When it comes to mortgages, the wide range of technical terminology can be a real challenge to navigate. That’s where our convenient Jargon Buster directory comes in, to ensure you’re well equipped for your mortgage journey!
What is an advance?
An advance is an additional loan on an existing mortgage. It is also known as a further advance, as it means you are seeking to add borrowing to your current mortgage.
Things to note when considering an advance on your mortgage
If you did opt to add more onto your existing home loan like this, it would be with your current lender. Therefore, you cannot compare deals or go with any other lender’s interest rates.
Opting for an advance is an alternative to changing your loan to another lender. There could be various reasons why you may not want to do this. If your existing lender offers a competitive rate, seeking an advance might be preferable – and more affordable – to switching to someone else, for example.
An advance might be worth thinking about if you want to improve your home in some way, such as by adding a conservatory or extension, or renovating the existing building. You could also think about an advance to release cash to fund another property purchase.
A word about mortgage rates
You should note that your existing mortgage rate won’t apply to any advance you might be able to get. You would typically pay for anything you borrow on top of your main loan at a different interest rate. Hence why it is a good idea to look around to see if a change of mortgage might be a better option. An advance is merely one way to release additional cash if your property has increased in value and there is equity to draw on.
What does APRC mean?
Annual percentage rate of charge, or APRC, is a term you are going to regularly encounter when you start looking at various mortgages offered by various lenders. Put simply, the APRC reflects the total cost of a loan, including interest charges and all product fees. This is shown as a percentage rate rather than as a sum of money.
The annual percentage rate is an industry standard calculation. This means all lenders use it. You can therefore look at the APRC for each loan you are reviewing and use it to compare different mortgages more accurately against each other.
This would be almost impossible to do if you were using other information, such as the basic interest rate and the fees and charges connected with each deal. Cashback would also muddy the waters when trying to work out whether one deal is better than another. APRC takes the hard work out of comparing different loans, as you can be certain of which ones are preferential to others.
Things to note about the APRC of a mortgage product
The most important thing to remember is that the APRC is calculated on the assumption that you maintain the loan for its full term. So, if you take out a 25-year loan offering an APRC of 3.5%, that APRC is worked out over the 25 years. If you changed mortgages at some stage during the term, the original APRC would no longer be valid.
However, you should still use this calculation to compare different products from different lenders if you’re looking for your first home loan or looking to swap from one to another.
What is an architect’s certificate?
An architect’s certificate is a document provided by an architect, confirming their role in overseeing the construction of a building. It is a vital document for a homebuyer to have if they intend to purchase a new-build house with the help of a mortgage.
The certificate should be issued either by a chartered architect or by a qualified surveyor. It typically lasts for six years, although it is possible to purchase an extended form of cover that would last longer than the normal six-year period.
Why is a certificate necessary?
A newly built property has no track record. As such, the bank or building society being asked to lend on that property wants to know it is fit for purpose and worth the amount it is being sold for. They are unlikely to lend if you cannot produce an architect’s certificate to prove this.
Upon seeing the certificate, the lender knows that the property you are seeking a mortgage for has been built to current standards. It is essentially a form of security – it tells the lender that yes, the property is fit for sale and has been constructed to a reputable quality.
Is there an alternative to getting an architect’s certificate?
Yes, an alternative would be an NHBC warranty or equivalent recognised document. NHBC stands for the National House Building Council. The warranty they produce is known as the Buildmark warranty, and it gives homebuyers protection against faults in the building for 10 years. As such, the document would also provide confirmation to the lender of the build quality of the new home.
What is an arrangement fee?
This is a fee charged to you by a lender when you secure a mortgage with them. The lender applies a cost to take out that product for you. It is essentially an administration charge for handling the process required to complete the loan.
You may also see it referred to by other names, such as a completion fee. It is only payable once you agree your mortgage with the lender and go through the process of taking it out.
When does the arrangement fee need to be paid?
It must be paid prior to the mortgage start date. However, some lenders do allow the mortgage holder to add the fee to their loan. Be very careful if you do this though, since it means you end up paying more.
If your loan is for £250,000 and you pay your £1,000 fee prior to beginning your monthly payments on the loan, interest is calculated on the £250,000 mortgage alone. However, if you decide to save some cash and add the fee to your loan, you would end up paying interest on £251,000 instead. It may not sound like a huge difference, but it can add up over a 25-year term.
For example, an interest rate of 3% over 25 years on a loan of £250,000 would produce monthly payments of £1,186. If you were to add the fee on top, those monthly payments would increase by £4. Over the lifetime of the mortgage, the total repaid (assuming all else remains equal) would increase by £1,423. That means you’d end up paying almost 50% more for your arrangement fee.
Of course, it could be more important for you to retain the cash, but it is worth knowing the difference it can make to your payments.
How is the fee calculated?
This can be done in one of two ways:
It is often given as a flat fee, i.e. a specific amount of money It could be expressed as a percentage of the loan
Either way, you should know ahead of agreeing to the loan how much the arrangement fee is for.
The word ‘assignment’ relates to the transfer of ownership of an insurance policy or lease. It may relate to a life insurance policy held by a homeowner if that policy needs to be transferred to someone else, for instance. To give another example, it may also relate to the transfer of ownership of a lease on a property.
For example, if you are a landlord and you own a property you rent out to tenants, you will experience changes in tenants from time to time. When this occurs, you will need to transfer the lease held by the outgoing tenant to the incoming tenant. Your consent as the landlord is required for this to occur.
In all cases, regardless of the scenario, the person exiting the lease or policy is referred to as the assignor. The person taking over the lease or policy is known as the assignee. These terms are also likely to appear when you are in another scenario whereby an assignment or transfer is required to happen, as with the insurance policy example.
If an insurance policy is transferred from one party to another, this process is also called an assignment. In some instances, there may be reason for a part assignment to occur. This would happen if the policy is shared by two or more people, and part of the policy is to be transferred. It is more common for an entire insurance policy to have its ownership transferred, however, in which case the original assignment terminology stands as the relevant term.
If you are unsure about any terminology in an official document, you should always ask for clarification.
The balance outstanding is the amount you have left on your mortgage or loan. You may also see it written as the outstanding balance. It is the total sum remaining to be paid at the point the sum is calculated.
For example, you may be informed that the balance outstanding on your mortgage as of May 2019 is £239,500. You should receive an annual statement that reveals the remaining balance left to pay at the time the statement was prepared.
If you have online banking, you should be able to log into your account to see the outstanding balance on your mortgage in between statements.
How does the remaining balance change throughout the life of the loan?
This depends on the kind of loan you have. If you opted for an interest only home loan, the capital borrowed would remain the same throughout. You would only be required to pay the interest due each month, while the capital you borrowed would stay the same. Hence why this type of mortgage is now rarely seen. If you do have one, you should arrange to ensure you can pay off the capital by the end of the term.
With a repayment mortgage, your outstanding balance will gradually drop throughout the term of the loan. It drops much more quickly towards the end of the term, by which time most of your monthly payment goes towards the original loan amount rather than the interest it accrues.
Regardless of the sum owed or the interest rate, however, the balance outstanding always refers to the total remaining to be paid off.
This is the rate set each month by the Bank of England.
How is the rate used by banks and building societies?
Banks and building societies use this base rate to set their own interest rates.
They use it as a benchmark to help them calculate the interest to apply to savings products. They also use it to determine how much interest to charge on loans, including personal loans and mortgages.
How often does the base rate change?
It is reviewed every month, but this does not mean the rate changes every month. It may stay unchanged for several months or perhaps even a year or more. The prevailing conditions help determine whether the rate should change, and if it should, whether that change should be upward or downward.
Banks and building societies are not obliged to pass on savings gleaned from a fall in the base rate. However, in practice they usually do pass on at least part of the savings. This helps them to remain competitive in the products they offer to those looking to borrow money, perhaps for a mortgage, for example.
Similarly, they do not need to increase interest rates on savings if the base rate goes up. However, once again it does benefit them to increase the rate if doing so might lead to more people saving with them.
Fixed rate mortgages help protect against potential future rises in the base rate
The Bank of England often gives clues as to whether it is likely to raise the base rate in the coming months. You cannot fully rely on this, but many people like to opt for a fixed rate mortgage (slightly higher than a variable rate one) as it protects against future rises that may occur. Fixing for two, three, five, or even 10 years provides protection against such rises.
Every good tenancy agreement agreed over a fixed term should include a break clause. As the name suggests, it allows either the tenant or the landlord (or both, depending on the circumstances) to break the agreement before the term is complete.
This means that while a fixed term may last for 12 months, both parties reserve the right to terminate it before that time is up if they have good reason to do so. There is typically a set process that must be adhered to for the break clause to be used in a valid manner in this scenario.
Understanding the wording of a break clause in a tenancy agreement
It is worth knowing that while a break clause sounds singular, it is merely a description of a clause that can appear within a tenancy agreement. As such, there could be different versions of it according to the terms of a specific agreement.
You will usually see several sections on the agreement relating to a break clause. The best example is for one section of the clause to be described from the landlord’s point of view and for another to be described from the tenant’s point of view.
It is common for the tenant to be required to give a shorter period of notice than that of the landlord, although there may not be too much difference between the two. For example, a landlord should legally provide a minimum of two months’ notice. Conversely, the tenant is required to give a minimum of one month.
The break clause should also include any conditions that must be met in full for the clause to be used. If such conditions are not met, the clause would not be triggered and the relevant party could be deemed to have violated the tenancy agreement (whether that is the landlord or the tenant).
A bridging loan (alternatively called bridging finance) provides essential funds to help a buyer purchase a new property before their current one has sold.
It takes its name from the idea that the buyer can bridge the gap between buying and selling. While most existing homeowners would aim to line up the sale of their property to tie in with the purchase of their next one, this does not always happen as smoothly as it should.
The loan is designed to work over the short term. It therefore has a higher rate of interest than a regular mortgage, even though both are designed to help you buy a property. It is vital to understand the difference between them, and to make sure you fully understand the terms of a bridging loan before you take it out.
In what circumstances might someone think about this loan?
Here are some examples of why people may consider bridging finance:
People may have a buyer for their property and not be able to find something suitable to move into People may have found the perfect property to buy but cannot find a buyer for their current home People may be moving far away from their current home and may find it easier to buy something with the aid of a bridging loan before selling their current property
A bridging loan is temporary – and it can be pricey
While rates vary, they can be expensive and are charged monthly. The market is competitive at the time of writing, so these loans are cheaper than they have been in the past. However, you should weigh up costs carefully to ensure you know where you stand. If you end up holding the loan for longer than you intend to, it could well be far costlier than you originally thought. Always check the terms and make sure it is the right product for your needs. Take professional advice and look at all your options before selecting bridging finance.
Building regulations cover all new builds in the UK. Each new build must adhere to the regulations for it to be deemed safe to use. They cover numerous health and safety issues and requirements.
If a new build property did not meet current building regulations, a completion certificate would not be granted on it. This means the property could not be put up for sale until such time as the contraventions to the regulations were dealt with.
The regulations do not merely cover new build properties, though. They also cover work done to existing properties, such as extensions and renovations. These works should also be done in accordance with the existing regulations, to ensure they are of the highest standards and pose no danger to those using the property.
Who is responsible for complying with the regulations?
In the case of a property that is being built from scratch, the owner of the land and the person (or company) dealing with the build has responsibility. So, in the case of a homebuilder developing a plot of eight properties, for example, that homebuilder has responsibility for ensuring they comply with all the requirements.
In the case of an existing property owner looking to build an extension on their property, the builders they select to do the work will be responsible for making sure their work meets the required standards.
If you are considering purchasing a new build, you should be able to confirm that the property meets all the building regulations and that the completion certificate has been issued. This will be required for a building society or bank to agree to lend you the money to buy the property.
A building society is a mutual institution owned by its investors and borrowers. It provides a selection of savings products and mortgages. The similarity of the product range between a building society and a bank means some people are unaware of the differences between them. Some may assume the only difference is in the name.
However, the clue to how different they are is in the description above – mutual institution. A bank is a business. If you were to invest in that business by purchasing shares, you would benefit by receiving dividends. Being an account holder at a bank does not entitle you to shares.
However, a building society is owned by its members and is not a business. If you open an account to save money with a building society, you become a member of that society.
Are you better off seeking a home loan from a building society?
As always, our advice is to evaluate different deals to see which ones are best. Different mortgages last for different lengths of time. Some have fees involved. Some have more competitive rates than others. Comparisons are the most important feature of sourcing the right mortgage for you.
However, building societies do tend to have preferential rates for savers, and there is a chance that borrowers might benefit from better rates too. One thing to be aware of is that building societies are often located in specific areas, i.e. Coventry Building Society and Yorkshire Building Society. However, that does not mean you must be based in that area to use their services – especially with internet access.
Therefore, considering a potential home advance from a building society located elsewhere in the country opens the way to other deals you may not otherwise have found.
Buildings insurance is the most important insurance you could have on your home. It covers loss and/or damage to the physical structure of your home, rather than to its contents. Those would be separately covered by contents insurance.
Many people make the mistake of taking out too much buildings insurance by getting an amount of cover equal to the cost of purchasing their property. This means the policy will be more expensive than it needs to be. The value placed on your building insurance should be less than the value of your home. The important value is the rebuild cost rather than the purchase price.
A simple way to think of the items covered by buildings insurance is to think of everything you couldn’t easily take out of your home if you cleared it out. You couldn’t easily remove doors and windows, so those are covered by your building insurance. The same goes for bathroom fixtures and fittings such as baths, the sink, and the taps. Kitchen cabinets are covered too, but carpets throughout your home generally are not covered. However, do read the terms of any policy you are thinking of getting, just to make sure you understand what is covered and what is not.
If you get insurance online, you will usually be guided through the application process by answering a series of questions about your property. Take your time to get down the answers as accurately as possible. This helps ensure you get the right amount of cover for the best possible price.
The cashback mortgage is a popular type of mortgage that provides you with a lump sum in cash when you complete the mortgage agreement. It might also be calculated as a percentage of the loan made as a cash payment to you at that point
The timing of the cashback payment usually means you receive it a couple of weeks or so after you have completed the loan. This means it is unsuitable for use as part of a deposit on a property.
Cashback deals are available on both standard rate and variable rate deals, so it is worth looking around to see what is available. The loan to value (LTV) rate varies hugely between deals too, with some requiring 60% and others more relaxed with an 80% LTV or more.
The available amount of cashback depends on the size of your mortgage and on the maximum applicable to a specific deal. When comparing cashback offers, you should see a maximum cashback amount indicated in writing.
It is worth noting that while receiving a cash payment seems like a great deal, it may not be as good as you think. Interest rates on cashback loans are typically higher than those on deals that do not offer the perk. Look at the possibility of early redemption penalties too. While these can apply to all home loans, the terms could well be longer and stiffer for deals involving cashback. Be very sure the deal you have is a good one; it is easy to be swayed by the temptation of a few hundred pounds cashback upfront when it may not be the best deal.
