First-time buyer jargon buster

LTV, OIRO, ISA…OMG! What does it all mean? Here we explain the terms you need to buy a house.

Agreement in Principle or Decision in Principle

These are the same thing. It’s a document that a mortgage lender gives you which shows an estimate of how much they could be willing to lend to you. It’s based on a snapshot of your finances. However this amount, or decision to lend you the money could change when they do an in-depth look at your financial situation which is the next stage (see Mortgage Offer).

Independent mortgage broker

A qualified professional who can give you advice when you’re looking for a mortgage. They have access to lots of different lenders (but not necessarily all lenders) in the market and have a regulatory obligation to recommend the best deal for your personal circumstances.

Credit Score

This is personal to you. It is a score given to you by credit reference agencies (there are a few different ones) and it’s based on your financial behaviour. They each look at the data around how you are with money, for example, whether you have a lot of debt or if you miss repayments, and they give you a numerical credit score. You can try and improve your score, this blog explains more.

Equity

Is the difference between the value of the property and the outstanding loan balance.

Fixed rate mortgage

This loan has an interest rate that will remain the same throughout a specified fixed term of your mortgage. For example, for a two-year fixed mortgage, the rate should not change during the first two years of the mortgage term. At the end of the fixed rate period, you’d then change to a variable rate (each lender sets the variable rate that will apply to their mortgages) for the remaining term of the loan. But lots of people change mortgages after the fixed rate period ends and look at the mortgage that suits them best at that time.

Full mortgage application

If you are happy with your Decision in Principle, you can submit a full mortgage application. This begins formalising the process of applying for a mortgage and will allow lenders to carry out hard credit searches (see below). If a lender approves your mortgage application, you will receive a Mortgage Offer (read more about these below).

Hard credit search

This is when a company makes a full search of your credit report. These types of searches are noted on your report, so other lenders who look at it can see that you’ve applied for credit.

Help to Buy ISA

The Help to Buy ISA is a scheme designed to help first-time buyers save for a mortgage deposit to buy their first home. Savings are tax free, with the added bonus of receiving government contributions of £50 for every £200 saved. This is up to a maximum of £3,000 if you save £12,000.

Help to Buy Scheme equity loan

The Help to Buy Scheme equity loan is for new-build properties only. It offers loans of up to 20% of a property’s value and they are interest free for the first five years. People who use this Help to Buy Scheme equity loan only need to have a 5% deposit, so buyers can raise a 25% deposit, allowing access to a wider range of lower LTV mortgages.

Interest-only mortgage

This is a loan where you only pay back the mortgage interest each month during the term of the mortgage. So, you don’t actually pay off the debt, just the interest on the debt. For example if the property cost £100,000, you’d pay the interest on the £100,000 loan, but you wouldn’t reduce the £100,000 debt. So at the end of the mortgage term, you’d have to repay the £100,000 which would still be outstanding.

Legal fees

These are the charges you will need to pay your legal representative. Some lenders offer free legals on selected products as an incentive to take out a mortgage with them.

LTV

This stands for Loan to Value. It’s the loan (or mortgage) divided by the value of the property. So, if the house is worth £100,000 and you have £25,000 deposit (which is 25% of £100,000), you have a 75% LTV. This is because the amount of the loan is equal to 75% of the value of the property.

Mortgage Offer

This is the final stage of the application process. Once you receive a Mortgage Offer, you’ll have time to reflect before accepting and committing to the terms and conditions of the mortgage.

Mortgage term

This is the total length of time over which you take your mortgage. At the end of the term, you’ll have paid back all the debt on your property (assuming it’s not an interest-free mortgage). This term can change during the lifetime of your mortgage, for example if you make overpayments or if you borrow more money against your property.

Repayment mortgage

This is a loan where you pay back part of the loan each month, as well as the interest on the mortgage.

Stamp Duty

This is a tax that you pay when you buy a house if a property value exceeds £125,000. However, if you’re a first-time buyer, you’ll be exempt from Stamp Duty if the value of your property is less than £300,000.

Survey

A survey is carried out to obtain as much information as possible about a property. A professional visits the property, assess it and creates a report. There are various types of report which offer different levels of detail.

OIRO

Seen in the sale of properties, the seller is looking for offers in the region of that amount.

Valuation fees

This is a fee charged to value your home for mortgage purposes. Some lenders may offer free valuations on selected products.