mortgage is a type of variable rate mortgage where the interest rate tracks (or follows) the Bank of England Base Rate (BBR). This means that the interest you are charged on your mortgage (and therefore the amount of your monthly mortgage repayments) depends on how the Base Rate changes. For example, if you have a mortgage that charges an interest rate of BBR + 1%, your interest rate will always be 1% above the BBR, and your rate will automatically change if the BBR changes. Some lenders implement floors which mean that your total rate cannot fall below a certain level, even if the BBR falls below this. This will be clearly outlined in your offer document.
Variable Interest Rate Mortgages
A variable rate mortgage is a type of mortgage in which your interest rate, and in turn your monthly repayments, can go up or down. Variable rates are typically linked to either the BBR or the lender’s standard variable rate (SVR). If the linked rate changes, the mortgage rate will automatically change by the same amount. Some lenders implement floors which mean that your total rate cannot fall below a certain level, even if the linked rate falls below this. This will be clearly outlined in your offer document.
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