A charge is an interest in the ownership of a property. This is most often a mortgage that allows someone to borrow a significant sum to make ownership possible. It could also relate to another debt secured on the property, however, such as a secured personal loan.
It differs from unsecured loans in that the property acts as collateral in case anything should go wrong. With an unsecured loan, your property wouldn’t be at risk if you fell behind with the repayments. You would still be liable to pay back the loan, of course, but the bank or building society that extended the loan would not have attached it to your home.
With a mortgage, the amount loaned is going to be far larger. This means there is a greater risk to the lender in loaning that sum of money – often in the hundreds of thousands of pounds or more – to the person requiring it. If you want to purchase a property worth £800,000, you are going to require a mortgage to make it happen (unless you are exceptionally fortunate). The lender will evaluate your request, and if they grant it, they will secure that loan against the property you are buying. This is a charge. It is also referred to as a charging order and it links the debt with something of enough value to pay it back should something go wrong.
The charge is also referred to as the first charge. It means the lender is first in line to have their loan repaid if the property is sold, either through the natural buying and selling process or because of debt complications.
What does completion mean?
This is arguably the most emotive word in the whole process of buying or selling a property. The word relates to the end of the purchase process. Many people find buying and selling properties stressful and uncertain. It is not surprising, therefore, that completion marks a sense of relief.
Completion day is the day when the money for the purchase of the property is paid to the seller. When payment is received, the ownership of the property officially passes from the seller to the buyer. At this point, the buyer can collect the keys and begin the moving in process. The estate agent will usually have the keys ready.
By this point, the contracts have already been exchanged between the parties. This means there is far less chance of things going wrong. If someone was to back out of the transaction after exchanging contracts, it would likely be very expensive for them.
Is completion day the same as moving day?
Very often, yes, but there are scenarios where it may be delayed. Typically speaking, house moves occur in chains. The shorter the chain, the fewer properties and people are involved. The longer the chain, the more likely it is there could be delays in moving somewhere along the line.
It is possible that you could complete your purchase prior to the person selling that property, if they are held up by the next person in the chain. In such cases, there can be a short delay in completing that part of the chain to allow everyone to move in good time.
Contents insurance is the provision of an insurance policy that covers accidental damage or theft of all moveable contents inside the property. This typically includes furniture, appliances, and soft furnishings. Carpets are also usually covered under contents insurance, but as with any policy, it is best to read through the small print to see exactly what is covered and what isn’t. If in doubt, ask.
Is it a legal requirement to have contents insurance?
No. It is up to the homeowner whether they wish to take out a policy to provide cover if there was any accidental damage or they were burgled. However, it is wise to consider the cost of replacing items if the worst did happen.
Some people prefer to save the monthly or annual cost of this type of insurance into a savings account. Since claims against these policies are typically rare, the reasoning is that you could save up enough to cover the cost of replacing items if anything did happen. This is a personal decision though, and you should weigh up the value of the items in your home before considering this step.
It is also important to make sure any policy you take out is enough to cover the contents of your property. It is easy to underestimate the total value of your moveable contents. It is best to take one room at a time and to consider what it would cost you to replace each moveable item in that room.
If you own a lot of collectables, make sure the policy will cover them. Some people take out a separate specialist policy for valuables that are worth more.
A contract is a document that describes the agreement under which a property will change hands. It should contain standard conditions that are attached to the sale of the property. However, depending on the property being purchased, it could potentially contain other conditions too. The solicitors acting on behalf of the buyer and seller respectively would read through the contract to see if anything unusual has been included. If so, they may request that changes are made or that certain conditions are removed.
If certain items of furniture or white goods are to be left at the property, a list of these should be included with the contract. Queries may be raised if the two parties agreed for something to be left and it does not appear on the list, for instance.
Once both parties are happy with the contracts, they can be exchanged. Up to this moment, it is possible for either or both parties to withdraw from the sales process. There would be no fees incurred for backing out by the buyer or the seller. However, once contracts are exchanged, both parties are legally bound to go ahead with the sale. That said, it is possible to pull out, although there are hefty penalties for doing so. These can involve 10% of the purchase price – a huge sum to lose if you change your mind at this stage. It is the reason why so few people go back on their decision once they have signed and exchanged the contracts for the sale of the property in question.
A contract race occurs when two parties have made an offer on the same house. These offers will usually be for the same price. The vendor will then sell to the person who exchanges contracts ahead of all other parties in the race. If this situation does occur, all parties involved must be made aware that more than one contract has been issued. The seller is not under any legal obligation to exchange contracts with the first person to make a suitable offer, hence why a contract race can occur.
This scenario does not always occur, as it is likely that one party will marginally increase their offer to make it more attractive to the vendor. In this case, the vendor would likely accept the higher offer, knocking the other party out of the running.
There are some elements to consider here if you are selling a property and you are considering entering a contract race with two or more parties. Firstly, there are additional fees involved for you. With more than one contract to send out, there is more legal work to be done. That raises the fees, and it is something you should be aware of before proceeding.
Secondly, while a contract race might lead to a faster sale to one of the interested parties making an offer, this is not guaranteed. It is still possible the sale could fall through. It is also worth noting that not all parties might agree to be in such a race. It could put one or even all the potential buyers off making an offer at all. So, think carefully and weigh up the pros and cons before proceeding with a contract race.
A conveyancer is a person other than a solicitor who may conduct the conveyancing required during the sale of a property. You will need to enlist the services of a conveyancer regardless of whether you are the person buying a property or selling it. A conveyancer is also sometimes referred to as a conveyancing solicitor, but the role undertaken is the same in each case.
In theory, you could do the required work on your own if you do not require a mortgage. However, this is not advised as the process is complex and difficult for someone with no experience.
The conveyancer is required when you have made a successful offer on a property. In the case of selling, this would be the point at which you accept the offer on your property. When looking for a conveyancer to handle this part of the process for you, always check they have the proper credentials. This would involve being regulated by one of two authorities:
The Council for Licensed Conveyancers The Solicitors Regulation Authority
The conveyancer will handle every step along the road to the exchange of contracts. The journey will involve creating a purchase file, conducting searches relating to the property and plot, going through numerous checks, requesting and receiving your deposit, sorting out the chain, and exchanging contracts. Hence why it is important to get an experienced, qualified, and registered conveyancer to handle this important part of the process of home buying for you. It would be foolhardy to do anything else. (And if you do need a mortgage, your lender will require you to hire a conveyancer anyway.)
This term describes the process of transferring property from one party to another. The buyer will legally receive the property from the seller. This process is typically managed by one of two parties – either a solicitor or a licensed conveyancer.
While the transfer of ownership is a singular process, each party involved in the sale must find their own conveyancer to handle the process on their behalf. This means the seller and the buyer will need to find a suitable party to take care of the conveyancing for them.
Solicitors can handle the conveyancing process – indeed, anyone can. There is no law to say the conveyancing must be done by a qualified person. However, it is always best to hire an expert in this part of the property sales process. There is a lot that could potentially go wrong or be overlooked if this is not done. For example, the solicitor will check boundaries, rights to the land on which the property is built, your rights concerning parking, and so on. These are just a few examples of areas that are covered during the conveyancing process.
The conveyancing process covers the transfer of the legal title currently held by the seller, passing it onto the new owner. At that point, the transaction is complete, and the property has legally passed to the new owner. A qualified solicitor or conveyancer will check the terms of the deal and highlight any potential problems before the contracts for the sale are signed and exchanged. These property searches, as they are known, can take weeks to work through. Hence why most conveyancing takes around eight weeks (and sometimes longer) to be completed.
This is a condition found in the Title Deeds or lease for a property that a buyer must agree to if they go ahead and purchase the property. This is typically applied to the current property owners and anyone who may assume ownership in future. The word covenant means agreement, and it will be contained within the conditions of the deeds or lease.
A restrictive covenant highlights something that the owner cannot do under the terms of that covenant. For instance, a property may have a restrictive covenant that prevents the owner from using the property to run a business. If the land on which the property is built is owned by a farmer, that farmer could add a restrictive covenant that prevents the property owner from buying chickens or other animals (other than domestic animals). These are just a couple of examples; there are many others.
Conversely, a positive covenant could require the owner to do something. This might mean maintaining a fence around the perimeter (or a portion of the perimeter). If the property is in a conservation area or is of a certain age, a covenant could require the new owner to maintain existing windows rather than replacing them with modern uPVC ones.
If you are thinking of buying a property, you should always make sure your solicitor looks at the presence of any covenants attached to that property. This applies to both restrictive and positive covenants. While positive ones might sound like a good thing, they can still be restrictive. The cost of maintaining old windows (and the likelihood of higher heating bills thanks to their inefficiency) could be viewed as a negative, putting you off the purchase before progressing further.
Lenders often use a system called credit scoring to help them decide whether to lend to you. They ask a series of questions about you and your finances and score your answers. Depending on your score you will be accepted or declined.
The process of combining outstanding debts e.g. loans, credit cards etc, into one loan.
Deeds are legal documents that show who owns a property or a piece of land. They are also sometimes referred to as property deeds or title deeds. According to the official description at HM Land Registry, they are:
“Paper documents showing the chain of ownership for land and property.”
Many people assume the title deeds are always in paper format and are stored and preserved by HM Land Registry. However, this is not typically the case. Their records are now digital, so copies are securely held in that format instead. They may have the original paper forms of the deeds upon first registration of a property or piece of land, however. Once those papers have been used to create the entry in the register, they are sent back to whoever forwarded them for use to start with.
Do you need to have a copy of your deeds if you are selling a property?
No – in fact, it is very unlikely you would have them. Most buyers would not request these as all records are held on the Land Register, as mentioned above. Since this is available online, you can search for the property deeds to confirm whether the property is registered. If it is, a copy of the deeds held for that property can be requested. There is a charge for each document you require a copy of. It is also possible to obtain official copies of said documents if required, although this is not normally needed unless ownership of the property or land is in dispute.
A defective lease is one that has been badly drafted. Some can be worse than others, influencing the steps that may need to be taken to rectify the matter. If the lease is badly put together, the vendor may need to obtain a ‘deed of variation’. This would require the freeholder’s permission to change the original terms of the lease. This can be a lengthy and complex process, as other leaseholders may be affected by the changes that are required to be made.
A lease lays out the terms that are applied to the property and must be adhered to by the leaseholder. The terms are put in place by the freeholder, i.e. the owner of the land. This is usually the landlord. If those terms are deemed unfair from the point of view of the leaseholder, discussions can begin to see if alterations are required and can be put in place.
As mentioned above, this can be complex, even when no other leaseholders are involved. However, if the lease is on a flat and there are several other flats with the same terms laid out in their leases, it complicates things as all other flat owners will be affected by any changes that are made.
That said, resolving the issues caused by a defective lease is important. If you have a defective lease on your leasehold property and you try to sell it in future, you could well run into problems. Such a lease would make it much harder – if not impossible – for a would-be buyer to get a mortgage on that property.
A deposit is an amount of money provided by the buyer to obtain a mortgage after contracts are exchanged on the property in question. The most common amount to provide as a deposit is between 5% and 10% of the price paid to buy the property.
As a rule of thumb, the more money you can put down as a deposit, the better your options are for seeking a competitive mortgage. Typically, 5% is the smallest deposit you can provide. That said, many lenders insist on a 10% deposit as a minimum percentage. If you can save more, you’ll find banks and building societies can provide you with better deals. The larger the deposit, the lower the interest rates are on the available mortgage deals on the market.
Many sources state that 20% is the ideal sum to save as a deposit on a property in the UK for this very reason. If you can offer even more, the deals get better still. This is typically only possible for those who are moving from one property to another. They can use the proceeds from the property they are selling to provide a bigger deposit on their next property.
However, if all you can manage is a small deposit such as 5%, there are still some competitive deals on the market. Shopping around is always important, as it gives you a better idea of who is offering which deals.
You may sometimes hear about 0% deposit mortgages too. While these were popular in recent years, this cannot be said of the current mortgage market. Many saw them as risky deals that could lead to problems in paying back an expensive mortgage deal. It is always advisable to save whatever you can to create the biggest deposit you can when looking to buy your own property.
The most competitive mortgage deals can be had with a 40% deposit and this is the same for residential and buy to let mortgages.
This term refers to any damage sustained by a property that has been let to a tenant, whereby the damage or loss is noted following check out at the end of the tenancy.
Dilapidations could refer to damage sustained to the property itself. For example, a door may have been damaged, a window smashed, a carpet ruined, or similar incidents. However, the term is also used to describe other negative occurrences noted once the tenancy is complete.
For example, an inventory is always taken prior to the tenancy starting. This would include all items of furniture in the property and all other items provided for the tenant. If a property is unfurnished, the inventory would still include items such as white goods. If any of these were found to be missing following completion of the tenancy, this would be noted on a list of dilapidations.
Other examples would be any case whereby re-decoration is required. This could mean wallpaper that has degraded or been damaged during the tenancy, or similar instances where one or more elements of the décor require redoing. In all cases, dilapidations relate to items where the landlord must meet unexpected costs to return the property to the condition it was in prior to the tenant moving in.
Disputes can occur if the tenant does not agree with the list of dilapidations. Since the list will incur costs for the outgoing tenant, it is not uncommon for the tenant to take issue with them. Most tenants will expect to get their deposit back, and the list could mean that won’t happen – with some tenants potentially incurring additional costs too, depending on the condition of the property.
A direct debit is an instruction made by a customer to their bank or building society to make regular payments direct from their account. These are usually associated with bill payments and are often paid from the customer on a monthly basis.
Many people confuse direct debits with standing orders, but there is a crucial difference between the two. A standing order is always for a specific amount that cannot be changed by the person receiving the amount. It also occurs on a specified date or dates, such as monthly or quarterly, for instance. A direct debit is more flexible in that the customer is authorising the bank to pay a third party on a regular basis whenever such payment is due.
Hence why the direct debit format is perfect for mortgage payments, utility bills, and anything else that may change from time to time. If you take out a mortgage on a one-year fixed rate deal, you will know in advance what you will pay each month. Your bank will send the exact amount to the lender on an agreed date each month.
At the end of the fixed deal, you will either move onto a new fixed rate deal or be switched to a variable rate deal. Either way, your monthly mortgage payments are likely to change. With a direct debit, this is not an issue, as the payments can be altered without you needing to do anything to approve it. You must, however, receive confirmation of the new monthly payments and the dates on which they will be taken. This is a key aspect of the direct debit system, as it allows you to stop the direct debit or query it in advance of payments being made.
Disbursements are the various costs incurred for carrying out the legal work in relation to buying or remortgaging your home. Most home buyers instruct a solicitor to handle all the legal work for them. The alternative is to hire a conveyancing solicitor. In both cases, the individual will quote the buyer for the services they are using. A section labelled disbursements will be included in the quotation.
