UK Land Registry11/14/2018 The UK land Registry is a Government department which administers one of the largest property databases in Europe, This database is used to record and register the ownership of land and property in England and Wales.
It is used by the UK government to assess property values for tax purposes. In a similar manner, it is also used to search current property prices by investors, buyers and vendors. The online search mechanism and price calculator service can be used to check the latest residential property prices for any given location using the postcode or street name as the search source. The results from an online search of the database will yield certain information. This will usually shows it’s precise location on an ordnance survey map, a satellite view can be obtained using Google earth. Street views can also be obtained using Google maps. The outline of the property will be shown as a dotted layout on the map. The database also provides information on the ownership of land. Who they are, and details the land usage. It also records the ownership rights of freehold and leasehold properties. The latter only where the lease has been granted for a term exceeding seven years. For houses it will provide details of the plot plus all relevant information on ownership status, and securities held against the property. In cases where multiple ownership issues occur. Say for example a building exists, which contains eight flats. The database will provide eight sets of title deeds. These will list the different levels ownership on each unit. Eg leased or mortgaged. Securities held on each individual unit within the main building. Unit size as an example one or two bedroom flats. Etc. For some of this information a fee will need to be paid. Registration. Land registered on the database using the latest figures taken from the Land Registry website show that 88% of land in England and Wales has been registered, with a view to obtaining full coverage by 2030. This currently represents 24.500.000 titles By definition, the term land will also include any buildings situated upon it. Assets which lay either in or above the land can also be registered. In the ground things such as mines and even minerals can be registered. In certain situations, the area of sky above the land can be registered. Land and property owners whose title is not registered can make voluntary applications for registration to the database. Benefits of registration Registration establishes proof of ownership and produces an easily accessible document which can be viewed quickly and securely online. Provides a better way to safeguard ownership of land and property. State-backed registration gives greater security of title, and offers better protection against claims of adverse possession. The following provide the equivalent service. For Scotland it is the Registers of Scotland. For Northern Ireland the Land and Property Services maintains land records. We hope this little article proved to be informative please feel free to share it All the best
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Equity Release7/25/2018 Equity Release This little study explains what the equity value of a property actually is and how it is can be accessed In basic terms, the equity value of any asset. Is the net value after securities have been taken off. As below The asset value is £400.000 Loans secured against it are £250.000 The net value of the asset is £150.000. that net value is the equity value, or value once all associated debt has been cleared. With regards to residential property the same situation occurs. When a property is purchased, the equity value is determined by the mortgage loan required to buy it. This is a simple example used for explanation purposes. Purchase price of the property £100.000 Mortgage required £75.000 This leaves an equity value of £25.000 The illustration equates to what is in effect a 75% loan and assumes the buyers were able to lay down £25.000 as a deposit. Equity Access Equity access is a thriving market and basically works in this manner. Owners can access additional funding by transferring some or all of the equity value into cash. This is done by raising additional loans against the property. The methods used are the Re-mortgage, and third party secured funding. Both have similar ways of working. Re-Mortgage: Here The borrower will take out a complete new mortgage loan on the property Using the previous example, the borrower wishes to access equity and raise a sum of £10.000 Property valuation is £100.000. Existing mortgage is £75000. The new loan will have to pay off the previous loan and provide the additional capital for the equity release. Therefore the new loan will have to be £85.000. This is achievable as there is £25.000 of equity value in the property. Once the new loan takes effect the equity value will be reduced by £10.000 to £15.000 That is the basic form a re-mortgage takes. Funding schemes like these are available from most lenders. In many cases the original loan is repaid using funding from a different lender. Third party secured funding. Using the same scenario the borrower wishes to raise £10.000 from the equity value in their property. However instead of a complete re-mortgage. Funding for the extra £10.000 is obtained from a second lender. This means the borrower has two debts secured to the property. Once again a highly used method, It is not without some issues, as the main lender, the one with the largest loan secured against the property. May take a very negative view of any other lending secured against the property. In exceptional cases they may refuse to allow the borrower to obtain additional funding in circumstances where the equity value is very marginal. In cases where the original loan exceeds 75% of the valuation less equity is available. See below Example Property Valuation £100.000 Mortgage Amount £87.000 Equity Value £13.000 Any loans where lenders issue funding which exceeds 75%, is considered very high risk. Usually offered with strict terms and conditions attached. Which must be accepted prior to the funding being issued. Prior to organizing additional funding for equity release it is always a good idea to research for the best available options. Also to check on your current position before embarking on the search. Over recent years property prices have steadily risen, however the market can and has collapsed in the past. Leaving many in a state of negative equity. Where the amount of the loans secured on the property far exceeds the current market value. The more recent and concerning trend is, that numerous lending institutions have been swallowed up by larger entities. In fact there are many borrowers whose original lender no longer exists. Therefore terms and conditions for the loan may have long since changed. Thanks for visiting the site and we hope this little article has proved informative please feel free to share it All the best House buying process in Scotland6/4/2018 In this article we will be taking a look at the house buying process as it currently stands in Scotland.
