If you’ve never bought a home before, don’t be surprised if you come across some unfamiliar words and phrases and realise you’re not sure what they mean.
In a 2022 Skipton survey of 2,000 homeowners who had bought in the last 20 years, 54% admitted to being confused by certain aspects when it came to buying their first home. Of them, 8 out of 10 said they were too embarrassed to ask things like ‘What is stamp duty?’, ‘What is conveyancing?’ and ‘What’s the difference between a mortgage Decision in Principle and a mortgage offer?’.
60% felt overwhelmed talking to estate agents, solicitors and mortgage advisors. Often property professionals can just assume that you know what they’re talking about, but would you know your LTV from your APRC, especially when you’ve never come across them before?
The good news is, we’re here to guide you through.
We’ll explain all of the above, and many more phrases you’re likely to come across on your home buying journey, from checking how much you could afford to borrow on a mortgage to the day you move in. It’s just one of the ways that Skipton Building Society could help on your property purchase adventure, including advising on a range of mortgages suitable for first time buyers.
Setting a budget
The very first step towards getting on the property ladder should be to get an idea of just how much you may be able to borrow. So here are some of the phrases you may come across when you’re trying to get this information.
Affordability check
This is an estimate of how much you might be able to borrow based on your salary. You can carry it out using an online tool like this Affordability Quick Check calculator. This is very much a ballpark figure, as several other factors will also dictate how much a lender is likely to offer you.
Decision in Principle (DIP)
Sometimes also known as an Agreement or Mortgage in Principle (AIP or MIP), it 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. We’re here to help make the process of getting a Skipton DIP as simple as we can, so you can request one online.
Credit check
When you make an application for a mortgage, the lender will carry out a credit check to see how you have managed your finances in the past. The companies that provide these credit reports will give you a credit score. Generally the higher this number is, 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 so-called footprint. These are split into the soft and hard footprints. A soft footprint is only visible to you. Lenders won’t see it and 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. This may make it harder for you to obtain credit in the future. You can find more information on our Credit Scoring Guide.
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 and leasehold property
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. This generally relates to houses.
If you own the leasehold of a property, you own the property but lease the ground it sits on from whoever owns the freehold. This is common with flats. The lease will be for a fixed period of time, up to 999 years, but can often be extended. For properties with fewer than 70 years left on the lease it may be hard to get a mortgage.
Ground rent and service charges
If you are a leaseholder, you may need to pay the following additional charges to the owner of your property's freehold:
- Ground rent - this is usually paid annually to the owner of the freehold as a rent for the land your property is on.
- Service charge - the payment for all services, such as maintenance of gardens and communal areas of the property, which you'll use but you are not specifically responsible for. The freeholder may appoint a managing agent to manage this aspect on their behalf.
Finding a mortgage
With so many options available it could be a good idea to come to Skipton Building Society. After all, we’ve been helping people to own their own homes since 1853 and could help you find a mortgage from our range that is suitable for you. And as you can see, we also explain everything in plain English.
Standard mortgage valuation
This is carried out on behalf of the mortgage lender to make sure it’s worth what they’re going to lend you. It is not a survey and it
doesn’t guarantee that the property is free from defects. It's generally recommended that if you're buying a property you arrange a more detailed RICS Level 2 or Level 3 home survey to ensure that the home you’ve chosen is in a good state of repair.
In Scotland it is the seller’s responsibility to obtain a Home Report.
Fixed, variable and tracker rate mortgages
Lenders like us offer different kinds of mortgages. As the name suggests, a fixed rate mortgage has a rate that stays the same for a specified period of time, meaning you know how much you will pay each month.
A variable rate mortgage has a rate that can rise and fall at any time. Rate changes can happen for a variety of reasons. Most lenders have 'standard' variable rates, which are varied at their discretion. Sometimes variable rate mortgages may be subject to a "floor" (below which the rate can never fall), or a "ceiling" (which the rate cannot go above).
A tracker rate mortgage is directly linked to changes of an independent external index such as the Bank of England Base Rate, for a set period of time. This means when the independent rate increases, so will your rate. But if the independent rate falls, you'll benefit from the reduction in full during the tracker period. Some products have floors, below which the interest rate cannot fall.