The word is used to highlight all the fees due to third parties during the process of buying a property. The word does not describe fees paid to the solicitor for their services; rather, it describes the fees the solicitor will handle on your behalf that are due to other organisations involved in the process. These may be to the local authority when conducting searches, for example. Many searches are typically conducted before a property is purchased, to make sure there are no issues with any aspect of it. The solicitor can arrange for these to be conducted and will add the cost of each search to the list of disbursements you receive.
Disbursements may vary if you are remortgaging your property rather than buying one. The Land Registry registration fee for noting the mortgage in their records is one example. A bankruptcy search is another.
Some fees listed under disbursements may consist of no more than a few pounds, while others will be higher. A lot depends on the services required to complete the transaction and which organisation provides those services. If you have any queries concerning any of the fees appearing in that section, you should ask your solicitor for clarification.
What has a horse got to do with disbursements? Absolutely nothing, we just struggled to find an exciting photo about disbursements…
Discharge is a term used to describe the act of paying off a mortgage. This may be achieved when reaching the end of the agreed term of the loan. Alternatively, some borrowers may make plans to discharge the mortgage early, thereby paying it off several months or even years ahead of schedule.
When you borrow the funds to help you buy a property, the bank or building society lending you the money to do so will register a charge on the property. You are the owner of the property, yet since the lender has an interest in the property, their name will also appear on the title deeds. As you continue to pay off the mortgage, you will essentially own more of the property and the lender will own less. The idea is that if you ran into problems, the lender could force the sale of the home to get their money back.
When the loan is discharged and your final payment is confirmed and complete, you should receive a letter stating this from your lender. At this stage, the lender should do the required work to ensure its name is removed from the deeds. If this does not happen, it doesn’t affect you being the owner of the property, free and clear. However, it would cause issues if you came to sell the property. A solicitor would need to sort out any problems that might occur if the lender’s name still appears on paperwork lodged at the Land Registry. This would cost the seller money. So, it is wise to check the proper steps have been taken to properly discharge the mortgage.
A discount mortgage is a home loan offered by mortgage lenders to borrowers. It is designed to reduce monthly mortgage repayments over a specified period. This usually takes place over the first two or three years of the loan period.
Such loans are advantageous to home buyers, as they provide greater certainty over how much the borrower is required to pay each month, at least for the first few years of ownership of that property.
All lenders have a standard variable rate, often abbreviated to SVR. A discount mortgage will have a rate set below this – sometimes some distance below it. The rate paid on the loan is determined according to the current SVR set by the lender. The loan itself will be set at a specific discount. For example, a lender might offer a discount mortgage at 2% off their standard variable rate. If their SVR is set at 4.99%, the loan would be set at 2.99%.
However, this type of mortgage does not have a fixed rate applied. The idea is that the interest calculated on the loan always relates to the SVR in force at the bank or building society at that moment in time. For instance, if the lender decides to increase their SVR to 5.5%, the discount loan would then be increased to 3.5%. This is still some way below the SVR as per our example, yet it represents an increase on the payments the borrower was previously paying. As such, it is wise to be aware of the pros and cons of selecting a discount mortgage to borrow the funds to buy a property.
A Dutch auction has two meanings, depending on how far back you go. Originally, a Dutch auction related to an auction occurring in reverse. This meant an offer price was announced by the auctioneer to begin the auction process. They would then gradually reduce that price until a bid was made.
However, this original meaning has now been lost. Today, a Dutch auction refers to an informal bidding process. Typically, two or more potential buyers are trying to outbid each other to attain the same property. This is better for the seller, as it means there is more interest in the property. Therefore, they are far more likely to achieve a higher price for it.
Very often, this type of auction requires that each would-be purchaser writes their offer for the property on a piece of paper. This is then placed in an envelope and sealed, before being passed to the estate agent. There is usually a deadline for doing this; any offers received after the time and date previously given would be excluded from the process. The estate agent then opens the offers and the seller would choose the highest one to get the best price for the sale.
As such, the modern meaning for the term Dutch auction is almost the exact opposite of what it used to be. These auctions are not commonly used in the property market, although there are scenarios where they can result in a quicker sale for more money than would otherwise have been possible.
An early repayment charge is applied to some mortgages if the borrower decides to repay the entire loan sooner than the date originally agreed with the lender. However, the term during which an early repayment charge would be applied does not run for the whole loan period. It typically lasts for the length of time a deal is fixed for between the lender and the person accepting the loan.
For example, if you opted for a two-year fixed rate mortgage that would then switch to the standard variable rate for that lender, you would likely need to pay an early repayment charge if you wanted to repay the loan within that two-year period. However, loans do vary, so it is important to make sure you read the small print and to ask about any charge that may be applied should you decide to repay the loan in full.
This charge may also be in force if you pay more than the required monthly amount during a specified period. Again, the mortgage paperwork would indicate if this is the case and highlight what the charge would be.
It is possible to avoid such charges in two ways. Firstly, some loans do not have these charges attached, so you could search for a deal with a ‘no ERC’ rule attached. Secondly, you could simply plan to pay off part or all your mortgage after the specified period has ended. The charge will always apply to the agreed term of the deal you are on. It would not usually be applied if you have finished the deal and the lender’s standard variable rate is now in force for your mortgage.
This term describes any rights an individual may have over a property that is not their own. Typically, this refers to rights held over a neighbouring property. For example, it may be necessary for a property owner to gain access to their neighbour’s land for reasons specified in the easements. This may cover any repairs they must carry out to their own property. They may need to place a ladder or erect scaffolding to be able to safely carry out these repairs. Their rights to do so on their neighbour’s land should be included in the easements.
Another example of an easement on a piece of land concerns the use of a shared driveway. It may be that the property line runs down the middle of the driveway. This means one half would be owned by one property owner and the other half would be owned by the person next door. However, the easement on that driveway would allow both parties to use the driveway to reach their garages or park their cars, as per the terms stated.
There are other cases where easements are given to other people regarding a specific piece of land. A good example would include rights of way. For example, there may be a footpath or route that cuts across part of the land owned by the specified landowner. Easements can cover both public and private rights of way, depending on the situation. A private right of way may run along the rear of a section of back gardens, allowing neighbours to cut through for easier access. A public right of way might involve a footpath that links with an area accessible to the general public.
Equity is the name given to the part of a property you own. Upon buying a property with a 10% deposit, for example, you would own 10% of it with a mortgage in place to pay for the rest. Over time, you should gradually gain more equity in your property as house prices rise and you pay off your mortgage.
In the early years of a home loan, the amount owed is unlikely to change very much. However, you can still gain a greater amount of equity in the property if house prices rise.
For example, let’s say you buy a property worth £300,000 with a 10% deposit of £30,000 in place. Your loan is for £270,000. At that stage, you would have equity of £30,000 in the property. Over the early years, the value of the property rises to £350,000. Your mortgage amount remains much the same, but your equity would rise to £80,000 thanks to the rise in property prices.
As such, it is possible for the equity held in a property to fall in certain circumstances. If property prices fall, the equity will fall too. Some homeowners also borrow against the equity to release cash from the property. This can be done for a variety of reasons. Examples include releasing cash for home improvements that could increase the value of the property when selling it. Other examples include unlocking cash to help children with a deposit on their own property, or perhaps to go on a holiday of a lifetime.
The exchange of contracts occurs when the buyer and seller of a property are ready to sign their respective copies of the contract relating to the sale. Before this stage is reached, the buyer and/or the seller can back out of the sale. Hence why many people focus on the exchange of contracts as a key part of the buying and selling process.
There is one contract covering the sale, and a copy of this is sent to the legal representative working on behalf of the buyer and the seller. Many people assume the contract is binding from the second the papers are signed, but this is not the case. The binding moment comes when the solicitors exchange the paperwork with each other. When the point of exchanging contracts occurs, it is very unlikely either party would withdraw from the sale. To do so would incur steep financial penalties, hence why most sales go through without issue from this point.
Since the buyer is formally and legally agreeing to buy the property at this stage, it is vital to make sure everything has been done before signing. All surveys and searches should be complete and satisfactory, any mortgage required has been offered in writing, and the deposit is ready to be paid. The deposit is usually required once the contracts have been exchanged by both parties. The completion date is then agreed and is usually the day when the buyer can finally move into the property they have just purchased.
The Financial Conduct Authority (FCA for short) is the regulatory authority that oversees the entire financial services industry in the United Kingdom. The FCA is now responsible for the regulation of mortgage products and services. This means that every lender and mortgage intermediary must be authorised and regulated by the FCA to ensure they provide professional services. Alternatively, someone providing such services must be an appointed representative of a firm that is already authorised by the FCA.
The aim of the FCA is to ensure the financial markets work in a manner that allows consumers to receive fair services from those working in the industry. They ensure the UK financial system is run in a manner that has integrity. They also protect consumers from rogue operators and services, while encouraging competition across the marketplace. Such competition means consumers have a better chance of securing good deals in all kinds of financial areas.
The FCA has only been in force since 2013. It was created by Parliament in that year. It is responsible for regulating the services provided by over 56,000 financial services firms in the UK. When using any financial services, it is vital to make sure those services are properly regulated and authorised by the Financial Services Authority.
The FCA keeps and maintains the Financial Services Register, on which every business or individual regulated by the authority is listed. Consumers can search the register to confirm whether a company they are thinking of using has been properly registered. You can also search the register by postcode, meaning it is easier to find a local registered firm if you are looking for one.
A fixed rate mortgage describes a type of home loan where the interest rate payment is fixed for a specified period. Once that period ends, the mortgage remains in place with the lender, but it typically switches to the standard variable rate offered by that lender. This is abbreviated to SVR. Fixed rate mortgages run for at least a year, but there are deals on the market that last for two, three, or five years. Some lenders offer 10-year deals.
There are several advantages of opting for a fixed rate mortgage rather than a variable rate one. Firstly, you know what the interest will be on that loan for the period it runs for. This means you’ll know exactly what your monthly payments are, allowing you to financially plan with more confidence. Secondly, it gives you peace of mind that you are protected against any potential rises in the base rate set by the Bank of England.
You will typically find fixed rate deals are available for slightly higher rates than variable rate deals. However, you are offsetting that higher percentage with the knowledge that it will not change for however long the deal lasts. If the base rate rises, banks and building societies will very likely raise their own variable rate deals to reflect this. Those whose mortgage payments are connected to such deals would then see an immediate rise in the amount they need to pay each month. In contrast, those on a fixed rate will continue to pay the same amount they always have. As such, this type of loan offers insurance against the possibility of a rate rise in future.
The fixtures and fittings of a property cover all items that are not part of the structure of a property that are included in the purchase of that property. These can vary from one property sale to the next. Typical examples of fixtures and fittings include curtains, blinds, carpets, light fixtures, and white goods. All such items are disclosed in the fixtures and fittings list agreed prior to the property sale.
The term covers a range of items which fall into the scope of fixtures or fittings. For example, fixtures involve items that are fixed into position in some way. Fittings are items that are independent of the property, such as freestanding items. A good example would be a wardrobe left behind when the current owner moves out. If that wardrobe is a fitted wardrobe, it would be included in the fixtures list. If it was a freestanding wardrobe the owner agreed to leave behind, it would be included in the fittings list.
Oftentimes, the seller will agree with the buyer which items will be left behind and form part of the sale. The buyer must then check the list of fixtures and fittings provided before the sale goes through, to ensure all agreed items are included. This is also the point where the buyer must query anything that they are unsure of. For example, the seller may have agreed to leave the washing machine and fridge freezer behind, but they may not appear on the list.
Buyers should always check the list before signing the contract. There have been stories of sellers stripping everything out of a property before moving. Everything from lightbulbs to the lawn (yes, that has occurred) has been taken by some sellers!
A flexible mortgage is a type of home loan that allows the borrower to overpay their regular monthly payments. As their overpayments build up, they can then choose to borrow some of that money back. Other options include the chance to take payment holidays or to pay less than the usual amount in some months.
As with all types of mortgages, interest rates vary for a flexible mortgage product. However, in general, the interest rate is likely to be higher than it would be for a standard fixed or variable rate loan. As such, it is important to consider whether a flexible loan would be the best option for you. If you intend to pay the same amount every month, there may be little point in getting such a mortgage. You may be better off finding a good deal for a fixed rate mortgage instead.
However, if you want to try and pay more than the minimum amount each month, a flexible mortgage may be a good option. It might also suit those whose income tends to vary, such as freelancers and other self-employed people. The chance to take the occasional payment holiday might be attractive during certain quieter times of the year when you are earning less, for instance.
That said, there are downsides. If you did take a payment holiday, your lender would continue to charge interest on your remaining mortgage throughout that period. This could result in paying off a higher total amount at the end of the mortgage. Of course, for some, the flexibility of this loan type is worth the extra payment, but it is important to work out whether it would be the best option for you. It does make it possible to pay off your mortgage far sooner if you want to overpay on a regular basis.
A ‘flying freehold’ is deemed to have occurred when accommodation on the first floor qualifying as part of one freehold is situated directly above another freehold property offering ground floor accommodation. This unusual scenario means the owner of the first-floor accommodation does not own the land beneath their property. This would be owned by the person occupying the ground floor accommodation. The first-floor freeholder would therefore have ownership of a ‘flying freehold’. The term is used because their property is not at ground level and is therefore flying above the one below it.
Modern properties do not tend to exhibit such unusual circumstances. They tend to crop up more commonly in older properties where the original layout has been changed to provide a series of flats offered on a freehold basis. That layout could create the circumstances required to create a flying freehold.
This can create problems when buying a property that qualifies as a flying freehold or has such a property above it. Since problems with one of the two properties could reasonably create problems for the other, it is important to ensure the appropriate legal rights are in place to protect you in such circumstances.
If you are interested in buying a flying freehold property, you may well find the lender you seek to get a mortgage from will require you to take out indemnity insurance. This insurance would protect against any potential issues that could occur if the neighbour was unwilling to take on any necessary repairs to their property that might affect the state of your property. Always take proper legal advice before purchasing – or selling – a property with flying freehold status.
Freehold is the term given to a method of ownership whereby the owner has complete ownership over both the property and the land it sits on. This should apply to both the main property and to any outbuildings on the parcel of land that comes with it.
Freehold ownership is different to leasehold ownership. The latter gives the property owner the right to own the property for the term length specified. However, their rights do not extend to the land on which the building was constructed. A common example concerns a block of flats, where each flat would be on a leasehold basis.
While leaseholds are set for a specific period, freehold ownership has no limit to its length. Therefore, a freehold property and its applicable land would be owned outright, with no end date in sight for the term. In this scenario, a freehold ownership can be passed down through generations of the same family.