The process itself in considerably quicker and offers greater security for all parties involved. There are a number of reasons for this. It basically involves the legal requirements the buyer and seller have to pass through before the whole house buying and selling procedure can even begin. These requirements vary for both the buyer and the seller and must be in place before any property can be put up for sale. They are as follows The Vendor /Seller is required by law to provide what is called a Home Report. It consists of a single survey, an energy report and a property questionnaire. The single survey contains a valuation and an assessment of the property's condition (including the roof, external walls and plumbing). For older properties or those of a non-standard construction, a more in depth survey may be required. The energy report will give the property an energy efficiency rating and assess its environmental impact by looking at carbon dioxide emissions. Completed by the seller, the property questionnaire will contain details such as whether the property has ever flooded or been treated for wood rot, as well as useful pieces of information such as what the parking arrangements are and which council tax band the home falls into. The exceptions to this are on new-builds and buildings that have recently been converted into residential properties. A copy of these documents must be provided to all prospective buyers. The Buyer is required to have secured the funding or at the least posses a mortgage agreement in principle before they can even make an offer to buy on any property. These requirements provide an element of security in that the buyers are better informed about a property's condition and value at the point of making an offer. It also provides the vendor with the assurance that any offers received from prospective buyers. Will have already been screened and accepted for funding by a lending institution. In Scotland all house purchase activities are controlled by solicitors Therefore before anything can commence buyers and sellers must have appointed their respective solicitors. Before an offer is made the buyer has to have either the mortgage actually in place or an agreement in principle from a lender. The procedure for obtaining funding is pretty much the same across the UK and will usually take the following course. When the buyer applies for a mortgage, they will need to fill in a mortgage application form. This will ask for some fairly detailed information to help the lender decide whether, and how much, to offer to lend. The lender will normally need the following information. Supporting documentation Proof of identity: Birth certificate, passport drivers license, bank account details and utility bills etc Employment Status: If employed, proof of salary from employer : Payslips P60 If self-employed, copies of audited accounts from the accountant. If working as a contractor: contract details. Long term or short term. Previous or current mortgage arrangements Loans: Details of any amounts outstanding, length of term and payment management e.g regular payments with no arrears. No bad credit issues. CCJ’s etc Details of personal financial circumstances: including details of: Any expenditure commitments e.g: credit cards, other loans or HP agreements. Essential expenditure/outgoings e.g: utility bills, council tax, insurance, travel costs, fixed childcare costs. Spending on 'quality of life' items which are non-essential e.g: recreation, leisure etc. Once this has been assessed the lender will issue a mortgage offer based on the information given on the application form and the supporting documentation. This offer will be based on what it believes the borrower can afford to pay back over the term or length of the loan. Based on this mortgage offer, the buyer will know how much they are able to lend, and can therefore look at properties within the suitable price range Once the buyer has assured themselves that they have mortgage funding available. A solicitor can be instructed and the process can commence. Solicitors are responsible for the following tasks Examine and explain the home report Carry out searches in the property and personal registers to ensure there is nothing preventing the seller from selling the property. Check with the local authority to see if there are any planning issues affecting the value of the property and whether any roads next to the property have been adopted by the local authority. Put together the formal offer Submit the offer to the seller's solicitor Draw up the contract, and organizing the transfer of the Title and money. We’ll take a brief look at each stage. Firstly the home report, as previously shown this consists of three elements. Each of which has a bearing on the property. The Energy Performance Certificate (EPC) - this reveals how energy efficient the property is and where improvements could be made. Survey – an assessment by a qualified surveyor from the Royal Institution of Chartered Surveyors (RICS) pointing out the condition of the property, where repairs are needed and a valuation of the property. A mortgage valuation might also be included. The level of information contained in the survey is broadly equal to the Homebuyers report. This is however subject to a three month timespan. If the survey is over three months old then the buyer will have to get another one done. In many cases buyers may decide to instruct their own surveys as a matter of requirement. Property Questionnaire – sellers have to provide an accurate account of the property including its Council Tax band, any Local Authority notices served on it, alterations made, parking, any history of flooding as well as factoring in arrangements covering any repair and maintenance. The solicitor will receive these documents and advise their clients on how to proceed. If all is well and the buyers wish to proceed then their solicitor will issue a note of interest to the vendors solicitor. Note of interest When the buyer has found a property they want to buy, their solicitor will register a ‘note of interest’ with the seller’s agent. This essentially shows the buyer is interested in the property and wants to be kept advised of developments such as the fixing of a closing date to submit offers. Prior to making an offer the buyers can instruct the solicitor to begin the process of commencing the preliminary searches etc. However if the offer is not accepted then the buyer will still be liable to pay for those services. In many cases solicitors are instructed to forward an offer and wait until that has been either declined or accepted. Making an offer When, the buyers decide to issue an offer on the property. The need will be to decide how much to offer. The amount offered will depend on: Property prices in the area; How much you can afford; Any competing interest in the property; Anything else that is to be included in the offer such as fixtures and fittings. The buyers solicitor will do this in in a formal letter. Multiple Bids If there are several competing bids, the seller’s solicitor will set a closing date for offers to be submitted. These will then be opened at the same time on the closing date All parties will be notified as whether their offer has been accepted or declined. Subject to survey Here the buyer instructs the solicitor to issue an offer before having their own survey done. If their offer is accepted , it will be subject to the results of the survey. There are three types of survey, these are fairly consistent across the UK and are as follows: Home condition survey – the cheapest and most basic survey. Suitable for new-build and conventional homes, it essentially provides a current valuation for mortgage purposes. But not much else. Typical cost: £250. Homebuyer’s report – a more detailed survey looking thoroughly inside and outside a property. It also includes a valuation. Check whether the valuation and homebuyer’s report done at the same times. Typical cost: £400+. Building or full structural survey – the most comprehensive survey suitable for an older building or one of non-standard construction (for example, if it’s made of timber or has a thatched roof). Typical cost: £600+. If after submission the offer is accepted, the vendor’s solicitor issues a qualified acceptance, which simply means the property belongs to the buyer if contract details can be worked out. The vendors solicitor will also hand over information about the property such as the title deeds and planning papers. At this stage the buyer will instruct their solicitor to commence work on the preliminary searches and other details. This stage of the process is called Swapping the Missives Here the buyers and vendors solicitors negotiate the the terms of the contract on behalf of