Principality. Where home matters.
24 February 2017
First Time Buyer Jargon Buster
Buying your first home can be stressful enough without confusing technical terms being thrown around, leaving you with even more head scratching to do. Principality Building Society’s Mortgage Product Manager, Christopher Johnson, is here to bust the jargon that first time buyers will hear regularly during the house-buying process, making things that bit simpler.
Buying a house is a big deal and you’ll inevitably find yourself in entirely new situations, speaking to solicitors or mortgage brokers, and hearing certain technical terms you’ve never encountered before. Sure, it might feel daunting initially, but it’s really just a case of familiarising yourself with phrases, policies and expressions at the start of the journey, so you can ease through the rest.
Agreement in principle (AIP)
You’ll receive a statement from your bank or building society when it has agreed to lend you a specific amount on a house, based on all the submitted mortgage applications being approved. This agreement in principle is a really effective way of showing a seller that you’re very interested in the property. The AIP is usually valid between 60 to 90 days, but be certain to check this with your specific lender. It’s worth noting that often an agreement in principle can also be called a ‘lending certificate’ or ‘decision in principle’.
Loan to value (LTV)
Loan to value is a financial term that your lender will probably refer to when you speak. Quite simply, the loan to value is the maximum mortgage you can get in relation to how much the property is worth. For example, if you had a £150,000 mortgage on a house worth £200,000 the loan to value is 75%, meaning you would need a deposit worth 25%. But as a first time buyer, you could well be looking for a mortgage with a higher LTV, with perhaps less money to put towards a deposit. Whatever the case, your lender will run strict stress tests on your finances before agreeing to anything, to ensure you’ll be able to meet those mortgage payments should your financial circumstances change in the future.
You may pay your lender an arrangement fee for setting up your mortgage, much like you would pay administration fees to an estate agent when renting a property. But the important thing is to look carefully into how much your fee will be, as they vary significantly between different lenders and mortgage products.
Most people think that a mortgage term is for 25 years. However, your Mortgage Advisor will look at your personal and financial circumstances and give advice on not only the product, but also the mortgage term that is in your best interests.
The exchange will be a hugely exciting milestone in your house-buying journey, meaning the point when the deal becomes legally binding. After this, the current owners can’t pull out. The exchange takes place between the buyer and the seller’s solicitors, where contracts are swapped and the buyer pays their deposit. At the exchange, it’s usually agreed when the completion date (more on that coming up) will be, normally within four weeks.
This is a legal document drawn up by the lender which both they and the homeowner will sign. The mortgage deed will authorise that the buyer is using the loan for a mortgaged property, but will also state the right of the lender to keep possession of the property until the mortgage is entirely paid off.
This refers to a set of work which is carried out by your solicitor or a lawyer, in order to legally prepare certain documents for you to buy a house. This includes registering the house with Land Registry, conducting searches on the property or area to give you information that an estate agent or survey might not have picked up, and submitting your interest in the property which allows for the official deeds to be changed. Remember, paying for this service, which is absolutely necessary, will be an additional cost to factor into your budget.
Your lender will arrange a valuation – essentially a survey - ensuring that the house is suitable for them to lend money on. But be aware, you’ll need to pay for this despite it being for the benefit of the mortgage lender. Just think of it as a stepping stone towards being a homeowner.
The final step in the house-buying process, the completion is when the property is legally transferred into your name. Congratulations!