Glossary
Here are some useful terms and facts. The specific
features of your mortgage are shown in your Key Facts
Illustration (which your adviser will give to you). This
is an important document which you must read as it
highlights any conditions that apply to your mortgage.
Arrears and Repossession
If at any time you are unable to meet
your mortage payments, you should
speak to your lender straight away.
Repossessing a property is generally a
last resort – your lender will try to reach
an arrangement with you to enable
you to keep your home. If your lender
sells your property after repossessing
it you’ll be responsible for any shortfall
including fees associated with the sale.
Annual Percentage Rate (APR)
As well as telling you the rate at which
they will charge you interest, lenders
must also calculate the APR of your
mortgage. This is the total cost of
the loan, including interest and fees
shown as a percentage rate. The APR is
intended to help you compare different
types of mortgages from different
lenders. In calculating the APR, lenders
assume you’ll pay the mortgage for the
full term. All lenders will tell you what
their APR is before you sign up with
them. Generally, the lower the APR, the
better the deal, assuming you stay on
the same mortgage product throughout
the term of your mortgage.
Cash Back
With a cash back mortgage, your
lender pays you a lump sum when you
complete your mortgage. The cash back
can be a fixed amount or can be worked
out as a percentage of your mortgage.
You should be aware that if you move
to another lender in the early years, in
other words within the early repayment
charge period (see overleaf) then you’ll
have to repay some or all of the cash
back received.
Credit Scoring
When you apply for a mortgage (or any
sort of credit) the lender will usually
‘credit score’ your application. This
helps them decide whether to accept
your application, the amount of money
they’re prepared to lend to you and what
rate of interest you’ll pay.
Credit scoring works by awarding points based on your circumstances. Each lender has their own scoring system. You’ll generally score more points if you’ve been in your job longer, own your own home and have paid all of your loans on time in the past. Having a good credit history will improve your chances of getting the best rate mortgage.
You can get your individual credit report by contacting Experian or Equifax. This will help you understand your credit file and what aspects lenders use to make a credit decision.
Early Repayment Charge
This is a charge that you may have
to pay if you want to pay off your
mortgage before the end of a set
period. Some charges may apply
only for as long as the set period
lasts. In other cases, they can extend
beyond this.
Free Legals
Some lenders offer arrangements
that include the cost of completing
the legal work involved in arranging
a mortgage and buying a home.
These arrangements vary but they
all reduce the amount you’ll need
to pay at the outset.
Higher Lending Charge
Lenders sometimes charge a fee if
your mortgage is a high percentage
of the property’s value. This fee is
used by your lender to buy insurance
that protects them if they repossess
your property and sell your home for
less than the amount outstanding on
your mortgage. This insurance does
not protect you. You would still be
responsible for any shortfall after the
sale of your property.
Home Information Packs
Home Information Packs (HIPs) are
no longer compulsory if you’re selling a
property in England and Wales but Energy Performance Certificates are.
Home Reports For Properties For Sale in Scotland
Houses for sale in Scotland now have
to be marketed with a Home Report.
This is a pack of three documents: a Single Survey, an Energy Report and a Property Questionnaire. The Home Report will be made available on request to prospective buyers of a home. The Single Survey contains an assessment by a surveyor of the condition of the home, a valuation and an accessibility audit for people with particular needs. The Energy Report contains an assessment by a surveyor of the energy efficiency of the home and its environmental impact. It also recommends ways to improve energy efficiency. The Property Questionnaire is completed by the seller of the home. It contains additional information about the home, such as Council Tax banding that will be useful to buyers.
For more information please go to http://www.scotland.gov.uk/Topics/Built-Environment/Housing/BuyingSelling/Home-Report
Loan Drawdown
When your mortgage is confirmed,
your lender may agree to lend you
a pre-agreed amount of extra money
without having to go through a
formal application process. This is
known as a drawdown facility. You
may also be able to borrow back the
amount of any overpayments that
you’ve previously made.
Negative Equity
If the value of your property falls
below the amount you owe on your
mortgage this is called ‘negative
equity’. If this happens, and you
need to sell your property, you’ll still
be responsible for repaying the full
amount of the mortgage.
Portability
Some lenders let you move your
mortgage to a new property when
you move house.
Overpayments
Most mortgages now offer you the
option of increasing your monthly
payments. When you do this, you’ll
be paying an additional amount off
your mortgage each month. Making
overpayments can help you to repay
your mortgage before the end of
the term.
Underpayments and Payment Holidays
Some mortgages allow you to reduce
the amount you pay each month,
or to stop making monthly payments,
if you’ve previously overpaid.
Lenders only normally allow you
to make underpayments or take
payment holidays for a limited
period. This can be useful if your
income falls for a period of time.
In both cases you’ll be paying less
than the normal monthly payment
so the amount of your mortgage
will increase.
Unsecured Borrowing
Some lenders will give you a
mortgage that allows you to borrow
additional amounts on an unsecured
basis. This means it’s not secured
against your property. An unsecured
loan generally costs more as the
lender has no security that they
can use to repay some or all of the
loan if you’re not able to pay it back.
The Consumer Credit Act covers
unsecured borrowings.
Tax and Wills
In some circumstances you may need
to think about the tax implications of
buying your property. Your adviser
can’t give you any advice about the
tax implications of buying property.
If you are at all unsure about this,
you should get advice from a tax
specialist.
When you buy a property, we
strongly recommend that you ensure
your Will is up to date. This means
that your assets, including your
property, are given out in line with
your wishes.
Valuations and Surveys
There are three types of valuations
and surveys – valuation reports,
homebuyer’s reports and building
surveys:
- Basic valuation report – This is
a basic report paid for by you,
but completed by the valuer for
your lender. Your lender will use
this report to help them decide
whether they’ll lend you the
amount of money you need to
buy your property.
- Homebuyer’s report – This is
a more detailed report that a
surveyor completes for you.
There’s an important difference
between a basic valuation report
and a homebuyer’s report.
The valuation report belongs
to the lender and the valuer
completes the report for them.
With a homebuyer’s report, the
surveyor works for you and they’re
responsible to you if they fail to
spot things. Whilst this costs more
than a basic valuation, you should
consider asking for a homebuyer’s
report as it will give you a lot
more information about your
property. It’s particularly useful if
you’re buying an older property.
Your lender will normally use the
homebuyer’s report to help them
decide whether to lend on your
property, so you won’t normally
need more than one report.
Your lender can arrange this.
- Building survey previously known
as a full structural survey – This is
the most detailed type of survey
that’s completed by a surveyor
working for you. The surveyor is
responsible to you if they fail to
spot things. Building surveys are
normally asked for by those who
are looking to buy:
- an older property;
- one which needs substantial refurbishment; or
- where there have been structural
problems in the past.