their clients. Conveyancing This is the legal process required to transfer the ownership of the property from the seller to buyer. The legal aspects of buying a home can be complicated. Therefore most home-buyers in Scotland appoint a solicitor qualified in Scots Law and holding a practicing certificate from the Law Society of Scotland to do the legal work involved in buying a property. The fee charged by solicitors will vary. It is worth getting estimates from several solicitors. Prior to appointing one to act. For freehold properties the process is fairly simple, however leasehold properties will require more work. The lease is the legal document which sets out the rights and duties of both the tenant(leaseholder) and the landlord of the building (freeholder). The lease will specify the number of years available on the property. This usually applies for 99 or 125 years. Clarification may need to be sought for a number of different issues such as The length of time the lease has left to run: The ground rent payable to the landlord or freeholder, including any management fee or service charge to cover repairs and maintenance of shared parts: Who is responsible for maintaining the shared areas of the building and whether that responsibility is shared in a fair way: What liability there may be for any major work e.g: re-roofing or painting the outside of the building etc: Solicitors will advise their clients on the progress and provide advice on any documents that need to signed. Once all the contract details have been agreed, the two solicitors exchange letters. These letters are known as conclusion of missives. Both parties are now legally committed to the sale. After this the buyer may be required to pay a holding deposit: on average £500-£1,000 to secure the deal. It is not a common practice, as there are usually penalty fees in the contract to deter either party from backing out at this stage. Once the contract has been agreed by both parties The buyers solicitor will check the title deeds and discuss with their client the regard to any condition on the property. Title burdens – conditions attached to owning the property ranging from where rubbish bins can be put to more serious restrictions on how the property can be used and altered. The vendor signs the transfer of the title deeds, called the disposition. The vendor’s solicitor will also prepare the Land Transaction Return for the buyer to sign. At this point the buyers solicitor will contact the lender to confirm that the contract has been signed. The purchase is proceeding and what the date entry is expected to be. This allows the lender to release the funds at the right time to complete the sale on the date of entry. The vendors solicitor will request the transfer of funds from the lender on the date of entry. That then is a basic introduction to the house buying process as it stands in Scotland. As with all mortgage transactions there will be additional costs or fees. The largest will be that for the solicitors. Some have already been mentioned as in the holding fee and survey fees. Mortgage Arrangement Fees There is often a fee to set up the mortgage – usually referred to as an arrangement fee. These can be either paid in advance, or added to the mortgage, but choosing this option means you’ll pay interest on it for the length of the mortgage. May vary in price subject to the lender and lending scheme. Other lenders fees may include. A fee for transferring the money, typically £40-£50 A fee of £100-300 for setting up, maintaining, and closing down the mortgage account. Survey Fees These work on a sliding scale according to the survey undertaken Home condition survey – the cheapest and most basic survey.: up to £250. Homebuyer’s report – a more detailed survey looking thoroughly inside and outside a property. It also includes a valuation: £400+. Building or full structural survey – the most comprehensive survey suitable for an older building or one of non-standard construction: £600+ Holding Deposit May not be required subject to due to penalty clauses written into the contract £500 - £1000 Solicitors fees Solicitors fees average cost: £400-£900 plus 20% VAT. This will include any or all of the following Searches plus any other fees paid on the buyers behalf. Registering the signed title deeds with the Land Register. The cost starts at £60 and rises , subject to the property price The transaction is completed by paying the Lands and Buildings Transaction Tax (LBTT) . Essentially the Scottish version of the stamp duty paid in England, Wales and Northern Ireland It works on a sliding scale as follows and must be paid within thirty days of completion 2% for homes costing between £145,000 and £250,000 5% for homes costing between £250,001 and £325,000 10% for homes costing between £325,001 and £750,000 12% for homes costing more than £750,000 When researching content for this article we came across one constant piece of advice with regard to keeping expenses as low as possible. This is to shop around for the best deals available. Things like mortgages, often lenders may have specific deals where free surveys may be included as part of the service. Fees may be re-paid. Solicitors may offer reductions on certain services. lenders may include a free conveyancing service if a solicitor on their panel is employed. etc. Don't be frightened to ask questions. That concludes this article. It is not exhaustive but covers the procedure in as simple a manner as is allowable in a document of this size. We hope it was informative and provided some insight into the process please feel free to share it All the best Mortgage Terminology M-Z3/7/2018 There is a wide range of standard and industry jargon underpinning the mortgage and house buying process. The purpose of this series of articles is to try and provide an understanding of what it all means. So what follows will be an A-Z, or glossary of terms. This will be spread across several posts for ease of access This first section goes from M-Z Maintenance Charge Depending on the type of property This charge is stipulated in the contract with the landlord to the covers costs of maintaining a the property. iI includes things like keeping the garden and communal areas and outside of the property in good order. MIRAS Mortgage Interest Relief At Source. This was a tax incentive for people to buy their properties. It was available on loans up to £30.000 and was deducted from the interest payments. It was available in two formats. For married couples it was £30.000, yet for unmarried couples it was available as £30.000 per individual. Allowing tax relief up to £60.000. This was eventually capped to £30.000 for all mortgage buying. The entire scheme was phased out in April 2000 by the Government. Mortgage Term used to define the loan attached to buying a property. Mortgage Deed This document defines the terms conditions under which the mortgage is granted Mortgage Indemnity Premium This is essentially a single charge on what the lender deems as high risk borrowing. They can be either added to, or deducted from the loan at offer depending on the lender. They work as follows based on loan to valuation. The loan to valuation is a percentage of the loan offered. Against the valuation or purchase price. Valuation £100.000 Loan Required £50.000 Percentage loan £50.000 In general an indemnity guarantee will be charged where the lending exceeds 75% of the valuation. So based on the example above. Loans above £75.000 will incur an indemnity premium. Costs and applications for these vary between lenders Mortgage Offer A notification from the lender offering funding which sets out the terms under which the offer is made. Mortgage Payment Protection Insurance Essentially an insurance policy covering mortgage payments in the event of sickness or unemployment. Mortgage Term Period over which mortgage is to be repaid. Mortgagee The mortgage lender Mortgagor The borrower Negative Equity