“What are you on about?” – Mortgage jargon buster

10 March 2020

Buying a house, remortgaging to get a better deal or to do some home improvements... these are things we may do a handful of times in our lifetime. So you could be forgiven for forgetting the ins and outs of the process.

Whether you are a first-time buyer or a seasoned hand with a dozen mortgages and re-mortgages under your belt, were here to shed some light on those often heard, but maybe, not understood terms and abbreviations associated with buying a property.

 

LTV – Loan to value

The loan to value is how much you are borrowing in relations to how much the property is worth. A simple example would be if your house was worth £100,000 and you had a £25,000 deposit the amount you would have to borrow would be £75,000 making the LTV 75%. Your LTV often governs the deals available to you. Generally speaking the lower the LTV the more favourable the rate will be. 

This leads us on to another word often used around house buying.

 

Equity

The equity is the money you have tied up in your house. Using the example above. If your house was worth £100,000 and you had a loan on £75,000 the equity you have would be £25,000. The equity is the money youd have leftover if you sold your house and paid off the loan. So equity is the opposite of LTV.

 

Fact Find 

You will definitely have forgotten about this one. Its the part that takes the most prep on your behalf, but its not that daunting if you take a little time to get organised and have the info at hand when you speak to your adviser. Your adviser will need some information from you regarding your income, employment, spending and debts. This info is used to ascertain if you can afford the loan and which lenders are able to help.

This is some of the key information youll need to be a star client!

  • Proof of income (usually 3 months payslips if employed, or 2 years tax calculations and tax year overviews if self-employed)
  • a good idea of your monthly outgoings, this can get quite detailed, down to how much you spend on birthday gifts each month. 
  • Details of any outstanding debts you have, personal loans, car finance, credit and store card.

 

SVR – Standard Variable Rate

The standard variable rate is your lenders default rate. This is particularly important if you already have a mortgage and your current deal is coming to an end. Very much like an energy companys Standard Tariff, this is usually the lenders most expensive rate. 

The good news is that if you happen to be on this rate therell be no ERC, (well get on to this one next!) so youll be free to move to another deal either with your current lender or with another lender.

 

ERC – Early Repayment Charge

Early Repayment Charges may apply if you change mortgage or lender before your current deal has come to an end. These fees are typically between 5-1% of the outstanding balance on the account. Obviously, we will try to avoid these charges. However, in some circumstances and if its in the clients’ best interest you may be better off paying the ERC to move to a more cost-effective deal

So there you have it, a small glossary of terms that will help you communicate with confidence with your adviser. And remember if they are talking gobbledygook at you dont be afraid to stop them and say, “What are you on about???!”