Bank of England Base Rate
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. To find out more about Base Rate changes and how they affect mortgage rates visit our Base Rate page.
APRC
Annual Percentage Rate of Charge is an indicative 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.
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.
Government schemes
There are a range of different government schemes that can help you get onto the property ladder. Some of the schemes available now are Help to Buy Wales, Shared Ownership and First Homes England. You’ll find more information about all these schemes and more on our Government schemes page.
Guarantor
In some circumstances a lender will ask for a guarantor. This is usually a family member who undertakes to pay your monthly mortgage repayments if you aren’t able to meet the commitment yourself. We don't currently offer guarantor mortgages at Skipton.
Joint Borrower, Sole Proprietor
A Joint Borrower, Sole Proprietor mortgage gives people who don’t quite have the income or financial capacity to get a mortgage on their own, get onto the property ladder. It allows a trusted person's income to be used on the application, without them being a co-owner. All parties to the mortgage are borrowers and liable for the mortgage payments. Only the proprietor will be an ultimate owner of the property and on the title deeds.
Underwriting
Underwriting is a process carried out by the mortgage lender to work out how much risk they would be taking by lending you money. They’ll check your income, credit worthiness and property details before deciding whether to make you a mortgage offer.
Mortgage Offer
A mortgage offer is a formal document confirming that your lender is happy to lend you an agreed amount of money, on the specific property. This document is valid provided there are no changes to your circumstances prior to completion. 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.
Buying your property
Now you’ve found a home and arranged your mortgage. It’s time to complete the legal process of buying a house. Here are some of the key phrases you need to know to cut through the legal jargon.
Conveyancing
Conveyancing is the legal process involved in transferring the title of the property from the seller to the buyer, and the lender taking the mortgage over the property to secure their loan to the buyer.
The process is carried out by a person who is legally qualified to carry out conveyancing (such as a licensed conveyancer/solicitor). Usually the same conveyancer will act for the buyer and the lender, so the conveyancer needs to be on the lender's conveyancing panel.
Stamp Duty Land Tax
England and Northern Ireland
This is a tax that’s payable to the government when you buy a property. 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. More information is available on gov.uk.
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. More information is available on Revenue Scotland.
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 additional properties). It’s another tiered system like stamp duty, so the cost will depend on how much your property costs. More information is available on gov.wales.
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 your property has the relevant planning permissions and buildings regulations approval, or might be affected by a compulsory purchase order. It will also check to see if there are any issues with flooding or past mining in the area.
Surveys
There are a few types of survey you can get and they all come with a different price tag. That doesn’t mean you need to pick the most expensive one. It’s best to choose the one most appropriate to the condition of your property.
Some lenders will arrange these surveys for you, however Skipton will only instruct valuations for mortgage purposes, which make sure the loan amount you require is appropriate and the property is deemed suitable security for lending purposes. If you wish to arrange one of the following surveys, this would be arranged by you independently of the mortgage application process.
A RICS Home Survey - Level 2 is for properties that are in reasonable condition. It aims to identify structural issues like subsidence and damp and it could reveal problems you can’t see just by looking around. Where applicable, your report will contain suggestions for repairs, which you could use to negotiate down the price of the property.
A RICS Home Survey - Level 3 is the belts-and-braces option and can be good for older buildings or ones that are very large or slightly unconventional.
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.
Completion
Your lender releases the mortgage money to the conveyancer who transfers it to the sellers representative and ensures that ownership is transferred to you allowing you to move in. This is the day when you finally achieve your aim of being a property owner. This is known as Settlement in Scotland.
More information
The steps in the house buying process in Scotland are slightly different to England and Wales. More information is available in our guide of how to buy a house.
Of course, we've only explained here some of the many phrases that you may come across. We hope you find this jargon-busting guide helpful on your home buying journey. And if you come across any other jargon you’re not sure about, just ask.
From home buying jargon to applying for your first mortgage, the team at Skipton Building Society are here for you.