Occurs where property prices have dropped and the mortgage held against a property is higher than the current market value. Negative Gearing Term used to describe a situation where a property is being rented out and the amount of rent being brought in is less than the cost of the current mortgage associated with that property. Non-Conforming Term used to refer to people with a poor credit history. Those issued with county court judgments (CCJ’s), bankruptcy, mortgage arrears, Individual Voluntary Agreements (IVA’s) and credit card or other borrowing arrears or defaults. Offer Simply a monetary offer for a property. In many cases the subject of negotiation Offset Mortgage This is a flexible mortgage option that allows savings to be used as a form of credit. This is considered when calculating the interest due on the mortgage.account. It works thus, money in a savings or current account Savings = £15.000 is set against the mortgage balance. Mortgage = £100.000 Interest is calculated and charged on the difference only. Interest amount = £85.000 Open Market Value Open Market Value is the value a property can achieve in the open market when there is both a willing buyer and willing seller. Overpayment Where an additional payment is made which is over and above the agreed amount. An effective method for repaying a mortgage early. However some lenders charge fees for early repayment. Per Calendar Month Term used in rental agreements for payments. Pension Mortgage Simply where a personal pension is used as a repayment vehicle for an interest only mortgage. This method has many pros and cons associated with it. Peppercorn RentTerm used to describe an often trivial ground rent. Personal Equity Plan (PEP) These were tax efficient investments that where available in the 1980’s and 1990’s. Often used as a repayment vehicle with an interest only mortgage. Portable Mortgage In theory this is a scheme whereby the borrower can move their mortgage from one property to another without penalty, within a pre-defined time period, using the original lender. However over recent years with tighter lending regulations this is becoming harder to do without going through rigorous checks by the lender. Preliminary Enquiries These are set of conditions raised by solicitors on the sale/purchase of a property. Usually settled in advance of an agreed sale to avoid any delays once a property is under offer. Premium The monthly amount paid on an insurance policy. Principle The sum of the loan on which interest is calculated. Private Residence Relief A tax relief relating to your principal home. Probate Legal term used to define the work done on a deceased persons estate where a will has been made out Public Liability Insurance Insurance which covers injury or death to anyone on or around the property. Redemption When a mortgage if fully repaid. References These are obtained by a lender prior to offering funding for any mortgage or by agents prior to letting a property for rent. They are simply requests for information to check a prospective borrower/tenants suitability. They usually include credit checks,, employment and bank references etc Registered Land This is land (including any property on it) which is registered at the Land Registry. Release Clause Another term for a break clause used in short term tenancy agreements. Where the tenant and landlord agree an option for a time period at the end of the tenancy. Allowing either party to renew or end the tenancy. Usually a period of two months after the tenancy expiry date. Rental Agreement This document contains all the details and terms and conditions of the tenancy. An AST is a form of tenancy agreement. It is a legally binding document. Repayment Mortgage The capital and Interest elements of the mortgage are paid back to the lender. Repossession When the mortgage lender takes possession of a property due to excessive arrears on a mortgage account. The borrower will be evicted from the property. Retention These usually result when a survey is carried out and the surveyor has recommended remedial works be carried out prior to offer. A price is usually quoted, and this amount of money that is held back from the initial loan. It will not be paid out by the lender until specific repairs or improvements have been carried out by the purchaser. Reversion This is a special type of property purchase. The buyer reaches an agreement with the vendor that the vendor can continue to live in the property for a specified time, normally until they die or some other significant agreed event happens. Right Of Way An individuals legal right to use any particular part of a property so as to gain access to their own property. Right to Buy This is when a tenant living in a council-housing association or other social housing owned property, can purchase the property at a discount. These discounts vary on the type of property and the length of time the tenant has been in social housing. Sale and Rent Back When the vendor sells their property, and rents it from the new owner Searches Searches are carried out by solicitors to find out whether there are any unwanted/adverse effects in relation to a particular property. They will cover both existing issues as well as planned onces. Self Build This is when you build the property yourself. Self Build Mortgage This is a mortgage that is taken on to build a property. The loan amount is generally paid out in stages as the building is progressing. Self Certification Mortgage Used to be known as a NON STATUS mortgage. It is where a lender does not require proof of income. The borrower is essentially confirming they have the income to manage the loan and the ability to repay the mortgage. These are subject to very specific terms and conditions. Rates tend to be higher than standard mortgage schemes and in most cases a larger deposit will be required. Sellers Pack See Home Information Pack Services/Utilities Gas, electric, water and council tax. All payable by the tenants/private home owners Shared Ownership A scheme operated by Councils/Housing Associations where the borrower buys and owns part of a property. They pay a mortgage on the percentage they own. Eg 75%. the borrower pays rent to the Housing Association on the remaining 25%. The borrower would normally have the right to purchase a higher percentage of the property in the future. Sitting Tenant This is when someone occupies a property as a tenant but has not signed an AST and so therefore cannot be asked to leave. Sole AgentWhen a seller chooses only one agent or service to sell their home. Sole Selling Rights Where one agent has complete control over the sale of a particular property. Solicitor Legal Professional who acts on behalf of the buyer or seller in the purchase of a house. The solicitor will check the legal position of the house, carry out Local Authority Searches, Land Registry Searches check monies are in place and oversee the exchange and completion of contracts between the two parties. Split Loan A split loan is a mortgage that can be taken partly on a capital and interest basis and partly on an interest only basis. Stamp Duty A tax levied by the government on house sales. Paid by the solicitor on completion. It works on a sliding scale subject to the sale price Standard Variable Rate The default variable rate the Lender offers to borrowers on their standard residential mortgages. It is also normally the rate that mortgage is reverted back to at the end of any special discount period. Standing Order A method of payment via a bank Structural Survey A report constructed by the surveyor detailing firstly, whether the house is structurally sound and secondly, listing the major/minor defects, (including the necessary work which needs to be done). Studio flat/apartment This is a flat or an apartment with the bedroom/living room all in one. It will normally have either a separate kitchen or a kitchen in the corner of the main room. It will still