It’s been a pretty interesting time for the property market over the last 365 days.
We saw the launch of mortgage holidays in March 2020, then the withdrawal of 95% mortgages – which as of this month, have just been reinstated.
We’ve also since seen the introduction – and subsequent extension – of the government’s Stamp Duty holiday in a bid to turn ‘generation rent’ into ‘generation buy’. And it already seems to be working. According to the latest data , 121,640 property sales went through in January 2021 which is a 24% increase year-on-year.
“It’s safe to say the property market is having a moment,” Mortgage Adviser, Jo Jingree says. “But, as an industry, it can be a bit of a minefield when it comes to all the different key words and phrases,” Jo adds.
Which is why we’ve pulled together a handy guide to help demystify some of the common terminology.
This is how much you can borrow and the amount varies from lender to lender as they each have their own unique affordability calculators. These generally take into account how much you earn and all the things you are committed to paying out each month.
This is a check against your personal finances. It looks at information from your credit report to understand your financial behaviour. This happens anytime you apply for a loan – and the same for a mortgage – to make sure you can afford to repay it.
This is the amount of cash you put down yourself towards the price of the property. As of this month, the minimum deposit you can put down is 5%. Although this does depend on individual circumstances.
This type of mortgage is where the interest rate you pay is a set at an amount less than your lender’s standard variable rate. Just like a tracker mortgage (see below), it can fluctuate depending on your lender’s Standard Variable Rate.
This is the amount of property you own outright. Your equity is made up of the amount of deposit you put down, plus the amount you have paid off your mortgage.
Fixed term mortgage
This is a type of mortgage deal. The interest you are charged is fixed for the length of the deal. This usually ranges from one, two or five years. This is perfect for those who want certainty in the amount of money they are repaying every month.
The freehold means that you own the property and the land upon which it stands.
An odd term, right? But this phrase relates to when a property is under offer, but a different buyer makes a higher offer which is then accepted. This is perfectly legal. But can be upsetting if you’ve set your heart on a property!
Hard footprint credit check
This can be seen by anyone conducting a credit check on you. If you have multiple hard footprint credit checks, then it could suggest you are struggling to get a mortgage.
Interest only mortgage
Just like its name suggest, this mortgage allows you to pay just the interest charged each month for the term of the mortgage. Repayments on an interest-only mortgage are usually a lot lower than those with a fixed rate mortgage. But you still have to repay the amount you’ve borrowed by the end of your term, and you need to a suitable repayment vehicle in place to ensure this is possible.
Usually, a leasehold applies to flats. It means you will own the property but not the land upon which it’s built. The longest leases are 999 years. You need to be mindful of short leases as there can be some implications around availability of mortgages.
Loan to value
A common phrase heard all the time. Loan to Value (LTV) is the ratio of mortgage to property value, in percentage form. For example, if you are purchasing a £100,000 property with a 10% deposit (£10,000) you will need a 90% LTV mortgage (so you will be borrowing £90,000).
Mortgage in Principle
This can also be called an agreement in principle or decision in principle – depending on the mortgage lender. But they all refer to a written estimate from a mortgage lender giving you an indication of how much money you can borrow. These are generally valid for anywhere between 30 to 90 days. But this depends on the lender.
Soft footprint credit check
This is a credit check which doesn’t leave a visible footprint on your credit history. This means no other lenders can see it and it shouldn’t impact your credit score.
The phrase of the moment! This is a tax generally paid by everyone buying a property. The amount you pay depends on where you are in the UK and the price of the property. And, after Wednesday’s Budget announcement, there are savings to be had until the end of June 2021.
Standard variable rate (SVR)
This is the default mortgage interest rate your current lender will charge after your mortgage deal period comes to an end. Usually, this is a higher rate than you will be paying. So, it’s a good idea to remortgage before your deal ends.
Term / Term of mortgage
This refers to the length of your mortgage. The average period for repayment of a mortgage is 25 years. But some lenders will now put your mortgage over a term of 40 years. Of course, this varies on a case-by-case basis and is dependent on a number of factors. If yours is a full repayment mortgage, the longer term you take, the lower your monthly repayments will be.
A tracker mortgage usually follows the Bank of England Base Rate. Therefore, the amount you pay each month can fluctuate if the base rate goes up or down. This is great news if the base rate drops, as you’ll usually pay less. But if it rises, so will your repayments.
This is an assessment of the application. Lenders will undertake an in-depth analysis regarding the risk of lending you money to make the final decision.
Variable rate mortgage
This type of mortgage means your mortgage interest rate can go up or down according to your lender’s standard variable rate.
If you are a first time buyer looking to get onto the property ladder or a home owner looking to remortgage, don’t hesitate to get in touch. Mortgage Confidence offers a free 30-minute call to help discuss your options.