Introduction:
Applying for a mortgage can be a confusing process, and it is often the case that the use of jargon is what can puzzle customers. In a previous article we explained the different types of mortgages that are commonly found within the UK. In this article, we have compiled a glossary of terms that are often used in mortgaging. We will explain what each terms means, and we hope that you will find this information useful.
The terms we will explore in this article are:
- Mortgage Deed
- Mortgage Term
- Tie-in Period
- Broker
- Intermediary
- Loan to Value
- APR
- Help to Buy
- Equity Release Scheme
- Property Lien
- Freehold
- Leasehold
- Arrangement Fee
- Conveyancing
- Valuation Survey
- Arrears
- Repossession
- Mortgage Structural Survey
- Stamp Duty
- Agreement in Principle
Glossary:
Mortgage Deed:
A mortgage deed is a document where the mortgagor (borrower) transfers an interest in property to a mortgagee (lender) for the purpose of providing a mortgage loan. It is a legally binding document that uses property as collateral for a loan. The mortgage deed is the paperwork that is signed to allow the lender to put a lien on the property until the loan is paid. It is typically a two paged document, and includes details of the legal obligations of the borrower and the lender’s rights if the borrower fails to make their repayments.
Mortgage Term:
A mortgage term is the length of time, usually in years, in which the parameters of a mortgage have legal effect. At the end of the term the loan that was borrowed must be paid back to the lender. It is often the case that the mortgage term determines how low or high, long or short, the monthly repayments are.
Tie-in Period
This is the length of time that you are locked into your mortgage deal. Leaving the tie-in period early will result in you paying an early repayment fee. This fee could be, for example, between 1% and 3% of the total loan amount. We sometimes advise against taking mortgages with tie-in periods because they can end up costing you more money overtime.
Mortgage Broker:
A mortgage broker, also known as a mortgage advisor, is a person or company that can arrange a mortgage for you. In other words, they are the intermediary between you (the borrower) and the lender (the bank or organisation that are actually giving you the mortgage). Such brokers can be helpful in finding you the best deal and helping you to understand what type of mortgage would best suits your needs.
Intermediary:
An intermediary is the same as a mortgage broker, both terms are synonymous.
Loan to Value:
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio between the value of the loan you’re taking out and the value of the property. This term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. For example, in order to buy a house, you must pay 10% of the property value as a deposit. The difference of 90% is the LTV of the property.
APR:
An annual percentage rate (APR) is a percentage figure that represents the annual interest rate associated with your mortgage. It is a broader way to measure the overall cost of a mortgage for a given year and it normally accounts for the standard fees and interest rates.
Help to Buy:
This is a government scheme that makes it easier for people to become homeowners. The system was introduced in 2013 and was designed to help struggling British citizens to save for a deposit. To help in the actual home purchase, the scheme provides an equity loan worth up to 20% of the property’s value or up to 40% if you’re in London.
Equity Release Scheme:
Equity release schemes enable you to take cash from the equity built up on your property. They are targeted at older homeowners who would struggle to take on a regular mortgage and probably have little or no income to make regular repayments. There are two types of equity schemes: lifetime mortgages and home revision plan.
Property Lien:
In the most basic terms, a lien is a legal notice that’s attached to a property title because of an unpaid debt. It gives the unpaid party a legal claim to a portion of the property when it’s sold, and the borrower typically can’t sell or refinance their property if the lien isn’t cleared. There are three types of liens: mechanical/contractor liens, tax liens and judgment liens.
Freehold:
Freehold is the common ownership of property or land and all immovable structures attached to such land. It often results in the owner having responsibility over the maintenance of the land and property. Equally common, is the fact that these ownerships come with lower conveyance because the contract associated with them are simpler to do.
Leasehold:
According to Investopedia a leasehold is an accounting term for an asset being leased. The asset is typically property such as a building or space in a building. The lessee contracts with the lessor for the right to use the property in exchange for a series of scheduled payments over the term of the lease. Renting space in an office building for a company’s use or renting a building to be used for a retail store are two examples of a commercial leasehold arrangement.
Arrangement Fee:
Some lenders might require a set up/ arrangement fee to be paid whenever a mortgage is taken out. An Arrangement Fee (sometimes called a Completion Fee or Booking Fee) is an administration charge made by lenders for arranging credit be it for a mortgage, business or car loan. This fee can sometimes be a single payment of £2K. In most instances the lender allows the borrower to add this charge to the loan, but while convenient please remember that interest will have to be paid on it.
Conveyancing:
Conveyancing is the transfer of the legal title of a house from one person to another. There are normally two stages to this – the first being the exchange of contracts, the point at which the terms of the deal are fixed, and the second being the completion, where the legal title passes. It is the natural process one follows when a property is being bought or sold. A solicitor or a licensed conveyancer usually heads the process.
Mortgage Valuation Survey:
A mortgage valuation survey is a survey on the property being purchased. The lender conducts the survey to determine whether the property in question is adequate security for the loan potentially given to the buyer. Please note that mortgage valuation survey is not the same as a structural survey. Both surveys will need to be done, but ’’s important to remember that a mortgage valuation survey is what the lender uses to determine the loan amount for a mortgage payment.
Arrears:
Arrears are the amount of money you owe after a regular payment has missed. Technically a mortgage goes into arrears on the first day of the missed payment. But some lenders offer an unofficial grace period of 15 days before they will even contact you about it.
Repossession:
If you have mortgage arrears there’s a chance that your home will be up for repossession. The home repossession process is set in motion whenever the lender takes legal actions against you for prolonged and unresolved arrears. You will often be contacted, by the lender, about your mortgage arrears. If you cannot agree on a more suitable repayment plan during that initial and follow-up exchanges legal action will be taken. In court, the judge will review whether your case needs a full hearing. You might then be given an “outright order” which sets a specific date you need to leave your home, or you might receive a “suspended order” which allows you to keep your home, as long as you keep up with a new monthly mortgage payment.
Mortgage Structural Survey:
A mortgage structural survey is the most comprehensive type of building survey and may include a commentary on value but they also go into some detail in respect of the building’s structure, internal and external fabric, decor and services. Such surveys may cost several hundreds of pounds, perhaps even more, and are dependent on the size, value and condition of the subject property. Most structural surveys are undertaken by chartered valuation surveyors, chartered building surveyor or structural engineer.
Stamp Duty:
Stamp Duty Land Tax (SDLT) is a fee you have to pay whenever you buy a property. The amount you pay depends on the price of the property you’re buying and if it’s your first home.
Agreement in Principle:
Our last phrase in this list of mortgage terminology is agreement in principle. This is the document the borrower receives from their mortgage lender to confirm that they are able to receive a certain amount of money. The agreement in principle is often used to prove to the seller that the buyer has enough money to buy their property.
Summary:
We hope you have found this glossary helpful. Please bookmark this article, so you can refer back to as often as you need to. If you are currently going through the home buying process, please reach out to one of our representatives who will help you with any questions, queries, or concerns.