have a separate bathroom and toilet Subject To Contract This is a term that is associated with an agreement to purchase a property before exchange of contracts. At this stage either party is still free to pull out of the transaction. Superior Landlord The superior landlord is the landlord who the ownership of a property might revert to at some stage for example; a flat with a 99 year lease. Superior Lease or Head Lease This is often applicable to a flat that is rented out. There will be a freeholder, a leaseholder who has a superior or head lease and then they may grant a lease generally as an AST to a tenant to actually occupies the property though they must comply with the terms of both their lease and the Head Lease. Survey There are generally have three tiers of report available: Valuation, Home Buyers and Full Structural. The valuation survey is a report that is produced to determine the value of the property. The Home buyers report includes a valuation. But also determines if the property is structurally sound and whether the lenders money will be secure The full structural survey also provides a valuation. But gives a much more detailed assessment. of the structural condition of the property These reports are done by a qualified surveyor upon inspection of the property. Surveyor The person who carries out a survey of a property, examining the structure and general state of the house. Tax Relief See MIRAS. Tax relief available on interest payments on the first £30,000 of a mortgage loan. Phased out in April 2000 by the Government. Tenancy Agreement This is the document that contains all the details and terms and conditions of the tenancy. It is also known as a rental agreement. An AST is a form of tenancy agreement. It is a legally binding document. Tenant A tenant is a person or persons (can be a company or organization) who is entitled to occupy a property under the terms and conditions of a tenancy agreement. Tenants in Common This is when two or more people are co-owners of a property. When one dies, their share of the property automatically passes to the other/others. Tender – For Sale by Tender This is when an asking price is not stated but offers are invited in writing. There will be a set time and date for the offers to be opened and it will usually be in the presence of the vendor’s solicitor. Normally an acceptance of an offer by the vendor constitutes an immediate agreement subject to contract. Tenure This is relating to whether a property is freehold or leasehold, it denotes the type of ownership a property has. Term The period that the mortgage will last for. Term Assurance This is a policy/insurance that repays the mortgage in the event of the insured person’s death. Title The legal right to ownership of a property. Title Absolute This is the highest form of tenure available. (see Tenure) Title Abstract This is a summary of the title documentation that is used in the conveyancing of unregistered properties to prove that the vendor has the right to sell that particular property. Title Deeds These are legal documents that describe the rights and the liabilities that are attached to a property and they also prove ownership of a property. Title Report A report from the land registry that confirms that the title of a property is acceptable. This is a vital certificate that a lender must have before they will issue any funding for mortgage purposes. Tracker Mortgage This is a mortgage that moves in line with the Bank of England base rate and for a set period of time. Under Offer This is when a vendor has accepted an offer for the property but contracts have not been exchanged on it yet. At this stage either part can still withdraw from the sale/purchase of the property. Vacant Possession This is when the property is vacant. The previous occupants of the property must vacate the property before the new owners move in. Valuation The process of evaluating a property to determine its market value. Valuation Survey The process used to ascertain the value and condition of a property. A survey carried out by the lender to ensure that the house's value is not less than the proposed loan. Vendor Term used to describe the person selling a property. Vendor Deposit Generally used by developers when selling properties in new and prime developments. They offer to pay the full or a large part of the initial deposit Used as an incentive to encourage buyers. Mortgage Terminology F-L2/23/2018 There is a wide range of standard and industry jargon underpinning the mortgage and house buying process. The purpose of this series of articles is to try and provide an understanding of what it all means.
So what follows will be an A-Z, or glossary of terms. This will be spread across several posts for ease of access This first section goes from F-L Failed Valuation Survey Here the lender declines to lend on the property after seeing the surveyor's valuation report. Fixed Rate Mortgage This is a mortgage which has a 'fixed' rate of interest for a set period of time normally between 1-5 years. Fixtures and Fittings Any items not included or included in the sale of the property. For instance curtains, carpets, wall lights, cooker etc. These are generally agreed on a document sent by the sellers solicitor to the seller to complete, this document is then passed over to the buyers solicitor for the buyer to read. Flexible Mortgage These are mortgages with flexible payment options. Such an example of this are mortgages that allow over payments so the loan can be paid off early. Flying Freehold A flying freehold is formed when part of a freehold property overlaps onto a different freehold property or land. Freehold This is when the property owner has complete ownership of a piece of land and the property that resides on it. Full Status This describes a borrower who has a good credit history and who is not self-certifying his income. Gas Safety Regulations A landlord must ensure that a gas safety check is carried out prior to letting out any property. This is an annual requirement and a copy of the record must be given to the tenant. This check must be carried out by an authorised CORGI register engineer. Gazumping Here a vendor accepts an offer from one person only to later reject it in favour of a higher offer they receive from someone else. Gazundering The term used when a buyer reduces his offer moment before exchange. Gifted Deposit This means that someone has gifted the buyer the deposit on a property. Examples include developers on new build properties. In essence it is an incentive to encourage buyers to purchase the property. Ground Rent Applicable to leasehold properties it is a sum paid annually to the Freeholder of the property, by the leaseholder. There may be additional service charges over and above this fee. Guarantor This is a person who agrees to guarantee that they will repay a loan or debt should the borrower default on the payments. Such an example may be where the parent guarantees the mortgage will be paid on their son/daughter’s first property purchase. High Rent Tenancy This indicates a tenancy agreement when the annual rent on a property is over £25,000 and is known as a contractual tenancy. HMOHouse in Multiple Occupation Bedsits come under this category. They are the subject to more rules and regulations than the average property Home Information Pack This is also known as a seller pack and have been legally required on all properties that are sold in on the open market since Dec 14th 2007. You have to have one as you cannot sell most properties without one so whether you question their value as most do or not its best to get one in plenty of time. Independent Financial Advisor A finance professional who has undergone specific training and has obtained specific qualifications to give financial advice. Without being tied to only recommending the products of any particular lender. Improvement Grant This is a grant given by the local authority towards