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Mortgage Terminology

Mortgage Terminology

Understanding the Basics

Agreement in Principle (AIP) This is essentially a preliminary green light from a lender. It's a document stating how much they might be willing to lend you based on a quick financial check. Think of it as a practice run before the real mortgage application – it doesn't guarantee you'll get the mortgage but gives you a good indication of your borrowing potential.

Deposit The upfront cash you'll need to put down when purchasing a property. Typically, lenders want to see between 5% and 20% of the property's value. The larger your deposit, the better mortgage rates you're likely to secure.

Equity The portion of the property you actually own. It's calculated by subtracting your outstanding mortgage from the property's current market value. As you pay down your mortgage and property values change, your equity increases.

Financial Terminology

Fixed-Rate Mortgage A mortgage where your interest rate remains the same for a set period – usually two to five years. It's like having a financial safety net, protecting you from interest rate fluctuations during that time.

Tracker Mortgage A type of variable rate mortgage that follows the Bank of England's base rate. If the base rate goes up or down, your mortgage rate moves in tandem. It's essentially a financial rollercoaster tied to national economic conditions.

Remortgaging The process of switching your existing mortgage to a new deal, either with the same or a different lender. People typically remortgage to get a better interest rate or release equity from their property.

Legal and Technical Terms - Property Purchase Process

Conveyancing The legal process of transferring property ownership from one person to another. It involves a solicitor or licensed conveyancer who handles all the legal paperwork and ensures a smooth property transfer.

Exchange of Contracts The point of no return in a property purchase. Once contracts are exchanged, both buyer and seller are legally committed to the transaction. It's like sealing a financial handshake.

Completion The final stage of a property purchase where money changes hands and you officially become the property owner. It's the moment you get the keys to your new home. HURRAY!

Additional Financial Considerations

Arrangement Fee A charge by the lender for setting up your mortgage. It can be paid upfront or added to your mortgage balance, though adding it means you'll pay interest on this fee.

Early Repayment Charge A penalty for paying off your mortgage early or switching deals before a specified period. It's essentially a financial deterrent to prevent you from changing mortgages too quickly.

Valuation and Survey Terminology

Mortgage Valuation A basic assessment conducted by the lender to ensure the property is worth the amount you're borrowing. It's not a comprehensive property survey and doesn't identify potential structural issues.

Full Structural Survey A detailed examination of the property's condition, identifying potential problems and necessary repairs. It's the most comprehensive type of property survey and recommended for older or unusual properties.

Mortgage and Property Acronyms

As if the mortgage process isn't tricky enough, the industry throws in a whole mind field of abbreviations and acronyms. Here are some of them, to help you break down the jargon. If you're unsure, always drop us a message and we will get back to you.

  • AIP (Agreement in Principle): A preliminary mortgage approval
  • APR (Annual Percentage Rate): The total cost of borrowing, including interest and fees
  • BTL (Buy to Let): A mortgage for purchasing property to rent out
  • CHAPS (Clearing House Automated Payment System): Electronic money transfer
  • CML (Council of Mortgage Lenders): An industry representative body
  • DIP (Decision in Principle): Another variation of initial mortgage approval
  • DOV (Deed of Variation): A legal document changing property terms
  • EPC (Energy Performance Certificate): A rating of a property's energy efficiency
  • ESG (Environmental Social Governance): Increasingly important in property investment
  • ETA (Estimated Time of Arrival): Used in property completion timelines
  • FCA (Financial Conduct Authority): The regulatory body overseeing financial services
  • FH (Freehold): Permanent property ownership
  • FTB (First-Time Buyer): Individuals purchasing their first home
  • HIP (Home Information Pack): Previously required documentation (now obsolete)
  • HMO (House in Multiple Occupation): A property rented by multiple tenants
  • ID (Identity Documents): Required for property transactions
  • IO (Interest Only): A mortgage where you only pay the interest
  • KFI (Key Facts Illustration): A document explaining mortgage details
  • LH (Leasehold): Property owned for a fixed term
  • LIBOR (London Interbank Offered Rate): A benchmark interest rate
  • LTV (Loan to Value): The percentage of a property's value that you're borrowing
  • MIP (Mortgage in Principle): Another term for AIP
  • NDR (Non-Domestic Rates): Business property taxation
  • POA (Power of Attorney): Legal authorisation to act on someone's behalf
  • PRS (Private Rental Sector): The market for privately rented properties
  • REPMO (Repayment Mortgage): A mortgage where you pay both capital and interest
  • RICS (Royal Institution of Chartered Surveyors): Professional body for property surveyors
  • RIO (Retirement Interest Only): A mortgage designed for older borrowers
  • SDLT (Stamp Duty Land Tax): Tax paid when purchasing a property
  • SVR (Standard Variable Rate): The default mortgage interest rate set by lenders