Jargon Buster "I"
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.