the repair or the improvement of a property. Income Multiples These are the criteria used by the lender to assess how much funding the borrower’s income can support. It is worked out based on of multiples taking into account, both single and joint incomes. The main ones used to 3x main income plus one times a secondary income. The second standard was 2.5 times joint incomes. In more recent years multiples of 5 or even 6 times a salary have been available. Indemnity Guarantee Premium/Mortgage Indemnity Guarantee Premium An up-front, one-off fee paid to the lender to protect them against the borrower defaulting on the loan. Usually charged on mortgages over 75% of the house value. Also known as MIG and Mortgage Indemnity Premium. Individual Savings Account (ISA) They are a way for people to save cash or shares without paying tax. They are also seen as a savings vehicle associated with interest only mortgages so you can repay the loan amount at the end of the term. Inheritance Tax Also known as Death Duties it is a tax on everything contained on the deceased estate after death. Instruction This is when the vendor gives an estate agent or auctioneer the right to sell their property. The resulting agreement confirms the terms under which the the estate agent or auctioneer can act Interest only Mortgages This mortgage method uses a split payment system to pay up the mortgage. Mortgage payments consist of two elements. The money borrowed, or the capital element plus the interest charged on it. Interest only loans pay back only the interest element to the lender. Not the capital originally borrowed. For this reason Interest only mortgages are often tied in with some other type of investment vehicle which is set up to cover the initial loan amount at the end of the mortgage term. This investment vehicles include things like, ISA,s endowment policies and personal pensions. Intestate In the event of a death where no will has been made out. The deceased estate will be placed on hold until all legalities have been cleared. Introducer Fee Common business practice where lenders pay commissions for new business referred via an introducer. Insurance companies solicitors etc. Inventory This is a listing of the contents of any given property. Will include a list of contents and conditions Joint Tenants This is when two or more people are co-owners of a property. When one dies, their share of the property automatically passes to the other/others. Land Certificate Issued by the land registry. This is a certificate that proves ownership of land. Land Registry This is a government department where details of the ownership of properties and any charges against these properties are held. Landlord A landlord can be a person, group of people, company or some sort of body that has a formal interest in a property and has the right to let that property out to tenants. Lease Document in which the owner of a freehold property lets out their premises to a named party at a certain price and for a specified time. Leasehold This when a leaseholder is granted the right to use land/property for a fixed period of time. This ownership is subject to the annual payment of ground rent to the owner of the freeholder. Lender A company or person who lends you money for an agreed time period. Interest is generally charged. Lessor This is the person etc. that grants a lease. Let to Buy Mortgage (LTB) This is a mortgage that allows a borrower to borrow money to buy a new property while their current property is let out to tenants. The maximum amount of borrowing will generally be calculated without taking the buyers existing mortgage into consideration, as long as the rent covers the mortgage on the current property. Libor-Linked mortgage Basically a variable rate mortgage that is linked to the London Inter-Bank Offered Rate. Normally set at a certain percentage above the Libor rate within a given period of time. The Libor rate is often associated with lenders that offer Loans to borrowers with some sort of adverse credit history. Life Assurance An insurance policy which pays out a fixed lump sum on death of an individual. Life Policy This is a policy/insurance that repays the mortgage in the event of the insured person’s death. (This can also be known as Term Assurance). Loan-to-Value A percentage expressing the size of mortgage against the value of house. For example, if a House Value is £100,000, with a Mortgage Size of £75,000, the loan-to-value = 75 %. Local Authority Search A search carried out by the Solicitor to find out if there are any Local Authority Notices, This is to find out if the building and the surrounding areas are subject to any local authority notifications. Things such as industrial/motorway developments. Building condition etc. We hope this small article has been of interest please feel free to share it All the best Mortgage Terminology A-E2/9/2018 There is a wide range of standard and industry jargon underpinning the mortgage and house buying process. The purpose of this series of articles is to try and provide an understanding of what it all means.
So what follows will be an A-Z, or glossary of terms. This will be spread across several posts for ease of access This first section goes from A-E Acceptance This is a document issued by the lender that gives details of their mortgage offer. The term acceptance is used when the borrower signs and returns the document accepting the offer of funding Additional Security Fee More Commonly known as MIGPIt is a one-off fee levied by the lender to protect them against the borrower defaulting on the loan. Usually charged on mortgages over 75% of the house value. Also known as MIG, Indemnity Guarantee Premium and Mortgage Indemnity Premium. Advance Listed in the acceptance letter. It is the total amount of funding offered by the lender Adverse Credit These issues come to light when credit searches are carried out, it is essentially, where there is a poor credit history. Such issues can be things such as county court judgments (CCJ’s), bankruptcy, mortgage arrears, Individual Voluntary Agreements (IVA’s) and credit card or other borrowing arrears or defaults. Agent This is normally a person/company, organisation that has been appointed and who acts on behalf of a landlord, such as a letting agent, management agent or estate agent. Applicant This is simply a term which describes the person/s making the application for mortgage funding etc Appraisal Simply stated, it’s an assessment of the property for valuation by an estate agent Annual Percentage Rate/APR The total cost of a loan, taking into account interest charges, arrangement fees and other costs, shown as a percentage. Arrangement fee / Administration fee More Commonly known as MIGP It is a one-off fee levied by the lender These are fees which come in a wide range of areas and are usually payable before an action is carried out. Examples include payment which is charged to cover the costs of drawing up a tenancy agreement. Arrangement fees to the lender for arranging the loan. Things such as charging for reference requests. Fees to secure a specific type of funding scheme. Etc. They are many and varied. Be aware of them Assignment Part of the completion process, when the property is signed over Assured Shorthold Tenancy/AST This basically gives a landlord the right to reclaim their property back after a specified period of time. Short term tenancies tend to be six months to a year Banks A place to go for Mortgages & Loans. Base Rate This rate is set by the Bank of England and is used as a benchmark for lenders to set interest rates by. It represents the lowest rate of interest a bank will charge you when it lends you money. This rate is reviewed periodically thorough out the year and can go up as well as down. Booking Fee See admin/arrangement fees Break Clause/Release Clause Used in conjunction with fixed term tenancies. When the fixed term tenancy period ends, this clause can be