In some cases, other parties may potentially have certain rights of access even when a property and its land are subject to a freehold agreement. For example, bylaws may state that a public footpath crosses a portion of the land held by the owner. In this case, ramblers and walkers would legally have the right to use that footpath, although they could not stray off it onto other parts of the land covered by the freehold. Such elements should be highlighted in the details covering the land if the property is up for sale, so the potential new owners are aware of any such laws or restrictions.
A full structural survey is sometimes referred to as a building survey. It takes an in-depth look at all aspects of a property’s condition. It can take anything up to about four hours to fully inspect all areas of a property, with several days required to produce a detailed report on it.
All the main features of a property are covered by a full survey. This means the condition of the roof, the walls, and the foundations are all covered. Other important features such as the plumbing, wiring, drains, and the garden are covered too.
A further advance is an additional loan agreed with your lender that is tacked onto your existing mortgage. It is a loan taken out by the borrower after the main loan has been completed. The loan is secured against the property just as the mortgage is.
A loan of this kind can be taken out at any stage following the completion of the original mortgage. There are several reasons why this might be a good option:
Your existing lender is offering a competitive interest rate for a further loan You are happy with your existing mortgage and do not wish to remortgage your property You are happy with your existing lender and have no desire to change
Some people think remortgaging and further advances are identical. They are not. With a further advance, you are retaining your current mortgage and obtaining a further loan from the same provider. Typically, you’ll get a different interest rate for the new loan, which could be higher or lower than the one connected to your mortgage.
Such a loan is still secured against your property, however. This means you should always think carefully about why you need the loan and the importance of diligently paying it back. Some people seek an advance to find the deposit to purchase a second property, perhaps a holiday home or a rental property for example. Others use the advance to fund home improvements that may end up increasing the value of the property. A further advance is also sometimes termed a mortgage advance, but both mean the same thing.
A further advance is an additional loan agreed with your lender that is tacked onto your existing mortgage. It is a loan taken out by the borrower after the main loan has been completed. The loan is secured against the property just as the mortgage is.
A loan of this kind can be taken out at any stage following the completion of the original mortgage. There are several reasons why this might be a good option:
Your existing lender is offering a competitive interest rate for a further loan You are happy with your existing mortgage and do not wish to remortgage your property You are happy with your existing lender and have no desire to change
Some people think remortgaging and further advances are identical. They are not. With a further advance, you are retaining your current mortgage and obtaining a further loan from the same provider. Typically, you’ll get a different interest rate for the new loan, which could be higher or lower than the one connected to your mortgage.
Such a loan is still secured against your property, however. This means you should always think carefully about why you need the loan and the importance of diligently paying it back. Some people seek an advance to find the deposit to purchase a second property, perhaps a holiday home or a rental property for example. Others use the advance to fund home improvements that may end up increasing the value of the property. A further advance is also sometimes termed a mortgage advance, but both mean the same thing.
The moral of the story is to think about offering the asking price rather than going below it. While it is possible you might succeed in buying a property for a price lower than the amount originally wanted by the seller, it can backfire on you. Trying to save money on the purchase is logical, but it can lead to losing the property altogether. Before contracts are exchanged by the buyer and seller, either or both parties can withdraw from the sale without financial penalty. This means there is a risk that the seller could receive a higher offer on their property from another party. Since every seller wants to get the best price they can, it makes sense they would withdraw and go with the other buyer’s offer instead. Even if a seller seems nice and happy to accept your offer, few would turn down a few thousand pounds more for their property if someone else with deeper pockets came along. If you have found the property of your dreams, dropping below the asking price is a risky proposition, for fear of being gazumped.
While gazumping impacts the would-be buyer, gazundering impacts the seller of the property. Up to this point, they would have agreed a price for the sale and gone through many of the required stages before the contracts are exchanged. Once the exchange occurs, very few people back out, as there are significant costs involved in doing so. Therefore, anything can and does happen before contracts are signed. For the seller, gazundering can be frustrating at best and cause the failure of the property sale at worst. The buyer may have intended to drop the offer price at the last moment all along, being prepared to walk away if the seller does not cave to their demands. The temptation to accept the lower offer is significant. If the seller doesn’t accept the offer, the buyer could walk. The seller might also have placed an offer on another property – an offer they may need to withdraw if the sale is not completed. A lot is riding on the exchange of contracts, hence why some unscrupulous buyers indulge in gazundering in the hope of getting their desired property at a lower price than they originally agreed to. The process is potentially great for buyers – far less so for sellers. It is also legal.
Typically, the length of lease on a leasehold property lasts for a long period. Any period that is 40 years or less is deemed to be short. The terms of the lease should be made clear when you are buying a leasehold property. These terms should include information about the ground rent and how much you need to pay each year. Are there different types of ground rent? Yes, there are two types: Fixed ground rent Escalating ground rent The first type is preferable, since it remains fixed at the same amount each year for the duration of the lease. So, if the lease lasts for 99 years, you’ll know the amount you need to pay each year. There will never be any shocks or increases. If the lease has escalating ground rent, the terms will tell you how often the amount will rise and by how much. It is always wise to thoroughly check the terms of a lease before purchasing a leasehold property. Remember, leaseholds do not just apply to flats. Some houses have also been built with leasehold status, including escalating ground rent. This can make them harder to sell in future, and more expensive to pay for as the ground rent rises.
Such an agreement can be set up with a landlord if the person wants to rent a property. It can also more commonly be set up with a lender such as a bank or building society if the person wants to take out a mortgage to buy a property. Be aware of the risks if you are asked to be a guarantor It is easy to think you will never be called upon to repay the loan if things go wrong. In reality, no one can tell what may happen in the future. Even if your relative is trustworthy and will do all they can to pay off their mortgage, they could fall into financial hardship. If this occurs, your role as guarantor means the lender can call on you to repay the loan. This could leave you in dire financial straits, hence why it is very important to consider the potential consequences and worst-case scenario before you agree to take on the role. With young people struggling to save the required amount to put down as a deposit on a mortgage (or to get a mortgage at all), it is no surprise that guarantor mortgages are becoming more common. However, proper advice should be sought prior to agreeing to be a guarantor for anyone – even your own child.
Open G’s on a separate page
A higher lending charge, also known by the acronym HLC, is a charge applied by lenders when the loan extended to a borrower reaches a higher percentage than the typical percentage of the property value in question. A common percentage is 90% of the property value, so if you take out a loan covering more than this, it is liable to incur a higher lending charge.
The value can also be applied to the amount you buy the property for, rather than the valuation attached to it. For example, a house may be valued at £300,000, but your offer of £295,000 is accepted. If you ask to borrow over 90% of that offer amount, the higher lending charge is likely to be applied.
The fees incurred for this are usually at a greater percentage rate than the term given for the rest of the mortgage. The charge only applies to the amount over the threshold. For example, if you bought a property for £295,000 with a loan for 85% of that amount, no charge would be applicable. However, if you could only provide a 5% deposit, you would need a 95% mortgage deal. This would mean the additional portion of the loan required over the 90% threshold would have the higher lending charge applied, rather than the whole 95%.
Buyers looking to borrow more than 90% of a property value may be asked to provide insurance. This is designed to cover the lender in the event you cannot meet your repayments and your property is repossessed. It represents the greater risk involved in loaning you more than the usual percentage the lender would be willing to provide.
A property is referred to as an HMO if several people live in it independently of each other. This describes a House of Multiple Occupation. There are many categories of housing that could be described in this manner. However, they are all occupied by people who are not from the same household.
The term is used to describe certain properties in the rental market. According to information on the official government website, an HMO is a property rented to three or more people sharing common facilities but rent their own rooms there. Common shared facilities would include the bathroom and kitchen areas.
Landlords in England and Wales who would like to convert a house to several people in this manner may require a licence to do so. Typically, the number of tenants intended to live in an HMO property would number at least five. However, some areas require landlords of HMOs to have a licence if they rent a property to fewer people than this. Regardless of where you live in England and Wales, if you are a landlord and you wish to rent out a property of this nature, the first step should be to confirm whether your council requires you to hold a licence for an HMO. It is always best to officially confirm this, even if you don’t think you need the licence.
Even if not all tenants share common facilities, your property could still be regarded as an HMO if some tenants share in this way. if you hold a licence, it will run for up to five years and must be renewed before it expires. Furthermore, if you have more than one property, a licence would be required for each one if it falls into the definition of an HMO.
A holding deposit describes a payment given to a landlord or agent to make sure a rental property can be reserved for them. It refers to a payment from the person wanting to rent the property, made to either of the above relevant parties. The landlord or agent would then take the property off the rental market. However, any new enquiries received for that property should still be recorded.
If the letting goes ahead, the holding deposit should be used in payment for part of all the main deposit for the property or towards the rent.
What happens if the letting does not go ahead?
It depends on who is at fault for the situation. If the prospective tenant was at fault, the landlord has the right to retain at least part of the deposit paid, if not all of it. This provides a measure of compensation for time wasted.
From the landlord’s point of view, it is important to take no more than around one week’s rent as a holding deposit. This would be a fair amount in compensation if the would-be tenant pulled out.
If the landlord is at fault, or an agent acting on their behalf, the holding deposit paid by the person wishing to rent the property should be returned to them in full.
The importance of a Holding Deposit Agreement or receipt
A document should be drawn up in writing that details the consequences if either party pulls out of the tenancy agreement. The agreement should include information on when the deposit should be returned or retained.
Even when a holding deposit is placed on a property someone wishes to rent, it is not legally binding. The tenant is not required to go ahead if they decide not to, and neither is the landlord or their agent.
A home buyers report is a type of survey conducted on a property. It is an intermediate-level survey typically offered by a mortgage lender. The lender’s surveyor usually carries it out.
It is not as involved as a full structural survey. It only deals with areas of the property that can easily be accessed. This does involve some structural elements, but it does not offer the level of information and insight a would-be buyer would get from a full structural survey. No in-depth investigations are undertaken, and the water, drainage, and heating systems would not be checked or tested.
The report sometimes includes a valuation for the property being checked. In some cases, this may reveal the value of the property is lower than the sum offered to purchase it. If this is the case, you could alter your offer to reflect the information obtained by the report.
The home buyers report is a good option if you are looking to purchase a standard property that appears to be in good condition. However, if you are considering buying an older property, it is wise to opt for a full structural survey instead. This will provide far more information on the structural condition of all aspects of the property. A home buyers report would not be the best survey if you are thinking of buying a property that is several decades – even centuries – old.
Of course, there are always risks. If you purchased a standard modern property following a positive home buyers report, you might still encounter issues the report would not have covered.
This type of insurance is designed to provide cover for all the contents inside the home. It typically covers damage incurred to all included items and the theft of such items if the home should be burgled.
There is no legal requirement to have contents insurance. However, the cost of replacing lost, damaged, or stolen items can be significant. There are lots of affordable policies on the market today, so shopping around is a good idea if you want to get cover.
Many home contents policies provide cover for items if you take them outside the home too. Typical examples would be covering smartphones when you carry them with you during the day. You may also be covered for taking items such as cameras and iPads on holiday.
Outbuildings such as sheds and garages can also be covered by this type of insurance. The best bet is to check the terms of any insurance policy you are considering taking out. You can often get quotes online and adjust the amount of cover required. Doing so will alter the amount you pay for the policy, but you should make sure you are getting the amount of cover you need. You might need to specify other items separately, such as bicycles kept in the garden shed, for example. Some policies include these anyway.
Another point to consider is whether you have any valuables in the home. Items such as expensive jewellery, collectables, or other hard to replace objects may require additional cover or even a separate specialist contents insurance policy. Remember too that you may only get the current replacement value for anything lost, damaged, or stolen. If you want a new-for-old policy, this could cost more, yet it provides greater peace of mind should you ever need to claim.
Home Envirosearch is a report giving information on the history of a named neighbourhood in the UK. It covers such aspects as flood damage, subsidence, and land contamination that may have occurred in the area in the past. You might also see it referred to as an environmental search.
The report covers all historical and potential risks relating to environmental issues. For example, if an area has suffered from flooding in the past, there is a greater chance it could be affected again in future. Similarly, if an area has many reports of subsidence, there is an increased risk that any property in that area may also be affected. Another example would be the presence of mining activity in an area in the past. Even if no mining occurs there today, there could be tunnels underneath a property that could increase the risk of problems in years to come.
The idea is that historical information regarding a specific area can point to likely risks that could occur in the future. Current risk factors are also typically covered by a Home Envirosearch report. For instance, are there any power lines directly over the property for sale? Are there waste management sites within the immediate vicinity? All these factors and other similar ones will be highlighted in the report.
If an issue is raised during the report, it may not necessarily lead to a property sale falling through. However, it does mean the buyer would be aware of all potential risks of purchasing the property if they decide to go ahead with the sale. A lot depends on the severity and frequency of any issues that come up.
An Initial Disclosure Document is a document designed to help you compare the financial services available from a service provider, such as a bank or building society offering mortgages. The document also covers all fees and charges made by lenders and intermediaries.
The document was created by the Financial Conduct Authority (FCA). The idea is that it provides a clear and understandable document for consumers to read. For example, if a lender is offering mortgage products, it must disclose whether those products are offered from the entire marketplace, from a portion of the marketplace, or just from their own selection.
It also highlights whether any fee is required to be paid to receive the stated services from the provider. For example, a lender may not charge for giving you information about various mortgages. However, each mortgage may incur its own fees, so these would be listed in the information given for the relevant mortgage.
The FCA is intent on making sure all kinds of financial products are easier for consumers to compare and understand. The IDD is a key part of this process. It makes clear if there are fees involved, and if there are, how much they amount to. It also highlights information about the regulation of the specified business or company. This can then be checked and confirmed with the FCA, to verify you are indeed dealing with a registered and regulated financial service. Disclosure of the correct information is the key feature to consider here.
IFA is an acronym for an independent financial advisor. There are two kinds of advisers working in the financial area, with the other being a restricted adviser.
There are many advantages to seeking advice from an IFA. The clue to the main advantage is in the name: They are independent and not attached to any lender or business. This means they can cover the whole market rather than just part of it. If you sought advice from a restricted adviser, they would only be able to recommend a limited range of products. These products would be ones from whichever lenders they are attached to.
An IFA is the best person to go to if you are looking to buy any type of financial product such as a mortgage, a loan, or a pension. You can be sure they will discuss your needs with you and then review everything on the market to identify the best options. They can usually find deals and offers that are not well known. It is easy enough to source products such as mortgages from banks and building societies you’ve heard of. However, an IFA will provide you with information about many other options too – and your ideal loan could be among them.
There are fees involved in using the services provided by an independent financial adviser. You should make sure you are clear about these before you start. You can usually get the first meeting free of charge, but make sure this is the case before you visit. After that, you could pay an hourly fee, a fixed fee covering the services you require, or a percentage fee relating to the value of the product they help you find.
