Mortgage Confusion

In 2022 a survey found that out of 2,000 homeowners in the last 20 years 54% admitted to being confused by certain aspects when buying a new home. 8 out of 10 explained they were too embarrassed to ask things like ‘what is stamp duty?’ or ‘what is conveyancing?’.

60% felt overwhelmed talking to estate agents, solicitors and mortgage advisers. Often professionals just assume you know what you are talking about without processing that it is your first purchase.

That’s where we come in, with our partner Mortgages for Business, we will unfold all the confusion and many phrases you will come across on your home buying journey. It’s just one of the ways that we can help on your property purchase adventure.

 

Setting a budget

The very first step towards getting on the property ladder should be establishing how much you can borrow. So here are some of the phrases you may come across when you’re trying to get this information.

Affordability 

This is an estimate of how much you might be able to borrow based on your salary. On our community hub you can find online tools to calculate your affordability. This is very much an estimate as several other factors will also dictate how much a lender is likely to offer you.

Decision in principle

A Decision in Principle gives you an idea how much you could borrow from a lender. It’s worth knowing that many estate agents will insist on seeing evidence of yours as an assurance before they’ll put your offer to the seller. Mortgages for business can do this for you and make the process as simple as can be.

Credit Checks

All lenders will carry out a credit check to see how you have managed your finances in the past. Companies that provide these checks will give you a credit score. Generally the higher the number, the more likely that you’ll be accepted for credit but some lenders can have different scoring systems. Each time your credit is checked it leaves a footprint, split into soft and hard footprints. Lenders won’t see a soft footprint as it will not affect your credit score. A hard footprint leaves a record of the search on your credit file and having many of these over a limited time period can negatively affect your credit score.

Searching for your first home

When looking for a home, property listings can often be full of unfamiliar words and phrases that you may not be familiar with at all. Here are just a few key ones which are the most often misunderstood.

Freehold/Leasehold 

In a freehold property you own both the property itself and the land that it stands on, there is no time limit to your period of ownership. In a leasehold property you own the building but not the land this typically has a fixed period during which you can live in it. The property will have an annual ground rent payment. A leasehold can be any period up to 999 years but for properties with fewer than 70 years left on the lease it may be hard to get a mortgage.

Ground Rent/ Service Charge

Leaseholders will incur additional charges that, as a leaseholder, you may have to pay the owner of the freehold or for the upkeep of common areas. Ground rent is rent that you pay to the landlord or freeholder, usually on an annual basis. Service charge is the payment for all services, such as maintenance of gardens and communal areas of the property.

Finding a mortgage

With so many options available, speaking to Mortgages for Business will help you find a mortgage from their whole of market service whilst explaining everything in plain English.

APRC

Annual Percentage Rate of Charge is a guide to help you compare the cost of different mortgage deals, taking account of interest rates payable (both during the initial product period and after) and fees.

Bank of England

This is the interest rate which is set on a monthly basis by the Monetary Policy Committee (MPC) of the Bank of England and is the rate that it charges for its borrowing. If the rate changes, it could impact variable or tracker (if used as an index) interest rates.

Fixed/ Variable/ Tracker

Lenders offer different kinds of mortgages. A fixed rate mortgage has a rate that stays the same for a specified period of time.

A variable rate mortgage has a rate that can rise and fall at any time. The rate is varied at the discretion of the lender and is not directly linked to an independent external rate such as the Bank of England Base Rate.

A tracker rate mortgage is directly linked to changes of an independent external index such as the Bank of England Base Rate, which can rise and fall.

LTV

The Loan To Value is the proportion of a mortgage compared with a property’s value. It’s expressed as a percentage so an £85,000 loan on a £100,000 property would be an LTV of 85%. The LTV you have affects the mortgage rates available to you.

Schemes

There are a range of schemes that can help you get onto the property ladder. Some of the schemes available now are Help to Buy, Shared Ownership and First Homes England. There are also Military specific schemes to help you. If you need any information on these schemes our mortgage advisors will be able to help you.

Guarantor 

In some circumstances a lender will ask for a guarantor. This is usually a family member who undertakes to pay your mortgage repayments if you aren’t able to meet the commitment yourself.

Underwriting

Underwriting is when a mortgage lender works out how much risk they would be taking by lending you money. They’ll check your income, assets and property details before deciding whether to make you a mortgage offer.

Stamp Duty

This is a tax that’s payable to the government when you buy a property.

England and Northern Ireland

The amount you pay depends on the purchase price of the property but for first time buyers there is currently no stamp duty land tax payable on properties costing up to £425,000 (unless the property is a buy-to-let). If you are buying with someone else, both people must be first time buyers for this to apply.

Scotland 

In Scotland you pay Land and Buildings Transaction Tax (LBTT), which is similar to stamp duty in that the rates are tiered. First-time buyers don’t have to pay LBTT on the first £175,000 of the property. Home movers pay LBTT on property prices from £145,001 as long as it is your only property.

Wales

In Wales you’ll have to pay Land Transaction Tax (LTT) on properties over £225,000 whether it’s your first property or not (different rates may apply for second properties). It’s another tiered system like stamp duty, so the cost will depend on how much your property costs.

Buying your Property

Mortgage Offer

A mortgage offer is a formal document confirming that your lender is happy to lend you an agreed amount of money. You’ll only receive a mortgage offer after you’ve successfully completed the application process, your lender has assessed your financial situation and valued the property you want to buy.

Conveyancing 

Conveyancing is the legal process involved in transferring a property from one owner to another. It’s carried out by a conveyancer or solicitor who acts on behalf of the buyer – beginning when your offer on a house is accepted and ending when final contracts are signed and the money to complete the purchase has been transferred.

Searches

Property searches are the enquiries your solicitor makes to find out more information about the property you want to buy. They’re important because they can flag up key facts and help you decide if it’s the right house for you. For example, searches can show if any planned future developments might change the view from your window, whether there’s been any problems with flooding and or if you’re at risk from landslides or subsidence.

Exchange of contracts

This is the moment when you exchange the legal agreements to buy or sell a property. At this point you are legally bound to go ahead with the purchase or sale. In Scotland this stage is known as Conclusion of Missives.

Final Steps 

Completion 

Your lender releases the mortgage money to the conveyancer who transfers it to the seller’s representative and it’s time to move in. This is the day when you finally achieve your aim of being a property owner.

M4B

The steps in the house buying process in Scotland are slightly different to England and Wales. If you need any further details please contact Absolute Military via phone, our website or app which you can find on both Apple and Android phones.

We’ve only explained some of the many phrases that you may come across. We hope you find this guide helpful on your home buying journey. Don’t worry about it being a lot to remember because we’ve teamed up with Mortgages for Business so if you come across anything you’re not sure about, just ask.

From home-buying confusion to applying for your first mortgage, the team at Absolute Military are here for you.

Contact us

Telephone – 01233 885410

Website – www.absolutemilitary.co.uk

App – ‘Absolute Military’ on App Store or Google Play.