added to the tenancy agreement by either the landlord or tenant. It basically allows a cool down period over which the tenant can either agree to renew the tenancy, or end it. This clause will normally allow either party to get out (normally with about 2 months notice) before the end of the new term. Bridging Loan Basically a short term expedient, it is a very expensive temporary loan to tide you over when having to buy your new house before selling your old home. Broker This is a person that advises on mortgages etc. Known as a mortgage broker. Building Insurance This is a type of insurance covers the property in the event of it being damaged or destroyed, and is a requirement. The sum that is insured covers the estimated cost of rebuilding the property. Building Society Another place to go for Mortgages & Loans Buy to let This is a specific mortgage that allows you to buy a property with the main aim being to find tenants and let it out. The income from renting the property out is taken into consideration by the lender. Capital The total amount – sometime referring to sum borrowed in a mortgage – sometimes the amount you have left in a property after the mortgage has been repaid. Capital and Interest Mortgages / Repayment Mortgages With these, all payments. Both the capital and interest monthly mortgage payments are paid back directly to the lender. The advantage being, that at the end of the loan term, the entire debt will be repaid with nothing outstanding. Capped Rate These are interest rate schemes offered to borrowers, that are capped to a certain level of interest over a set period of time. They usually run over the first 3 years of the mortgage starting, but it can be for longer. The interest rate cannot go any higher than this capped rate during this specified period of time. Cash Back Mortgage See Cash Back on completion. Cash Back on completion This is where you get a lump of cash from the mortgage lender on the completion of a sale. Cash on Cash Return This is the same as Return on investment. Caution These are entries that are on a land register to protect the interest of a third part. Chain This occurs when the seller needs the sale of their house to occur before they can complete the purchase of another property. The same situation may exist for others in the chain. As a result, the whole chain can collapse if one link breaks. Chain Free This is simply when a potential buyer does not need to sell a property in order to buy a new one hence they are “chain free”. First time buyers are often chain free. Charge The term attached to a property by the lender to give security against the asset. It means that they have a right to the property value should it come to a sale. Charge Certificate This is a certificate issued to the lender by the Land Registry that gives evidence of the lender’s charge over the property. Collateral The property is what is classed as collateral. It is seen as a guarantee that you will be able to pay the lender the loan. If you aren’t able to repay this loan the property could be sold by the lender in order to recoup the money they originally lent you. Completion This is the final stage of the buying process. The ownership is legally transferred from the seller to the buyer. Compulsory purchase order Normally issued by local authorities which enables an authority to purchase a property whether the seller wishes to sell or not. Contents Insurance Insurance to cover any loss or damage to your possessions. Contract Race This is what sometimes happens when two potential buyers want to buy the same property. The seller will normally be the one to instigate the contract race but it can also be instigated by a buyer. The winner of the race will be the first buyer to be in a position to exchange contracts. Contracts The legal documents needed to transfer the ownership of property they are signed by both the seller and the purchaser. Conveyancing Legal process involved in buying and selling a house. County Court Judgement (CCJ) Issued by the County Courts for default or non payment of loans. Possession of these can have an adverse effect on obtaining funding for mortgage use. See Adverse credit Covenants The covenants are the terms of any given tenancy agreement. They include any obligations or promises made by either the Landlord or the tenant. They are requirements by law on the owner of a property that they will either do or not do something with their property. Credit Search References These are references taken regarding a potential tenant. These references can be from sources such as the tenant’s employer. A check of the tenant’s credit history is also often carried out. See Adverse credit Current Account Mortgage This type of mortgage is a flexible mortgage that can keep all your finances in one place. It combines your mortgage with a current account and the money in the current account can be automatically set against the mortgage balance and then interest only charged on the outstanding amount of the loan. In practice this should mean that interest payments should be reduced. Deeds These are the legal documents associated with a property. Default This is when payments have stopped or been missed. Delayed Completion Completion is classed as delayed if they take over 28 days to complete after exchange of contracts a delayed completion needs to be agreed before exchange of contracts. Deposit This is normally a lump sum paid to the seller towards the overall cost of the property it is normally held by solicitors until completion of contracts. Direct Debits Direct debits are used to make payment directly from a bank account. They work in a different manner from standing orders Disbursements Expenses paid by the solicitor on behalf of the buyer. Discounted Rate A Discounted rate mortgage will have an interest rate lower than the lender's Standard Variable Rate. Discounted Tracker Rate Mortgage This is a variable rate mortgage that is discounted from the Bank of England’s base rate. It is usually discounted by a set percentage for a set period of time. In practice there are usually early repayment charges that will be charged if the loan is repaid within the discounted period. Early Repayment Penalty / Early Redemption Charge This is a fee charged on early payment of a mortgage loan Endowment Mortgage Type of mortgage where monthly payments are split between the lender and the insurance company running the endowment (life assurance) policy. Interest is paid to the lender, the capital portion of the loan is re-directed into the endowment policy. The loan is paid off in one lump sum at the end of the loan period. Engrossment This is the final and formal version of a document that has been prepared by a solicitor in preparation for signing following the agreement of the final draft between parties. Equity This is the difference between the market value of a property and the amount of the mortgage that is still owed to the lender on that property. Estate Agent Property agents who deal in the buying and selling of property Excess The initial sum you have to pay on an insurance claim. Exchange of Contracts The point at which buyer and seller are legally bound to the sale and purchase of the property. Exclusive Mortgage Mortgage scheme which is only available through a specific Lender. Execution This is when a deed is signed, sealed and delivered in front of an independent witness. This list is not comprehensive will be updated on a regular basis Interest Rate Schemes1/7/2018 This article explains some of the different mortgage payment scheme variations available to the borrower Interest Rates These are simply how much you are going to be charged for your borrowing, and are an integral part in the lending industry. We all want to borrow money and pay the least possible price for doing so. Variable rate This is subject to interpretation, and can vary according to lending criteria. It is basically the current rate at which the lender