Useful terminology to know when buying a property

We understand the difficulties and complexities that come with buying your first house. Our team is approachable and grounded, ensuring we communicate as clearly as possible to make first-time buyers feel relaxed. We make the experience jargon-free and as straightforward as possible. We're always available if you have any questions.

Purchasing your first home is one of your most significant purchases. Our team has years of experience supporting first-time buyers in buying their first home. Buying your first home can seem complex and one of great difficulty, but we make sure that you understand the challenges that can also happen during this process we have collated some key terms that you will hear during your sale journey. If you have any questions please don’t hesitate to get in touch with our helpful mortgage team.

Repayment methods

You can sometimes choose how you want to repay your mortgage. There are two main types called Repayment mortgages and Interest Only mortgages. Sometimes you can blend the two.

Repayment mortgage

These mortgages are like big bank loans. Each month your payment includes the interest payable plus an amount to pay off the mortgage balance. Over time the balance comes down, meaning there is less interest, so more of the payment is used to reduce the balance. This means the mortgage balance comes down faster toward the end of the mortgage.

This repayment method offers the reassuring guarantee that at the end of the mortgage term if you have kept up all your payments, you will own the house outright! With no mortgage or rent to pay, this is the foundation of your retirement planning.

Interest only mortgages

With these mortgages, you only pay the interest, so at the end of the mortgage, you will still owe the same amount to the lender you borrowed on day one.

Because you only pay interest at the start, the payment will be much lower.

However, you must have a plan to repay the loan. This could be the sale of the mortgaged property, the sale of another property or asset, ad-hoc overpayments or an investment plan.

Interest-only mortgages are more suited to buy-to-let than residential mortgages, as if you are unable to pay the mortgage back at the end of the term, the lender will repossess the property, potentially making you homeless at a later stage of life.

Part and Part

This is where you have part of the mortgage on repayment and part on interest only.

Offsetting

Offset mortgages can be repayment or interest only. You can also have all the different interest rates available.

The concept of these mortgages is you have a linked saving or current account provided by the mortgage lender. The balance in these accounts is offset against the mortgage balance before the interest charge is calculated. Therefore, you only pay interest on the net balance.

These loans are good if you have a lot of savings but do not want to tie these up in the house. This is because you can withdraw the savings at any time.

The downside is you can usually get slightly cheaper than average interest rates therefore if you do not use the feature, you will pay more in interest.

Types of interest rates….

Standard Variable rate – All lenders have a standard variable rate. These will move up and down as the economic environment changes. These are set by the lenders so can change anytime but usually follow the Bank of England rate changes. These tend to be priced higher than any initial deals the lender may offer. The plus is they offer maximum flexibility of being able to repay in part or full without charges known as “early repayment charges” (ERC).

Tracker or discount rate – These are cheaper variable rates for an initial period. This period ranges from 2 to 5 years. At the end of this time, you would revert to the lender’s standard variable rate, but you are free to review your mortgage. These are great if you believe interest rates are set to fall. They can often be more flexible on overpayments if you're set to come into a large amount soon.

Fixed rates – When you fix the interest rate, the monthly payment will remain fixed for the same period. You can fix a mortgage rate for 2, 3, 5, 7 or sometimes ten years. Typically, the longer the fixed rate period, the higher the initial rate charged will be. At the end of the fixed rate, most lenders will allow you to negotiate a new fixed rate. If you take no action, your rate will revert to the lender’s standard variable rate. See our review of the service leaflet for more detail.

Terms you may hear about mortgages and home buying….

 Agreement in principle –

We organise this for you. We submit your details to a mortgage lender. They run a credit check against you and check the information provided meets there criteria. Then you have a pre-agreement for a mortgage! This means as long as the lender is happy with the property and you can prove the information provided is correct they will offer you a mortgage.

Buy to let

When you want own property and let it as an investment you usually need a “buy to let” mortgage.

Consent to let

This is were you want to let your current home out but do not want to change the lender. You would call your current lender and ask them for “consent to let”. There will typically be a small charge or a small amendment to the interest rate. Then consent will be granted. This is important as if you let without consent the lender can call in the mortgage or repossess the property.

Completion

This is the day you get the keys to your property and when the new mortgage starts. If the lender has drawn the money down early this can trigger interest costs.

Decision in principle

The same as an agreement in principle.

Exchange of contracts

After you have your mortgage offer, paid any deposit to your solicitor and the solicitor has done all their legal work you are ready to “exchange contracts”. Once everyone in the chain is ready you can “exchange”. When you exchange contracts you usually agree a moving date. At this point if you change your mind you could loose your deposit and be subject to additional costs.

Let to buy

This is where you rent out your current home and then take a new mortgage to buy a new home for you to live in.

Subject to sale

When you agree to buy a home via a builder or estate agent this is “subject to sale”. Neither party is financially committed at this stage and can change their minds at any time without a penalty.

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