An informal tender process is sometimes used to sell properties. Each interested party who would like to put forward a bid for the property in question is required to do so by a specific time and date. Each bid must be placed in a sealed envelope. This ensures none of the potential buyers would know what any of the other participants are offering.
The process is called an informal tender because it is not legally binding. If a buyer makes an offer as part of the process, they have the right to withdraw it even if the seller chooses their offer and accepts it. Similarly, the seller may consider all the offers they receive and decide not to accept any of them. Hence, the informal tender term.
When a seller decides to use the informal tender process, they will usually pay a fee to the estate agent to conduct the process on their behalf. This is done instead of giving the estate agent a percentage of the price the property eventually sells for. The property for sale is then offered via an Open House process, where anyone interested in making an offer can visit and look around to view it in more detail. They do not need to make an offer by doing so, and as previously mentioned, they would not be held to any offer they did make. However, they must be able to confirm them can afford to buy the property. This ensures their offer can be viewed as a serious one. Only after the designated viewing period has ended does the seller open all the sealed bids and select one.
It was quite hard finding a picture of an informal tender process so instead we have a picture of a tender moment 🙂
An interest only mortgage involves repaying just the interest on the mortgage debt each month. The amount borrowed does not decrease over the term of the loan. Alongside the monthly interest repayment, you will need to put money into a separate investment vehicle. This is designed to sufficiently increase in value to provide enough money to pay off your loan when your mortgage comes to an end.
For example, if you take out an interest only mortgage of £300,000, you would pay the interest due on that amount every month, but the capital amount would stay at £300,000. You would need to invest enough in a suitable financial product to generate the £300,000 required at the end of 25 years (or however long you took out the mortgage for).
You are responsible for making sure the capital is repaid in full when the mortgage term is completed. It is highly advisable to seek professional advice about which investment to opt for before you choose this type of mortgage product.
Today, most buyers looking for a loan to help them buy a property opt for a repayment mortgage rather than an interest only loan. This means part of the capital is repaid each month too, so at the end of the term, the entire amount is cleared. These loans involve a higher monthly payment than interest only loans, but there is far less risk involved providing you keep up with your monthly payments.
As some have found to their cost, it is possible to fall short of the sum required (sometimes well short), and that can put the very home you strived to purchase at risk.
A joint mortgage is a home loan that is taken out by more than one person. Both parties will be mentioned on the paperwork. This type of mortgage could be taken out by any combination of two or more people. It is common for married couples to have a joint mortgage, for example, but the loan could equally be taken on by family members and even friends. Business partners might also co-sign a mortgage application if they wish to buy a property together as part of their business ventures.
Having a joint mortgage means that both people share the responsibility for making the monthly payments. This means if one person does not or cannot meet the repayments, the bank or building society can ask the other person to pay them instead. Both are responsible, yet if one disappears for any reason, it could potentially leave the remaining party in dire financial straits.
There are several reasons why joint mortgages can be beneficial compared to solo applicants for a home loan. The main reason is that when two or more people apply for a mortgage, the income of both will be considered when calculating how much they can borrow. There are many cases where one half of a partnership (whether in marriage or otherwise) could not afford to buy a property alone. However, when the income of both partners is included, a purchase becomes affordable because of the higher figures involved. This means even lower-income families can often afford to buy when it would otherwise be impossible.
A joint sole agency occurs when someone with a property to sell hires two estate agents to market and sell that property. In this situation, both agents would receive a commission regardless of which one finds a suitable buyer for the property.
While it sounds as if the seller must pay up twice, this isn’t the case. Instead, the agents agree ahead of time to divide the fee between them when the property sells. Alternatively, they may agree the person who sells the property takes the entire commission fee. The ratio decided upon is agreed in advance with the seller. The terms are written into the agreement, so each party knows what the outcome will be when the property is sold.
The joint sole agency agreement is one of three methods that can be used when trying to sell a property. The other two are using a sole agent or a selection of agents (often called a multiple agent approach). With a joint sole agency option, there are two estate agents involved. If you opt for more than that, you’re using the multiple agent approach.
Sellers who are interested in taking this approach should be aware that both agents must agree in advance for it to work. If one rejects the idea, the seller would either need to find another one who would agree to it or go for another option. Make sure you know what the commission would be on the sale if it goes through. The amount would then be divided as set out in the agreement or kept by the estate agent who found the buyer.
While many rental properties are taken on by single tenants, some qualify as being rented by joint tenants. In this case, one tenancy agreement is signed by two or more parties depending on the individual situation.
This form of tenancy is frequently used by couples. It ensures that if one partner dies, the property automatically passes to the other. If only one partner had signed the tenancy agreement and that partner died, the surviving partner would have no claim to remain in the property. There is a chance they could come to an agreement to continue renting it from the landlord, of course. However, this would create additional stress and worry at a time when neither would be wanted.
A joint tenancy can also be taken on by other groups of people. However, it is very important to consider this carefully before signing as a joint tenant. There are risks involved if one or more other tenants in the same property should disappear or fail to pay their part of the rent. If this occurred, the landlord would be able to seek the outstanding monies from you and from any other tenants in the property who had signed that agreement. This may leave you in financial difficulty and you could not refuse to pay since the terms would have been clear in the agreement.
The same applies if one tenant causes damage to the property or invites someone to visit who does something similar. The landlord could again seek compensation for the damage caused – again from the other tenants in the property.
The alternative to joint tenants is Tenancy in Common.
A Key Facts Illustration (KFI) is a document that provides you with lots of key mortgage information, it may also be referred to as a European Standardised Information Sheet (ESIS). The document format was developed to help you compare the costs and features of several mortgages provided by one or more lenders. With the report in hand, you’ll be able to compare different home loans much more easily.
When you are looking for a suitable mortgage, it is advisable to source quotations from several places. Each bank or building society you approach is required to provide you with a KFI document for each mortgage product you want to know more about.
Some people use the services of a financial adviser who can search larger portions of the market on their behalf. In this case, the financial adviser must provide you with a document for each product. Typical items featured in the KFI should include any charges applicable for arranging that mortgage or service. It should also include information on whose products are included and whether they come from the entire mortgage market or only from one provider. Some advisers can only recommend from a limited portion of the market, for instance, and this will be highlighted on the report. The information is also written in an easy to understand format, rather than using complex phrasing.
The idea is that by receiving one or more KFI documents on a range of mortgages, you can more easily compare one with another. It is easy to become confused by differing interest rates, charges, and other features of a home loan. The KFI aims to dispel any confusion and to make it easier for you to find the best option that fits your circumstances.
A land certificate was an official certificate issued by the Land Registry. The document was intended to prove who owns a property within England or Wales. It could also relate to the ownership of a piece of land.
If a mortgage or other charge was placed on a property, i.e. a secured personal loan or similar product, the land certificate would be replaced by a charge certificate. This would highlight the fact that another party had an interest in that property or land relating to the loan taken out to purchase it. The charge certificate would be sent to the lender rather than the person owning the land or property.
However, today, the Land Registry doesn’t use either of these certificates anymore. The Land Registration Act 2002 rendered them obsolete. Today, land titles can be sought by owners to prove they have legal ownership of the property or land in question.
If an owner already possesses a land certificate that they were issued prior to the Land Registration Act 2002 being brought in, they can keep it, but it is no longer recognised as such under the law.
Anyone wanting to know whether a property or piece of land is registered can contact HM Land Registry to find out more. The Land Registry has information on approximately 83% of property and land throughout England and Wales. Even if you find an old land certificate, it will be dated by many years and may no longer be accurate. Therefore, getting a copy of the title register held by HM Land Registry is the best place to begin when sourcing up-to-date information.
HM Land Registry is a government organisation that registers all ownership details relating to land and property throughout England and Wales. It maintains the Land Register, which keeps titles relating to land and property in England and Wales. Each title shows who has ownership of a specific piece of land or a property.
Whenever a piece of land or property is bought or sold, details of the changes must be relayed to HM Land Registry. This can now be done online by following the steps on the official website. For example, someone selling a property they hold ownership of must tell Land Registry when they relinquish that property to someone else. The details of the new owner would then be relayed to the Land Registry, so the property or land information can be updated in the register.
While the owner of a parcel of land or a property will be noted on the register, any other party with a vested interest in that land or property will also be included. If you purchase a property with the aid of a mortgage, for example, the lender’s details will also be added to the register. This occurs because the lender would have an interest in recouping their money if you were to fall behind with your mortgage and the property was repossessed and sold. The same applies if a secured loan was put in place.
Once a mortgage is completed, the details of the lender should be removed from the Land Register to reflect this. The lender should get in touch with HM Land Registry to ensure this is done.
This is a fee payable to the Land Registry to allow them to register your information if you buy a property or change mortgage lenders. HM Land Registry provides an up to date list of fees on its website, covering all common applications relating to their services.
The fees are divided into two areas – Scale 1 fees and Scale 2 fees. Scale 1 relates to the first registration of a new property, along with other registry requirements such as leases and surrenders. Scale 2 relates to transfers of estates or charges that have already been registered. It also covers various other applications such as transfers where money is not a consideration.
Fees are provided on a sliding scale in each case, with more expensive land or properties incurring a higher fee for registration or changes to details. If you voluntarily register a new property for the first time, there is a reduced charge for doing so. If you apply online using their portal, it is cheaper to do so in several circumstances (although not in all).
Some applications to the Land Registry do not incur a fee. A full and up to date list of these examples is given on their official site. You can also read through examples of various applications, so you can see where your own fits into the mix. All charges on the website relate to applications made within England and Wales. There are also various links to other information about the Land Registry and the services it provides for a fee.
Some properties are bought and sold on a leasehold basis. When this occurs, it means the property is bought, but the land on which it stands is not part of the purchase. The land is owned by the landlord, and therefore the property owner will typically pay ground rent or a service fee to the landlord to reflect the leasehold status. The amount paid in these fees can vary hugely between properties, depending on who the landowner is.
If you are looking to buy a property and you find a leasehold you like, it is important to find out what the length of the lease is. There are many possibilities here, but the shorter the lease is, the harder it can be to get a mortgage for the property. Oftentimes, leases run for 90 or more years though, perhaps even for several hundred years in some cases.
Flats are often sold on a leasehold basis, because several flats are built on the same land. Since flats are organised on floors above one another, the leasehold status makes sense in this case. While housing developers did go through a stage of building new houses on a leasehold basis, this will now be banned by the government.
While flats are commonly available on a leasehold basis, it is important to consider what this means for you as a flat owner. You must adhere to all rules laid down as part of the lease. For example, you may not be able to keep pets in the property. Always read these rules carefully prior to putting in an offer for such a property, especially regarding the length of time remaining on the lease.
Life assurance is a form of insurance that provides a payout when the policyholder dies. Such policies can be created to run alongside your mortgage. It means that if you die, the policy will pay out enough money to clear or pay off part of the outstanding mortgage debt.
Life assurance often gets mixed up with life insurance, yet the two do have differences. Insurance is designed to provide a payment upon death if the policy is still active. Policies can provide a set amount for the duration of the policy or be agreed on a decreasing basis. This means that as the mortgage drops (usually the loan the insurance is designed to cover), the insurance payout would drop in line with it.
If you choose life assurance instead, it means you will be covered until the day you die. Even if you pass on aged 92 and your mortgage is long since paid off, the life assurance would pay out and be added to your estate to be divided between the people named in your will.
Life assurance does, therefore, offer more benefits than insurance would. It is guaranteed to generate a payout upon death, whenever that may be. This does mean you will be paying monthly fees for that privilege, of course. If you simply want to make sure a payout would be triggered to cover the mortgage in the event of your death, a life insurance policy may be better for you. It is wise to seek advice on the matter before making your selection.
A listed building is one that is recognised and listed as being of special historical or architectural interest. Listed status means the building cannot be knocked down or altered in any way unless the owner has previously received local government consent to do so.
Listed status across England and Wales falls into three categories. These cover Grade I, Grade II*, and Grade II listed buildings. Grade I is the rarest, with only around 2.5% of all listed buildings making this grade. Most listed buildings fall into the Grade II listed area, while only a few (around 5.5% of the total) are recognised as Grade II*. (A similar system operates in Scotland, although here the buildings are listed in Category A, Category B, and Category C.)
The term ‘listed building’ is somewhat misleading in some cases. Most people assume it is only buildings that can be listed. However, the official definition of a building states that a ‘structure or erection’ can qualify. For example, a bridge dating from the 1600s could well be listed.
If you are thinking of buying a listed building that falls into any of the above grades, you should consider whether it would make things more complex as an owner. Very often, it does, as there are things you would not be able to do without seeking prior permission. Even then, you may find certain things would be approved only if you did them in a certain way. Listed building consent would need to be sought before doing anything inside or outside the property.
Loan to value is often expressed by the letters LTV. It describes the cost of the mortgage as a percentage of the value of the property it is attached to. For instance, if you took out a mortgage worth £80,000 and your property was valued at £100,000, your loan to value percentage would be calculated at 80%. The percentage should always be less than 100%, since most lenders will not consider lending the full value of a property.
The loan to value percentage can vary markedly depending on how much you can put towards the cost of the property. Many first-time buyers opt for a 95% LTV deal, opting to put forward a 5% deposit and to get a 95% mortgage. However, the more you can put down, the better the deals are.
For instance, lenders typically offer better interest rates for lower LTV values. Some deals are only available to those who can meet the terms for a 75% LTV or even a 60% LTV, for example. A 60% loan to value deal would require the buyer to put forward a deposit worth 40% of the property value. The remaining 60% would then be covered by the mortgage.
Most buyers will have an idea of the percentage of the property value they can meet by way of a deposit. This could come from savings or from the sale of their existing property. They can then take the time to see which deals from which lenders are the best ones on the market. Lower interest rates are typical of lower LTV values; for example, lower rates are usually seen for a 60% LTV deal compared with a 95% LTV deal.
When a would-be buyer is considering purchasing a property, their solicitor should undertake a series of searches to find out more about the property. One of these is a local authority search. The search is split into two portions. The first one is known as a LLC1 search and looks at whether there are any restrictions placed upon the property or the land it sits on by the local authority. For example, if the building is listed, it would show up in this search.
The second portion is known as CON29. This covers any local authority plans to make changes to local roads, rail, or other nearby structures. For instance, if the local council was planning to build a new road along the rear of the garden at the property, it should be flagged as part of the local authority search. Other elements are covered by this portion of the search too. For example, if the property stands on contaminated land, this would be noted during the search.
As such, the local authority search is a very important piece of the puzzle to get into place if you want to be sure there are no issues (and no future issues) with the property you intend to buy. Even something as simple as a tree standing outside the boundary of your property could have a profound effect. That tree may look lovely now, but if it has a tree protection order placed on it by the local authority, it cannot be cut down, even if it eventually causes problems for your property. It could reduce daylight coming into your home, for example.