is charging all borrowers. The term variable comes from the fact that the rate will fluctuate with market forces. Many lenders offer specialized schemes which offer short term incentives to stimulate borrowing. Some are described below Fixed rate schemes These are simply where the lender offers lending at a fixed rate over a certain period of time. After which the scheme reverts to the variable rate applicable at that time. Pros and Cons, useful in times of high interest rates, will keep the borrower locked into a lower fixed rate for a period of time. If rates are fluctuating quickly, the borrower could end up stuck in a scheme where the variable rate has dropped below that of the fixed rate. Capped rate schemes Similar in organisation to a fixed rate scheme but different in application. Basically the rate is set to a value below the variable rate. If the variable rate remains higher, then your payments stay at the capped rate. However if the variable rate falls below the level of the capped rate. Your payments are adjusted to the lower level variable rate. Avoiding the pitfall of the fixed rate scheme. this is considered to be one of the best options available currently. Deferred Schemes Also referred to as an Adjustable Rate Mortgage: is a very complex animal which whilst it offers a degree of flexibility in early payments. It can cause serious issues in the later life of the loan if it is not fully understood. The following series of illustrations will show how it works. For illustration purposes this example is worked over a 5 year period with interest rates rising at 1% per year. as per the graph below. The graph shows payments rising over the first 5 years finishing at year 6 with the variable rate. During this time the borrower will have been paying interest at the rates quoted, BUT: The lender will have been charging interest at the variable rate. As per the illustration below. As can be clearly seen, there will be a shortfall between the early payments and the rate charged by the lender. This shortfall will be added to the remainder of the loan when deferred period expires. As per the illustration below. The difference between what was paid and what was actually charged is rolled up, or deferred, and added to the balance of the loan. Thus raising the original loan by that amount. It means the borrower ends up owing more than was originally borrowed. This is an extremely important thing to understand when embarking on such a loan. Article taken from the book Key to the Door a little guide on mortgage borrowing in the UK by Mark Reed We hope this small article has been of interest please feel free to share it All the best House purchase Fees/Costs1/7/2018 This Article deals with the fees which are incurred on house transactions. The majority are paid by the solicitor on completion of the sale. Those which are paid up front relate primarily to the lender.
The section will also be broken down to indicate single payments and ongoing payments. The Lender Valuation fees. These are single payments made prior to the survey being done. Price is subject to the type of survey undertaken. and the purchase price of the property. The examples below give a rough guide Mortgage report and valuation £150 plus Housebuyers Report £350 to £950 Full Structural Report £500 to £1300 Admin/Arrangement Fees These are primarily admin fees to cover costs incurred by the lender. When carrying out the information gathering stage prior to offer. They can include things like charges for credit searches, bank statements and reference requests, and are mostly paid for as and when required. There may also be arrangement fees for specific mortgage schemes . If so, these can be either added to the loan as part of the offer or deducted from the loan as part of the offer. Indemnity guarantee premium This is essentially a single charge paid on what the lender deems as high risk borrowing. These can be either added to, or deducted from the loan at offer depending on the lender. They work as follows based on the loan to valuation. The loan to valuation is the percentage loan offered against the valuation or purchase price. Valuation of £100.000 Loan required £50.000 Percentage loan 50% In general An indemnity guarantee will be charged where the lending exceeds 75% of the valuation. So based on the example above. Loans above £75.000 will incur an indemnity premium. Costs and applications for these will vary between lenders. Redemption Fees This is a charge which is levied by the lender if the mortgage is finished early, or moved to another lender. Such an example may be, where the purchaser wishes to raise additional funding by accessing some of the properties equity value. So the property is re-mortgaged with another lender. Obviously an after purchase expense that can easily be overlooked. Prices vary from lenders and amounts borrowed Special reports These can include things brought about by the surveys . Such as timber and damp reports, assessments on work required for subsidence or damaged structures etc. Insurance As well as life assurance on the loan, there will be risk which needs to covered on the property, so suitable buildings and contents insurance may well be required. Estate Agency Fees These are primarily commission based, and are calculated as a percentage of the purchase price. Between 1 and 2 percent. The figure is usually subject to agreement before the agent is instructed to act. This fee will be paid by the solicitor on completion of the purchase. Arrangement Fees, in rare circumstances a charge may be made by the agent to cover initial costs. Any such charge would be agreed with the purchaser and paid up front. Solicitors All of these fees are paid after completion. This bill is the most expensive so requires a degree of explanation The Estate agency fee will be collected and paid to the agent by the solicitor Stamp duty: on registration of the sale, the purchaser may be eligible for stamp duty. The scales vary across different parts of the UK. The first example applies to England and Wales. This is paid to the Inland revenue by the solicitor. It is incurred where the purchase price exceeds £125.000 and works on a sliding scale as follows Purchase price up to £125,000, Zero payment Purchase price between £125,000 and £250,000, payment incurred at 2% Purchase price above £250,000, payment incurred at 5% In Scotland stamp duty comes into effect on purchases of £145.000 and works as follows Purchase price up to £145,000, Zero payment Purchase price between £145,000 and £250,000, payment incurred at 2% Purchase price between £250,000 and £325,000, payment incurred at 5% Purchase price between £325,000 and £750,000, payment incurred at 10% Purchase price above £750,000, payment incurred at 12% These were current at the time of writing Solicitors The solicitors fees are calculated on the work they actually do When the bill is drawn up, it will give a detailed breakdown of the costs and how they were incurred. These then are the single payments fees as they occur throughout the process. Lastly the ongoing payments These are the most important, and are the ones which if not paid continuously could lead to repossession of the property they are, in the case of a capital repayment loan. The capital and interest payments to the lender. In the case of an interest only loan, the interest repayments to the lender. and the capital element into the repayment vehicle. Two final things, you as the purchaser must ensure the repayment vehicle will be able to repay the loan. So monitor it regularly. If problems occur contact the lender. Life assurance premiums, make sure these never get cancelled /stopped in anyway or form. When payment stops, the cover stops. Article taken from the book Key to the door The little guide to mortgage borrowing in the UK Mark Reed We hope this small article has been of interest please feel free to share it All the best Mark ReedWriter/Author/Publisher/ |