We keep things as jargon free as possible, here at White Mortgages, but some terms can’t be avoided.
We’ll take a look at some of the common terms that you’ll be hearing as you go through the mortgage process:
A mortgage is a loan that is secured against your property. As it is a loan, you will be expected to pay interest on the amount of money that you borrow & making your repayments is essential.
This is who is providing your mortgage. We work with over a hundred lenders, from small building societies to large banks, thus ensuring that we can search the whole of the mortgage market to find the most suitable mortgage deal for you.
This is the chunk of money that you have saved up to put into a property. The amount of deposit that you have will determine the amount of money that you need to borrow for the mortgage.
Loan to Value (LTV)
Loan to Value simply means the amount of money that you’re borrowing in relation to the value of the property. For example, if the property was valued at £100,000 and you had a deposit of £10,000 (a 10% deposit) you would be borrowing 90% of the value of the property. Generally, the lower the Loan to Value (sometimes represented as LTV), the lower the rate of interest will be.
Agreement in Principle (AIP)
An agreement in principle is where the lender has said that based on the information given to them, it is likely that they would be able to lend the amount that you have applied for. Having an agreement in principle (sometimes represented by AIP or DIP - decision in principle) is a good place to begin your house hunting journey. It shows estate agents that you’re actually in a position to move forward with the purchase, which puts more confidence in you as a buyer. AIPs are not a formal mortgage offer and can be subject to change, so it’s important to note this when you’re house hunting.
When you’ve found a property and have had an offer accepted, your adviser will put in your formal mortgage application. This is where they make formal contact with the lender to make an application for the mortgage. The mortgage offer is property specific and will be in line with the information that you’ve agreed with your adviser.
This is the result of the formal mortgage application. A copy of your mortgage offer will be sent to both yourself and your solicitor. It will outline the particulars of the mortgage that you have been offered, including; the amount borrowed, the interest rate - including any fixed rates, the repayment schedule and the terms and conditions of the mortgage.
The Estate Agent will have valued the house that you are purchasing but the lender, when working through your mortgage offer, will also instruct a valuation themselves. This is to satisfy themselves that the price that you are paying is what the property is actually worth. During the pandemic, many valuations were completed as ‘Desktop Valuations’ which take into account the prices of similar properties in the area. In some cases though, an in-person valuation is required. This is entirely at the discretion of the lender.
A conveyancing solicitor is a solicitor who specialises in the selling and purchasing of property. They will look after the legal process for you, which includes requesting searches of the local area (to make sure that there isn’t, for example, planning permission for a road to be built around the property), liaising with the land registry and liaising with the solicitors of the person you’re purchasing from (vendor), among others. The conveyancing process is separate from us here at White Mortgages however we are able to liaise with your chosen solicitor to see how the process is progressing.
The exchange of contracts is when the purchase / sale becomes legally binding. Your solicitors will have shared the proposed contract of purchase / sale with you prior to this point, ensuring that all of the information is accurate. Exchange can happen prior to completion or on the same day, depending on a multitude of factors.
This is the exciting part, completion is where your solicitor completes the purchase / sale of the property. Monies are exchanged and you are the legal owner of the new property.
Life & Critical Illness Cover
Your mortgage adviser is likely to talk to you about protecting your mortgage with life and/or Critical Illness Cover. These two insurances are the most common that we deal with as people like the reassurance that they give. Life insurance (sometimes known as Life Assurance) is a policy that pays out an agreed amount when the policy holder passes away. There are a number of different types of life insurance and more information about them can be found here. (link to life insurance articles.) Critical Illness Cover acts in a similar manner to your life insurance policy in that it will pay out an agreed amount in the event of you being diagnosed with a critical illness, for example cancer or a stroke (the conditions covered are dependent on the policy). If you choose to take out this type of cover, it is likely that your adviser will suggest that the level of cover (how much cover you need) is that of the amount of your mortgage. Although you don’t have to use the payout from a life or critical illness policy to pay off your mortgage, it can be used in this way so that it’s one less thing to be taken into consideration as you navigate this.
Income Protection is perhaps a lesser known insurance product, which we go into more depth about in this article (link to IP article). Income Protection essentially does what it says on the tin and protects your income if you are too unwell to work (within the parameters outlined in your policy). Many people rely on their employer’s sick pay policy in the event that they had to take time off work however this may not be adequate to ensure that you are still keeping afloat. If you’re self-employed, income protection can be a good idea, especially if you are a trades person or contractor. Some income protection providers have additional cover for injuries such as fractures to ensure that your bills are covered even if you’re out of action.
Buildings & Contents Insurance
This vital type of insurance is required by most lenders for completion to happen (although contents cover is not actually mandatory) and essentially insures your property for a variety of eventualities, including fire damage, water damage among others (subject to the claims team discretion). Your adviser will also calculate the estimated rebuild cost of the property as part of this process. Lenders require this to be in place so that they can be assured that if the property were to be destroyed, the property rebuilt.
This is an overview of the terms that you’re likely to come across whilst you’re in the process of purchasing a property. However if there are ever any terms that you’re unsure of, our advisers and admin team will be able to answer any questions that you have.