A maintenance charge is sometimes called a service charge, but both relate to the same thing. It is a charge that covers the costs of repair and maintenance of the building concerned. This applies to external portions of the building, along with all communal areas that are indoors, i.e. communal entranceways, stairwells, and so on. If a lift is provided, the charge would apply to maintaining this equipment as well. Other common features include the roof, drainage, guttering, and so on.
Maintenance charges are usually applied to flats and apartments. The land on which they stand is owned by the landowner, while the flat owner owns the property. This is known as a leasehold. These scenarios lead to a maintenance charge applied by the landowner to cover the necessary repairs and maintenance the building would require over time. The tenant or leaseholder would be required and expected to pay the service or maintenance charge. They would be informed of how much it is and how often it should be paid.
Most charges are made either annually or every six months. It is quite common for the landowner to seek the payment in advance of having work done on the properties. However, in some cases, if a big bill comes up, such as for having windows replaced (if leaseholders cannot do so themselves), there might be a larger request for payment. Some landowners hold money in a sinking fund to offset such instances, although this can only be done if the lease permits it. It is always advisable to read the terms of a lease carefully before purchasing a property on a leasehold basis. It should give details of the maintenance charge and terms.
There is some confusion over the official definition of a maisonette. Technically speaking, a maisonette is described as an apartment situated over two levels. It has its own access rather than relying on communal stairwells and shared access with other apartments – another feature that marks it out as a maisonette. However, the term is often used to describe any property that is spread over two levels. Such a property may or may not have separate access in this instance.
A maisonette is therefore different to a standard flat or apartment. A traditional flat will always have shared access, i.e. a communal entrance that leads to that flat along with several others, usually over several floors. Strictly speaking, a maisonette does not have this feature, although some people do refer to properties over two levels that do share an entrance as maisonettes. This is where the confusion has occurred over the years.
Some single-level flat-style properties with their own private entrances are also called maisonettes in some situations. It could reasonably be argued that the style of entrance is more indicative of a maisonette than a flat, which would always have shared entrance points.
If you see a listing in an estate agent for a maisonette, it is a good idea to check the presentation of the property. Is it spread over one floor or two? What kind of entrance does it have? The word maisonette may be misused, but the most important thing is to know what you are viewing if you see a property described as such. You’ll want to know whether its features would suit you.
This is a method of working out the interest on a mortgage on a monthly basis. It is quite common for a lender to calculate the applicable interest each month, rather than annually. The lender will take the interest rate applied to the loan and work out the annual amount of interest due. They would then divide it by 12 to get the amount of interest due each month.
It is also possible to work out daily interest thanks to the improved computer systems now in use. Not all lenders do this though, so you might want to ask your lender how they calculate interest, so you know what to expect.
While interest is applied to all mortgages, it is important to note that repayment mortgages work differently to interest-only ones. The latter require you to pay off only the interest due on the loan each month. The capital amount remains unchanged, so you must put other methods in place to ensure you have the means to clear the debt at the end of the term.
With a repayment mortgage, most of the initial repayments will cover the interest and won’t touch the capital amount borrowed. However, as the years go on, the balance tips in favour of the capital, reducing it quickly to clear the mortgage by the end of the term. So, while monthly interest applies in each case, it works differently depending on the type of home loan you have got in place on your property.
A mortgage deed is a legal document that refers to the mortgage lender’s interest in the property. If the homeowner has sought a mortgage to help them buy their home, it means the lender of that money has an interest in the property. If the homeowner cannot keep up with their payments, the lender would seek repossession of the property to recoup their money.
The deed is not a long document – it typically only covers one or two pages. You should read it carefully prior to signing it. It highlights the terms of the loan you have accepted to help you buy the property. Once signed, it acts as legal proof that you agree to the terms laid out in the mortgage.
As such, the deed will clearly state your name and address and the name and address of the lender of the mortgage as well. It also states the exact sum you are borrowing from the lender. The terms of the deed are also listed and should be read and understood prior to signing. The document basically states that the lender has an interest in the property because they have lent the money to make the purchase possible. So, while you own your property and pay the mortgage on it to make this possible, the deed confirms the lender you chose also has an interest in it. Once the loan is repaid in full, this would no longer be relevant as you would own the property outright and the lender would no longer hold an interest in it.
A mortgage indemnity guarantee is a form of insurance designed to protect the lender who has granted the mortgage to the homeowner to buy their property. Not all property purchases with a mortgage attached require this guarantee. It depends on the loan to value ratio for an individual situation. The higher the LTV is, the more likely it is your lender will require you to take out suitable indemnity insurance before they will agree to provide your home loan. Typically, the LTV value is of around 75% or more in this case. The insurance is also sometimes referred to as a Higher Lending Charge or as an MIG policy (mortgage indemnity guarantee).
The most important element to remember with this type of insurance is that it works in the opposite manner to most other insurance policies. If you insure yourself against loss of some kind, that policy is going to pay out for you if you find yourself in the conditions covered by the policy. For example, if you pay for contents insurance, that insurance policy pays out if your home is broken into and items are stolen.
A MIG policy does not work the same way. In this case, you take out the policy and pay for it as you would with any other policy. However, since it is designed to protect the bank or building society lending you the funds to buy your home, they are the ones who would benefit from a payout if something went wrong and you could not meet your mortgage payments. The amount you would pay for the policy depends on the provider, but it usually represents a percentage of the loan amount that goes above 75% of the loan to value ratio.
A mortgage offer is an offer made to a would-be home buyer to cover the cost of buying a property. If you are looking to buy a property, you would need to apply to a lender to see how much they would be willing to lend you. You must complete their application forms and provide all the necessary paperwork to support your application. This would include evidence of income and outgoings, so the mortgage lender can see that you would indeed be able to afford the amount you wish to borrow.
The time taken to receive a mortgage offer depends on how complex your application is and whether you provide everything required to start with. It is important to note that an offer in principle is not the same as an official offer made by a lender. It is much quicker to receive an offer in principle, yet it may not match the final amount the lender is willing to grant you. The lender gives you an idea of what they might lend you based on an initial summary of your financial situation. You must then make the official application to be able to receive a formal mortgage offer.
Basic checks are made into your financial situation prior to providing you with an offer in principle. Following the formal application, you would then receive a mortgage offer. This is typically valid for at least three months, but some lenders increase the validity to as much as six months. Always check with your lender to see how long your mortgage offer will last.
This is a type of insurance designed to cover your monthly mortgage payment for a specified time, typically one year. For the policy to pay out, you must meet the terms of the cover. This usually means being made redundant, being incapacitated and unable to work because of an accident, or becoming ill.
Since the mortgage payment is usually the biggest financial outgoing most people have, MPPI provides peace of mind that it would be covered for several months if something unforeseen happened. The one-year term is usually the longest you can expect it to pay out for.
This is not a required form of insurance. If you already have savings put by to cover being out of work for any reason for a year, you may not wish to pay the monthly premiums for additional cover. That said, it is worth looking at how much your monthly mortgage payments are. You could cover part of those payments with your savings and get a suitable MPPI policy to cover the remainder. It’s also worth exploring how much redundancy money you would be entitled to if you lost your job. This might be enough to cover your payments for several months. This is particularly important since MPPI policies don’t usually kick in for a few months anyway.
It is very important to read the terms and conditions attached to a policy of this kind. Some cover illness only whereas others cover unemployment. More expensive policies cover these and provide accidental cover as well. Make sure you know what you are buying and what the monthly premium would be. Furthermore, some policies only cover specific medical conditions and exclude others. All the details should be listed in the small print.
A mortgage valuation is requested by the bank or building society that is considering lending you the money to buy a property. The valuation is designed to provide the lender with appropriate information to decide whether the property is safe to lend on. It will also provide the current market value of the property. This means the lender will find out how much it can loan based on that market value. The valuation takes place for the benefit of the lender rather than the benefit of the would-be buyer.
You would typically pay for the report to take place, although it is unlikely you would receive a copy. You may not even see what the surveyor has written about the property. The report would include details of the condition of the property, which could affect its value. For example, if significant work was required to make the property habitable, it would be valued at less than the amount it would be once the work was completed. The condition of a property could influence whether the lender goes ahead with a mortgage offer or whether they decide to revise down the amount they are willing to lend.
However, a mortgage valuation does not go into the same depth a survey would. If there are obvious issues, these will be noted in the report, but anything else would not be. A lender would not opt for a full structural survey, for instance, as this doesn’t provide the likely value of the property. They only require enough information to base their mortgage offer on if they decide to provide the applicant with one.
A multiple agency scenario describes a situation where you employ the services of more than one estate agent when selling your property. The agent who succeeds in selling your property will then take the whole fee for doing so.
There are advantages and disadvantages to adopting the multiple agency route when selling. On the positive side, it could mean you can sell your home faster, as details of the property should reach more people. However, the negatives are that you may end up paying more in fees than you would if you stuck with a single estate agent. It also tends to give the impression you are having trouble selling your property, even though this may not be true. Prospective buyers might receive information about your home from several estate agents, which could make you look desperate to sell for some reason.
Buyers also tend to be less confident when they receive details of the same property from several sources. If they have received information from more than one source, other would-be buyers will too. This means there could be an increased chance of another buyer appearing, making it more difficult to place a successful offer on the property.
That said, it can also depend on the state of the market. The multiple agency approach tends to work better when there are lots of properties available in a sluggish housing market. It ensures the property is seen by as many people as possible, thereby raising the chances that someone will take interest in it.
Negative equity describes a scenario whereby the value of the outstanding mortgage on a property is worth more than the current market value of that property. This usually happens when property prices dip. The situation makes it far harder to sell your property, since you would owe more than the amount you would receive if you sold it.
For example, let’s assume you bought your property for £250,000 with a mortgage of £225,000. Property prices fall over time and your property is now worth around £200,000. If your mortgage remains above that level, for example at £220,000, you would be in negative equity. If you sold your property, you would need to repay the bank the remaining mortgage of £220,000. Since you would only receive £200,000 from your house sale, you would need to find the £20,000 difference from elsewhere to pay back the amount you still owe. Hence why many people in negative equity end up remaining where they are in the hope property prices will rise again.
You will also find it very tricky to move onto a different loan if your existing deal runs out. Few lenders would be happy to allow you to switch loans when you are in negative equity. This means you could end up with higher monthly payments that would complicate the situation further. There is a possibility you could get a negative equity mortgage (a loan specifically designed for this situation), but they are rarities on today’s market. The best way to escape is to make additional mortgage payments if you can. These would clear more of your debt faster and return you to positive equity sooner. Rising house prices would also help if the market changes once more.
NHBC stands for the National House Building Council. The NHBC was created in 1936 and leads the market in providing a warranty scheme for new properties. This provides cover against all major structural defects for the first 10 years of the property’s life.
NHBC is an independent body. They work hard to ensure the standards for new builds are as high as possible. They have created the Buildmark warranty and insurance product to make sure buyers of new properties are fully protected against potential building defects.
They also have a builder register which includes the names of all builders in the UK that are registered with them. You can search the register by entering the company name, city or county, and their registration number if known. There is no charge for this service, and it can be done online.
The Buildmark cover provided by NHBC is created to help the process of securing a mortgage. It provides the lender with confirmation that the property is covered in case anything should go wrong with it. Buildmark provides a two-year warranty on a new property and an additional eight years’ worth of insurance after that. The cover begins when contracts are exchanged on the property. Cover is typically available for new builds, but it can also be applied to newly converted homes. The maximum period of cover is 10 years. It also provides deposit insurance, covering the value of your deposit in case the builder goes out of business before you complete the process of buying the property.
A non-resident landlord is someone who owns a UK property and rents it out to a tenant but lives elsewhere for over six months in the same tax year. The non-resident landlord description is recognised by HM Revenue and Customs (HMRC).
It is very important to check whether you meet the description provided by HMRC. You do not need to live in a main residence in another country to meet the requirements, but you do need to fulfil the requirement for being abroad for over six months. Remember too that the description refers to the tax year rather than the calendar year. You should also note that you can have a residence in the UK for the purposes of tax, providing you do not spend more than half the year there.
The official government website has various forms you can review and fill in if this description applies to you. If you are a non-resident landlord, you can apply to receive the rental income gleaned from your UK property (or properties) without having tax deducted by HMRC. The form for this is NRL1 if you are an individual. There is a separate form for companies with properties bringing in rent from UK properties, known as NRL2. Separate forms exist for letting agents as well.
The scheme is obligatory to join if you meet the requirements set up for it. As such, you must make sure you complete the necessary paperwork in good time and register as a non-resident landlord with HMRC.
Office copy entries are available for properties that have registered titles with the Land Registry. If someone is selling their property and finds a buyer, their solicitor must apply to get the relevant office copy entries from the Land Registry. This must be done prior to the preparation of a draft contract for the property.
The entries confirm who owns the property and are therefore important when the vendor comes to sell it. The documents confirm that the present owner does legally own the property and therefore has the right to sell it to someone else if they wish to move.
The proper title for the document is the Official Copy of Register of Title. While many people today still refer to a property’s title deeds, the office copy entries are the modern version of those. While the title deeds were once physical documents, the office copy entries are digital copies. It is quite rare for the Land Registry to have physical copies of the appropriate entries nowadays.
Office copy entries must be official in order to be recognised as valid documents. While they consist of several pages and sections, they must show the heading Official Copy of the Register of Entries at the top of page one. If they do not have this or have anything else written there (even if similar), they won’t be valid as evidence that you own the property being sold. Your solicitor will be aware of this and will confirm they have a valid copy before proceeding.
An ombudsman is an independent professional body set up by law to assist when disputes arise between consumers and firms. Their independent nature means they can remain impartial and review each individual situation as it presents itself. Examples of industries in which an ombudsman is present and can help settle disputes are those relating to estate agents, solicitors, and insurance companies. They are present in many other industries as well.
When a consumer has cause to complain about the service they have received, it is important for them to have someone to turn to. They may feel they cannot approach the business they have dealt with. Alternatively, they may approach the business to try and resolve their complaint. However, this approach may not garner the results they would like. They may feel they have not been listened to and would therefore seek an independent source of advice and support to make sure their case is heard.
The aim is for the ombudsman to listen to the position occupied by each side. They will look at all the evidence pertaining to the situation and try to find a resolution that is fair to both.
Seeking ombudsman services should only be done after trying to reach a resolution with the company or business you have dealt with. It should be used as a final port of call following failed resolution or response from the person or business you have interacted with. It should never be used as the first step in making a complaint.
Outline planning permission is a type of planning consent that is subject to certain reserved matters. Examples include the design, appearance, or siting of proposed buildings.
This contrasts with detailed planning permission. An outline planning permission proposal would be put forward initially to see whether the local authority would be willing to grant planning permission for a specific development in a specific area. This might mean a single property on a plot or the intention to build a housing development in a specific area. It is the official equivalent of saying, ‘I’m thinking of building a house of this type here – would that be okay in principle?’
