First time buyers' club: juggling the jargon
Buying your first home can be a tricky task if you don’t know where to start. But here at The Nottingham, Nottingham Mortgages Services are ready to help - a mortgage advice service where advisers will compare over 50 lenders for you to ensure you get the right mortgage for your financial situation. So, if you don’t know where to start, they’re perfect to help you understand the process.
When it comes to buying houses, the technical terms can be overwhelming. There are a lot of abbreviations and phrases that you’ll need to know, so, here’s our handy guide to juggling the jargon!
Arrangement or product fee
This is the cost of securing your mortgage - basically, it’s what the mortgage provider charges you to set up the mortgage. Most lenders will let you add this fee to your overall loan which means you’ll pay interest on it in the long term but you won’t need to worry about coughing up extra money straight away. Not all mortgages come with an arrangement fee, but do the maths and use an adviser to help work out which option suits your situation.
APRC (Annual Percentage Rate of Change)
The APRC represents the total cost of the mortgage loan over its lifetime. It takes into account the total interest you will pay on the mortgage, and also any fees that you might end up paying.
This is something that is required by most mortgage lenders. It offers cover to enable you to rebuild your home if it’s damaged or destroyed. It’s just like any other type of insurance but it is mandatory when getting a mortgage.
Compare the mortgage market
Generally, banks and building societies will only search and provide their own mortgages products meaning your choices are somewhat limited. At Nottingham Mortgage Services (NMS) the advisers search thousands of mortgage deals from over 50 lenders, including Which? Magazine’s top mortgage providers, so that we get the right mortgage for you. NMS will listen to your circumstances and provide impartial advice on the products that suits your needs.
The official date that you own your new home! This could be on the same day as exchange or up to a few weeks later. Your completion date is usually when you’d pick up the keys too.
Along the same lines as building insurance but contents insurance covers what you have inside your home. Insurance companies will give you options for what exactly you can put on this. For example, you can include your mobile phone on this if you don’t have separate insurance from your contract. You can get a quick quote to see what home insurance from our partner RSA might cost you.
Decision in principle
Also known as an 'agreement in principle' or a 'mortgage promise'. This is a certificate or a statement from a lender to say that 'in principle' they would lend a certain amount to a prospective borrower based on some basic information such as income and your level of outgoings like credit card balances.
These are the official and legal documents that define the ownership of your property and the boundaries of the land that your property is on. They're kept with the mortgage provider while you're still paying a mortgage.
This is the money you put down when you’re buying a property. A bigger deposit could give you more options and lower rates when it comes to your mortgage and it also can mean that your loan will be smaller. You can find out how much deposit you will need, or how long it will take you to save, by using our mortgage deposit calculator.
Equity in your home is the difference between the property’s fair market value and the outstanding balance of the property. To calculate your equity, you will need to subtract any outstanding loan balances from the property’s market value. Home equity is the portion of the property that you truly own.
Exchange of contracts
Also called your exchange date, this is when you have signed all of your contracts. The people you’re buying the house from if there is a chain have signed theirs too, and both parties are legally obliged to complete. If someone pulls out of the sale or the purchase after the exchange date then they will face financial penalties for breaking the deal.
A Help-To-Buy ISA is an account where you can benefit from tax free savings for your first home. The government will top up your savings with a 25% bonus on amounts saved between £1,600 and £12,000. You can deposit up to £1,200 when you first open your account and pay in £200 a month moving forward. You will receive your bonus from the government after completion of your house purchase. The maximum bonus you can receive is £3,000.
The bank or building society that have agreed to loan you the funds to purchase your house.
A LISA is a Lifetime Individual Savings Account that you can open between the ages of 18 and 39. This is a government scheme that can help you get up to £1,000 bonus* on your savings, every year. The government will provide a 25% bonus on your savings which you can either use for retirement or to buy your first home. We offer LISAs in all of our branches and it’s soon to be launched online where you can open your account and make your transactions from the comfort of your own home.
If you’re buying your home with someone else and they also have a Lifetime ISA, they can use their savings and government bonus too. But, if you have a Lifetime ISA and a Help-To-Buy ISA, you can only use the government bonus from one of them to buy your first home. You can transfer money from a Help-to-Buy ISA to a Lifetime ISA. If you want to transfer money the other way (from a Lifetime ISA to a Help-To-Buy ISA then you will have to pay a 25% withdrawal charge. Bear in mind that you will need to be saving for 12 months before you can make a withdrawal from your Lifetime ISA without a penalty charge.
This means the Loan To Value ratio. It is a financial term used by lenders to express the ratio of a loan to the value of the asset (house in this case) purchased. This is all about how much mortgage you have in relation to how much your property is worth. It usually comes as a percentage. For example, 80% LTV means that 80% of your property is mortgaged and the rest will be your equity or the deposit you put down.
A formal letter from the bank or building society that have agreed to lend you the money for the purchase of the property.
Overpayment is paying more of your mortgage off than you have agreed as the monthly sum. Some lenders have a penalty for levels for paying more than your agreement allows but by overpaying you could potentially reduce the term of your mortgage.
This is the tax that you have to pay to the government when you buy a house. As of 22nd November 2017, if you are a first time buyer and your house is £300,000 or less, you won’t have to pay this. If your house is between £300,000 and £500,000 then stamp duty will only be paid on the amount after £300,000 meaning that you’ll be paying a reduced rate.
If you’re interested in speaking to our expert mortgage advisers who will manage the whole process and help your mortgage completes on time, you can call Nottingham Mortgage Services on 0344 481 0013 or visit your local branch. Remember, your home may be repossessed if you do not keep up repayments on your mortgage. Whole of market mortgage advice is provided by Nottingham Mortgage Services, an appointed representative of Intrinsic Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3089887. A wholly owned subsidiary of Nottingham Building Society.
*The 25% bonus is provided by the government. The Lifetime ISA can be opened by customers aged between 18 and 39 years of age that reside in the UK to either save for their first house purchase or their retirement. The product has a 25% charge associated with any withdrawals that are not an eligible life event (first house, aged over 60, terminal illness and deceased). Investors can pay in up to £4k per tax year into their Lifetime ISA and the government will pay a 25% bonus on a monthly basis from 6th April 2018. Customers cannot pay into their Lifetime ISA from the age of 50+ or earn the 25% bonus. If you save in a Lifetime ISA instead of enrolling or contributing to a pension scheme, you may lose valuable employer contributions. Entitlement to any means tested benefits may be affected. The 25% withdrawal charge is on everything (deposits made, bonus and interest). You may get back less than you paid in. For full terms and conditions please ask branch staff for our Keyfacts document and summary box. The value of investments can fall as well as rise. You may get back less than you invested.