If the local authority says yes, you know there is a good chance you could get full planning permission for your project. If they say no, you can see whether any changes to the project might lead to the local authority changing their minds to say yes to the project. For example, a modern design for a house in a traditional area might be rejected, but a traditional design that blends in with the surrounding properties might be approved.
If you receive outline planning permission, you would then go ahead and provide a proposal for the property or properties and put that forward to the local authority. It is important to note that even if you gain the initial outline for planning permission, there is no guarantee you would receive detailed planning permission for the project. Certain elements may be required to be changed before approval is granted, or it could be rejected for one or more reasons.
Peppercorn rent is a term given to a nominal amount paid to rent a property. This means the landlord does not receive a payment each year in cash. The terms of a lease state that some form of rental payment must be made. However, there are situations whereby the owner of the land or property concerned does not wish to charge a person any notable amount in rent. Since something must be paid, a nominal sum is chosen to fulfil the terms of the lease.
The name originally came from landlords who charged tenants one peppercorn (yes, a real one) for the rental price of the property. Today, most peppercorn rents will stipulate a sum of money, i.e. £1, to ensure the terms of the lease are met. However, token rents can also be requested, such as the original peppercorn that led to the name.
The payment may not be worth much, but it serves the role of establishing the existence of the lease. This means both parties will be subject to the terms of the lease. The payment covers the ground rent for the property, which today may be worth any amount of money. The rent covers the upkeep of the property while being rented to the tenant. If the landlord decides that only a nominal payment is required, this would be termed a peppercorn rent. It does not need to be £1, but it should be small enough to warrant the term being used. If £50 was charged, it would likely not be referred to as such.
Planning permission must be sought from the local planning authority for any new building someone wishes to construct. The local planning authority is typically part of the local council for that area. Permission also covers engineering operations and the change of use of a building if it is in the public’s interest. An example would be changing a shop into a residential property, as this would be termed a change of use.
There are several types that could be sought in this case:
Outline planning permission (seeking permission in basic terms to see if planning would be approved) Full planning permission (sought by presenting a detailed plan of the proposed project) Retrospective planning permission (sought if someone has already made changes to their property that required planning permission, and did not make the proper application)
There are also different types of planning consent that are sought in relation to listed buildings, householder consent, and even those relating to Tree Preservation Orders.
It is up to the builder, homeowner, or other person seeking to build new properties or make changes to existing properties to get the planning permission they require. Certain changes are deemed to be fine under permitted development rules. This means you can do certain things to your home without needing permission (unless you live in a listed building).
For any development you have in mind, it is always best to check and see whether planning permission is required. If you do not seek it and you should have done, there is no guarantee that retrospective planning permission would be granted. If not, you might end up being ordered to return things to the way they previously were.
A premium is an amount of money paid to an insurer in exchange for being covered by one of their policies. The money is paid regularly, usually monthly or annually, for the policy cover. Typical examples of policies that require premiums to be paid are home insurance (contents or buildings insurance), car insurance, and health insurance.
Some companies charge slightly more for giving their customers the chance to pay by monthly direct debit rather than paying the whole amount upfront. This can make the total cost of the policy more affordable. Instead of paying a three-figure sum in one hit, the insurer allows the policyholder to pay a monthly premium. This includes a rate of interest in exchange for dividing the payments into 12 monthly amounts.
The premium is an important factor in working out which insurer to go to. You will receive certain benefits of cover in exchange for the premium. It is important to make sure the premium you pay covers you for the service you desire. It is common practice to agree to an excess on the policy. This is the amount you pay towards the loss before the insurance company picks up the rest. For example, an excess of £100 means you would meet the cost of £100 towards damages while the insurance company covers the rest. The higher the excess, the lower your premium will be, so this is an important element to think about. It is a good way to reduce the premium paid, although you should make sure you would be happy to meet the excess you choose – and could afford to do so.
This term relates to the sale of a property that takes place without the use of an estate agent. The whole process relating to selling the property, from placing adverts to hosting viewings and going through the sales process, is handled by the person selling the property, with no outside assistance from an estate agent.
There are pros and cons to taking this route. The biggest advantage for many is not needing to pay an estate agent any commission for making the sale. This means more cash is kept from the sale of the property, leading to a bigger profit for the seller. However, there are downsides too. The process of advertising, managing viewings, settling on an agreed price with a buyer, and so on, are all labour intensive and require a lot of time. You also need to use the services of a solicitor to make sure the contract for the sale is legally binding and ready to be signed by both parties. An alternative would be a conveyancer for handling this part of the process.
Many people would prefer to pay an estate agent rather than going down the private sale route. If you work long hours, for example, you may not have the time to handle viewings as well – viewings an estate agent could handle for you while you are at work. Think carefully before taking this route and consider whether the potential savings involved could outweigh the extra work you would need to do as the seller in this situation.
A product fee is sometimes attached to a mortgage when you make an application. The fee is paid to ensure the mortgage is reserved for you and to account for all the admin costs associated with the application. It is known by different terms as well, such as an arrangement fee or reservation fee, but regardless of terminology, all the terms mean the same.
The amount paid for a product fee does vary. You can expect to find fees ranging from around £1,000 to £1,500. Some lenders choose a £999 fee as psychologically it looks more appealing than one in four figures.
There are two ways you can pay the product fee connected to your mortgage. You can either pay the sum upfront or add it onto the amount you are borrowing for your home loan. One important factor to remember about the product fee is that it is rarely refundable. This means if the deal doesn’t go ahead or you back out of the mortgage or property purchase for some reason after paying the fee, you won’t get it back. Some lenders also deny a refund even if they turn down your application, since they have already put in some work going through the process of reviewing your application.
Hence why some buyers choose to add it onto the mortgage itself. This means you would still have the option to back out if needed, and you wouldn’t have paid the fee in advance. Do check the terms and conditions for the mortgage and the fee however, to make sure you know where you stand.
When you remortgage your property, you move your existing mortgage without moving to a new property. You look for a new loan – either with the same lender or a new one – that will pay off your existing loan.
There are several reasons why people remortgage their homes. If you took out your existing loan at a time when interest rates were high, you may now see the market is filled with new loans at far lower interest rates. Even if remortgaging meant paying an arrangement fee, you could still save a significant sum each month if you switched to a new deal. It is important to work out whether the savings gleaned from a switch would outweigh any arrangement fee you would need to pay. In some cases, it would not lead to savings.
Other people remortgage because they now have some equity in their property. This could be released to help with refurbishment costs or perhaps a new extension or similar work on the home. Another reason to remortgage might be to pay off debts elsewhere that have a high interest rate. Since mortgages have a much lower interest rate than unsecured loans, this could be a good way to reduce monthly payments and clear debts that are racking up a lot of monthly interest.
It is also common for people to remortgage when they reach the end of a current fixed rate deal. Moving onto a variable rate deal leaves the homeowner vulnerable to rises in the interest rate. That means looking for a new deal gives them more protection over the next few years.
Also known as a Capital and Interest mortgage. Your monthly payments pay off the interest and some of the capital borrowed. By the end of the term of your mortgage you will have paid off all your mortgage debt.
The term repayment type refers to the method used to pay back your mortgage. There are two repayment types – the repayment loan and the interest only loan.
If you choose a repayment mortgage, you pay a portion of the interest on the loan and a portion of the actual loan each month. To begin with, you’ll find you are paying mostly interest, but over time, you’ll gradually pay more of the actual loan back to the lender. By the end of the term, the amount owed reduces far more quickly, because you’re paying off mainly the capital by that stage.
The alternative is to get an interest only loan. The idea with this is that your monthly repayments will be smaller, since you’re not paying off any of the capital. You only pay the interest, hence the name for this repayment type. However, if you continued to pay off just the interest for the full term, you’d end up with the original capital amount remaining to be paid off once the term is completed. That’s why this type of loan requires you to have alternative options in place for paying off the capital at the end of the term. This could come from investments made elsewhere, although you must be sure the investments will grow enough to meet the amount required.
The most popular repayment type is the repayment mortgage. Monthly repayments may be pricier in this instance, but they ensure you will clear the entire sum by the end of the term.
Retention refers to holding back a portion of the agreed mortgage until any repairs the property requires are completed to the satisfaction of the lender. Retention is not very common, but it tends to occur when the property the buyer wishes to purchase has some issues that come to light in the survey. Those issues may be enough to bring down the value of the property.
For example, let’s assume a property is worth £300,000. You agree to provide a 10% deposit of £30,000 and the mortgage is agreed for £270,000. However, upon inspection by a surveyor, notable issues come to light that reduce its worth to £250,000. This means that while the mortgage is agreed for £270,000 the lender may only agree to release £250,000 and to retain the final £20,000 until the work that was highlighted is completed. They will typically put a deadline on this work, so you must make sure you can meet that deadline.
The two issues that arise from this scenario are that you’d need to find the extra cash to be able to buy the property with the smaller mortgage amount initially granted. You would also need to find the funds to resolve whatever issues there are with the property. As such, there are instances where would-be buyers withdraw from a property sale for financial reasons. Even if they have the cash, they may decide they do not want to move into a property that requires significant work on it at that stage.
The notice which must be served to end a tenancy. This can be served at any time after the deposit has been properly registered with an approved scheme but not less than 2 months before possession is required. A Section 21(1)(b) notice must be served to end a fixed term tenancy. A Section 21 (4)(a) must be used to end a periodic tenancy. In this case of a periodic tenancy, it must be served after term ends and expires following 2 mths after term ends. Example: let for 6 mths starting on 1 Jan. Term ends 30 June. Notice served 15 July. Notice expires after 30 September. Share of Freehold – Share of freehold means that when you buy a flat the lease on the property comes with a share of ownership of the building. Leaseholders in a block with several properties often choose to buy the freehold between them and so share of freehold gives them more control over the management of the property. It is important to remember that when purchasing a property with a share of freehold, the property is still a leasehold property. Sinking Fund – When you buy a leasehold property, part of the service charge may be paid into a sinking fund. The sinking fund builds up over the years to cover future projects that may be needed to repair or improve the building. The freeholder or the property management company will be responsible for the service charge management and will notify leaseholders if part of the service charge will be paid into a sinking fund. Sole Agency – Where you employ the services of one agent to sell your property for an agreed period of time. should you sell your property through another agent before your agreement with the sole agent has ended, then you may have to pay the original agent their fee as well. Likewise, the agent must respect the terms of the agreement and ensure that the service promised and agreed is delivered. If other agents approach you during the term of a sole agency agreement, they must warn you of a possible liability to pay commission to more than one agent. Sole Agency fees are lower than where more than one agent is instructed. Sole Selling Rights – This means that the appointed selling agent will be due the agreed fee, even if you end up selling your property privately or through another agent. This usually applies to development / land, new homes, auction and properties being sold by tender. Solicitor – Legal expert handling all documentation for the sale and purchase of a property. Stamp Duty Land Tax – A tax you must pay on a property when you buy it. The duty must be paid at the point of completion. £0 – £125,000 0% £125,001 – £250,000 1% £250,001 – £500,000 3% £500,001 – £1 million 4% Over £1 million – £2 million 5% Over £2 million 7% Over £2 million bought by corporate bodies 15% Statutory Periodic Tenancy – If at the end of a fixed term tenancy, neither parties do anything and no further agreement is made, the tenancy will automatically run from one rent period to the next on the same terms as the preceding fixed term assured shorthold tenancy. It will continue to run on this basis until replaced by a new agreement or by one party giving the other notice. Once notice is served, it will only be effective from the start of the next period of renewal and will end on the last day of that period. The tenant will have to provide not less than 1 months notice and the landlord not less than 2 months. Subject to Contract – Words to indicate that an agreement is not yet legally binding. Settlement – caused by the weight of a new building/structure or part of it. Buildings are heavy things and, as their weight is taken up by the ground, a little movement caused by this adjustment sometimes occurs as the ground consolidates under the new load – this is settlement. It usually occurs early in the life of a building and rarely recurs, although, there are exceptions, for example, in soft clay soils. Settlement rarely causes problems, although differential settlement (differing degrees of settlement between connected parts of the same structure) can cause damage. Not to be confused with subsidence. Subsidence – This results from external factors which cause the disruption, displacement, contraction or distortion of the ground under or around a building. Some of the more common causes include- TREES – trees extract moisture from the ground which then contracts, particularly in shrinkable clay soils, causing buildings above to move (subside). DRAINS – leaking drains can wash away or erode the adjacent ground which then partially collapses reducing the lateral (sideways) strength of the ground. The support provided by this ground will then be reduced causing any building above to move (subside). There could be movement in the ground beneath your home if you find: New or expanding cracks in plasterwork;New or expanding cracks in outside brickwork or rendering; Sticking doors or windows; Rippling wallpaper with no other apparent cause e.g. damp.
A survey is an in-depth report on a property you are intending to purchase. The survey is conducted by a qualified surveyor, someone who knows what to look for and will highlight any potential concerns they have about the property in the report.
There are several types of survey that can take place:
A basic mortgage valuation A RICS condition report A homebuyer’s report A full structural survey
It is also possible to get a snagging survey for a new-build property. This is designed to highlight any problems with the new property that should be resolved prior to buying it.
The basic mortgage valuation is to help the lender determine how much they might lend on the property. This is done prior to mortgage approval taking place.
Meanwhile, the RICS condition report is the cheapest option and provides a basic glance over the property to point out anything urgent that needs to be dealt with. Cheap it may be, but it also doesn’t cover anywhere near all the elements you might want to know about.
A homebuyer’s report is the next step up and looks at many more potential issues. This will highlight major problems such as structural ones, but again it doesn’t cover everything. For total peace of mind, the building survey or full structural survey is the one to go for. This is, of course, the most expensive, and would likely be advisable if the property you wish to buy is an old one or looks as though it might need a lot of work doing to it.
Tenancy in common is a form of ownership involving two or more people. The idea is that if one person dies, their share of the property (or land, if applicable) forms part of their estate.
This is sometimes confused with a joint tenancy. However, the two are very different. With a joint tenancy, if one person dies, their portion of the property goes to the surviving tenant. This is commonly seen with married couples, where automatic inheritance of the entire property falls to the surviving partner. This is known as having Rights of Survivorship.
With tenancy in common, this automatic inheritance does not occur. Instead, the portion of the property owned by the deceased party is treated as part of their estate. This share of the property could be left to whomever is specified in that person’s will.
Another aspect worth noting is that if there are two tenants in common, they may not necessarily own 50% each. Similarly, four people who are tenants in common may not own 25% of the property or land apiece. The percentages can vary.
The biggest issue that can potentially arise with a tenancy in common is when one party wishes to sell and no one else with an interest in the property agrees with this. This could feasibly happen if one tenant dies and leaves their portion to someone in their will. If that person then wishes to sell, it could cause problems. The person receiving the share of the property (or anyone else who wants to sell) would need to file a partition action to try and force a sale.
Tenants are people who live in a property they do not own. They rent it from a landlord for an agreed monthly rental sum. In some cases, rent is paid weekly, but this would be mentioned in the tenancy agreement. It means that any problems with the property such as repairs to the roof, to the plumbing, and so on, would be the responsibility of the landlord to put right.
A tenant should always read and sign a tenancy agreement provided by the landlord before taking up residence of the property. In cases where the landlord uses an agency to handle the rental process for them, you would receive the agreement from them. They would act as a go-between for the two parties to the agreement.
A property could be rented to one or more tenants at the same time. For example, a couple might rent a house or flat. Similarly, it is possible to rent a room within a shared property. In this case, you would rent a room of your own and share certain communal areas, such as the kitchen, bathroom, and lounge. Again, these elements would be stipulated in your rental agreement.
While the landlord is responsible for making sure the property is in habitable condition, it is the responsibility of the tenant to make sure any issues are brought to their attention as quickly as possible. The landlord must then resolve those issues satisfactorily as a condition of the agreement signed by both parties.
There are several ways a vendor can try to sell a property. One method is the tender method. It is also referred to as ‘sale by tender’. The idea is that people who are interested in buying a property can submit sealed bids for it. This means they write down the amount they are prepared to pay for the property and seal it in an envelope. This must be done before a stated time on a set date.
Once the closing date and time are reached, the estate agent handling the sale opens the bids. The best bid is then selected, which may not necessarily be the highest one. For example, the highest bid may be worth £250,000 from a buyer waiting to be approved for a mortgage. The second-highest bid may be worth £247,000, but it may come from a cash buyer. That could influence the seller in choosing the second bid over the highest one.
The process typically involves an Open Day, whereby anyone wishing to view the property will visit and have a look around. If they wish to put in a bid, they can then do so, but are under no obligation to do this. A guide price may be provided in the information given for the property. This means potential buyers have an idea of how much to make their offer for.
Once an offer is accepted by the person selling the property, the arrangement becomes legally binding. The process of selling the property would then continue as normal.
Tenure is a collective term that relates to the nature of the owner’s title to a property. For example, do they own it on a freehold or a leasehold basis? Put simply, tenure relates to something you possess or hold.
Having a freehold tenure means you have the full rights of ownership over that property and the land it sits on. However, if you are looking to buy a property, do check and confirm that this is the case. Never assume a house is freehold and a flat is leasehold; there are occasions when the opposite could be true in each case.
If you have a leasehold tenure on a property, it means you own the property but someone else owns the land the property is sitting on. This is most common where flats or apartments are concerned. Since there are several properties that are essentially built on top of one another, it would be impossible for each flat owner to own the land it is built on.
The landlord, i.e. the owner of the land, would charge ground rent to all those with leasehold properties on that land. The land would also be leased for a specific number of years. The shorter the leasehold, the less valuable the property would be. This is an important point to note if you are considering getting a leasehold tenure to a property. There is also the question of what might happen when the lease nears its end. There are pros and cons to each type of tenure that relate to responsibilities for each.
A title is a record of ownership of a property. The evidence for ownership is found in the title deeds. It is possible to own the title to a portion of a property or to the full property. It is also possible to own the title for a piece of land. Owning the title means you should be able to make changes to the property if you wish (unless it is a listed building, in which case different rules apply).
Some people get titles and deeds mixed up. While they are connected and are both very important, they are different from each other. For example, let’s say you want to buy a house. The current owner has the title to that property. To buy it, the title must be transferred from the current owner to you to complete the purchase. For this to occur, the seller and the buyer both need to sign legal paperwork known as a deed. This will form part of the chain of evidence that denotes who currently owns the property.
If you purchase the property via a mortgage, your lender will have a deed against it. That means they have a claim to the property title until you have cleared your mortgage. Hence why keeping up with repayments is vital, otherwise you could lose your home. Even though you are registered as owning the property, the lender has a hold over it because they need to be sure they can get back their funds if you do not pay back the mortgage.
The total amount payable on a mortgage highlights the total cost of that mortgage. This includes the original amount borrowed and the interest that has accrued on the mortgage during its lifetime.
The amount you eventually pay back once the loan has ended depends on several factors. Interest is charged on the loan throughout the loan period, and this rate will likely vary. The longer you take out the loan for, the greater the total amount payable will be, even if you change lenders and deals along the way.
Those on variable rate deals may find they end up paying more if interest rates rise during their mortgage term. Those on a fixed rate deal would continue to pay the rate shown even if the base rate set by the Bank of England rose considerably during their mortgage term. Hence why many borrowers prefer the security of a fixed rate deal, which can run over a year or more (and sometimes up to five or even 10 years).
Some mortgages allow you to pay more than the amount required each month too. One good way of bringing down the total amount you’ll pay for your mortgage is to overpay whenever you can, assuming your loan allows you to do this. Even small overpayments could make a huge difference to the total amount you end up paying by the time your mortgage ends. You will also build equity in your property far more quickly than you would otherwise.
You could also reduce your mortgage term, which means you’ll own your home free and clear a lot sooner than you would if you simply made the regular monthly payments. Remember to check with your lender whether you can overpay before doing so.
A tracker mortgage typically ‘tracks’ adjustments in the base rate that is set by the Monetary Policy Committee at the Bank of England. This rate is also referred to as the Bank Rate. The MPC holds a meeting every six weeks or so, announcing any change to the base rate shortly after.
Tracker mortgages have interest rates that are adjusted according to the base rate. The loan taken out to purchase the property in question clearly states the level at which the interest will apply. For example, it might be set at 2% plus the base rate.
If the base rate is at 1% when you take out your home loan, the interest payable would be set at 3%. If the Bank of England reduces the base rate to 0.5%, your interest rate on your mortgage would dip too, to 2.5%. Conversely, if the Bank of England sees fit to raise their rate to 1.5%, your interest rate would go up in line with the conditions of your tracker mortgage. In this case, it would rise to 3.5%.
You would typically take out this type of loan for a set period, say five years. Once the agreed period ends, you can either switch to a new tracker rate available at that time or change to a different mortgage product. This could be done with the same lender or by moving to a different lender, depending on which products offer the best deal. These loans are best sought when the base rate is low and the signs indicate it will stay that way.
The term ‘transfer deeds’ refers to the Land Registry document that legally transfers ownership of a property from the seller to the buyer upon completion of the sale. These deeds are also required in other scenarios where a property passes from one person to another. Examples include divorce and if someone dies and leaves their property to someone else, rather than it being sold to create more cash for the estate.
The transfer deeds are handled by a conveyancing solicitor or conveyancer. The property being bought must be registered with HM Land Registry at the end of the conveyancing process. The registration will be done in the name of the person or persons buying the property. Only after this stage is complete will the ownership officially pass from the seller to the buyer(s). It is important to understand a property in England or Wales cannot be sold until the transfer deeds (and the rest of the conveyancing process) are complete.
Transfer deeds are sometimes mixed up with title deeds, but they are a separate entity. Included with the transfer deeds is information gleaned from a local land search, which should confirm there are no issues with the land before the sale proceeds. The contract drawn up with input from both parties should also be part of the deeds, as this will indicate the conditions of sale and the passing of the property from one party to the other.
It is not necessary for the buyer or seller to understand the ins and outs of transfer deeds, as their solicitor or conveyancer will handle all this for them. It can help to understand roughly what is involved at this part of the process though.
A transfer of equity is when a party is either added to a mortgage or removed from it. There are many scenarios where this may occur, but perhaps the most common and familiar involves marriage or divorce.
In the case of marriage, one partner might own a property and have a mortgage on it. When they marry, they wish to add their new husband or wife to the mortgage. This would be a transfer of equity from the original owner to their new partner.
In the case of divorce, the property would be jointly owned by the couple seeking a divorce. A transfer of equity would see ownership of the property transferred to one half of the couple. The person retaining the property ownership would typically buy out the other person’s part of the home.
The process is easier to complete if there is no loan taken out on the property. If no mortgage exists, there is no question of whether the person remaining in the property can afford to meet the mortgage payments each month. Problems can occur that make the situation more complex if affordability comes into it.
Similarly, a transfer of equity can be done with anyone you wish. If you own your property at present and wish to add a sibling or child as a co-owner, certain taxes such as Capital Gains Tax could come into play. It is always important to seek professional advice from a solicitor with experience in the transfer of equity process, so you can see where you stand before you begin.
A property is said to be ‘under offer’ when the seller has provisionally accepted an offer from a buyer. The offer can be for the asking price the seller has advertised the property for, but it is more usual for the offer to be below it. The term ‘under offer’ is also occasionally used to describe a scenario whereby the seller has received an offer on their property, but they haven’t yet decided whether they are going to accept it.
Whichever the case may be, if you are looking to buy a property and you see one that is under offer, it may not be too late to put in your own offer. The thing to remember is that for your offer to stand a chance, it should be worth more than the original offer made by the other party interested in the property. This would mean at least putting in an offer for the asking price. Making an offer for more than the asking price would give you a better chance of success, but you should consider whether that price would be worth paying.
If you are on the selling side of the equation, it is a good idea to know how your estate agent works in this area. Some have contracts that prevent you from accepting other offers after you’ve accepted the first one you like. Think of it as an anti-gazumping condition. If this is the case, you must think it through carefully when viewing offers, because the first one you choose is the one you must stick with. This isn’t something all estate agents will require though.
In construction terms, underpinning is a process whereby the foundation of an existing building or other structure is strengthened and/or stabilised. This process may be necessary for several reasons. For example, in older properties, the original foundation that was laid is not strong or stable enough to withstand the weight of the building. Modern building regulations are typically much stricter and more involved than those used in the past. However, even modern buildings may require underpinning if the original building processes were not up to the required standards.
Other reasons for underpinning a property might include a change in the way the building is used, or a change in the soil underneath the property. The latter can lead to subsidence as soil gradually shifts underneath the property over a long period. This might also be necessary if the design of the property did not accurately identify the nature of the soil in the area where the building was built. Another reason might include the construction of nearby structures that requires the excavation of soil that supports the existing foundations.
One thing all these scenarios have in common is that underpinning is the most economical way of solving whatever issue has arisen with the foundations. Building a new foundation would be very difficult and costly. It is always much more affordable and sensible to work with the structure that is already there. It could be that only a portion of the existing structure requires work, for example, in which case a whole new foundation would not be required anyway.
A valuation is a process whereby a mortgage lender requires a property to be valued prior to granting the loan for the buyer to purchase it. This is done for the benefit of the lender, as they want to make sure the property is worth the amount requested for a mortgage on it.
Various elements go into the valuation to produce the final value of the property. This does not only concern the property itself, but also the area and the state of the housing market. For example, assuming the property is in excellent condition, it could be valued higher one year compared to the next. This might occur if the property market takes a dip from one year to the next. It shows how the market and other similar properties nearby have an influence on the final valuation.
It is important to understand that the valuation received by an estate agent could differ from one produced by a surveyor acting on behalf of the lender. While there shouldn’t be too much difference between them, a surveyor produces an accurate valuation based on various factors. They are not trying to win your custom, unlike an estate agent.
Similarly, if you find a property you like and make an offer of £260,000 on it, for example, you may find the valuation produced by the lender is lower than the amount you offered on the property. If that is the case, you would need to work out how to meet the shortfall between the two figures. The mortgage lender would never lend more than the amount determined from their valuation.
A valuation fee is a charge levied by the bank or building society that intends to lend you your mortgage. It refers to the process of valuing a property to discover how much it is worth. The mortgage valuation helps the lender to confirm it is worth enough to cover the amount they are considering lending to you to buy it.
The valuation fee is normally paid in advance of the mortgage valuation taking place. When you apply for a mortgage, you should be informed how much the valuation fee will be and when you need to pay it. Typically, the fee isn’t refundable if something should occur that causes you to withdraw from the mortgage application. If, however, you pull out prior to the valuation taking place, you may be able to seek a refund. You should read the terms and conditions relating to the mortgage and the various fees associated with it. This should tell you whether a refund may be due under certain circumstances (as well as how much all mortgage fees would be).
It is important to remember that the valuation fee is for the benefit of the lender and not the buyer. The valuation merely gives an impression of how much the property is worth. It does not go into detail about the features or condition of the property other than what is obvious from a basic glance. That means you must request your own survey (for example, a Homebuyers Survey) to get a better idea of what you are buying. In the case of older properties or those that clearly need work, a full structural survey would be a better idea.
A variable interest rate is just that – variable. While a fixed rate of interest stays at the advertised rate for a set time, perhaps a year or more, a variable interest rate can fluctuate at any time. In terms of a mortgage, one that has a variable interest rate is usually referred to simply as a variable rate mortgage.
There are two versions of a variable rate, however. One is a standard variable rate, often abbreviated to SVR. The other is a tracker interest rate. This tracks the current base rate, while being positioned slightly above it. For example, if the base rate is 0.5%, your interest rate might be 1.5% above that at 2%. If the base rate goes up to 1%, your interest rate would go up by 1.5% to 2.5% instead.
There are pros and cons to accepting a home loan with a variable rate rather than a fixed rate. Many people opt for a fixed rate because they know exactly what the applicable rate will be for the agreed period. However, a fixed rate tends to be higher than a variable rate deal if interest rates are low. Of course, a variable rate puts you at risk of seeing it rise if the base rate goes up. Lenders are typically quick to pass on any rises in the Bank of England base rate when they occur. It is possible, however, that a lender might alter their standard variable rate for other reasons, so this is something to be aware of.
There is always an element of risk involved with a variable interest rate. You may find you can get a far lower monthly repayment with such a deal, yet you are at risk of future rises in the base rate too.
A vendor is a person who is selling a property or a piece of land. However, it does not necessarily mean that person has ownership of the entire property. The best example is a situation whereby someone with a mortgage wishes to sell their home. The property might be worth £500,000 but the vendor still has a mortgage worth £250,000 on that property. As such, the vendor is legally permitted to sell the property, but technically they only own half of it. The lender of the mortgage would own the remaining half.
The vendor can choose to sell their property via an estate agent if they wish. This is still the most popular route to selling property in the UK. There is no legal requirement to go through an estate agent, however. It is possible for a vendor to sell their home on their own by advertising it, managing viewings, and then dealing with the process of passing ownership on to the buyer. However, the process is very involved and requires considerable knowledge to make sure it is done correctly. Most people are happy to pass the work onto the professionals.
Others choose services that allow the vendor to pick and choose which elements they are prepared to do themselves. For example, you could take your own photos, manage viewings, and then get the professionals in when it comes to handling the paperwork, transfer of ownership, and surveys. One advantage of using an estate agent is that your property would likely be seen by more people in the area. Advertising online and in their office would be part of the service they would provide to the vendor.
No “W” jargon here!
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