Buying a house for the first time is likely to be a very exciting experience for anyone. But it can also be a daunting prospect, due to the huge number of considerations that need to be taken into account.
One part of the process which may be overwhelming at times will be trying to understand all of the important terms related to purchasing a property which you may not be familiar with.
Below are some of the most commonly used house-buying terms and definitions, that even a more experienced property purchaser may need reminding of.
Agreement in principle
A statement from a mortgage lender to verify the amount of money they are willing to lend to a borrower. This can confirm to a prospective seller and/or estate agent that you are able to get a mortgage and therefore afford to purchase the property you are interested in.
A comprehensive survey of the structural condition of a property that is produced after a thorough inspection by a chartered surveyor. Details will include instances of any property defects, what has caused them, how urgently they should be repaired as well as an estimated cost of the repairs.
A property purchased with the intent of it being rented out to a tenant, rather than lived in by the owner.
Common Areas/Common Parts
Areas and amenities within a freehold property (e.g. an apartment building) that the leaseholders (e.g. individual apartment owners) will share. Such areas may include the main hallway building, staircase, car park and garden.
A document showing the total amount of money due to the seller of a property, in order for the transaction to be completed.
Conveyancing is the process of legally transferring ownership of land or property from one individual to another, undertaken by the buyer’s solicitor and the seller’s solicitor.
Deeds are the legal documents which prove ownership of an asset, such as a property or piece of land.
Equity and Negative Equity
Equity refers to the value of the property you own, minus any money owed which is secured against it. For example, if you purchased a house for £250,000 and have £150,000 left to pay on your mortgage, your equity in the property would be £100,000.
Negative equity refers to a situation where the remaining balance of your mortgage is worth more than the value of your property.
Exchange of Contracts
The point in which the agreement to buy/sell a property becomes legally binding. Signed contracts are swapped between the solicitors representing both sides of the transaction and the deposit is paid from the buying side to the selling side.
The outright owner of a property as well as the land which it is built on.
A situation whereby the seller of a property accepts an offer from elsewhere, after already agreeing to sell to someone else. This is permitted legally, only if it occurs before contracts have been exchanged with the original prospective buyer. One way a buyer can reduce the risk of this happening is by asking the seller to remove any adverts for the property and stop viewings as soon as their offer has been accepted.
Interest Only Mortgage
A mortgage agreement whereby only the interest due on the total property loan is paid each month. Therefore, at the end of the mortgage term, the principal balance of the loan will remain unchanged.
A government department where changes of ownership are registered.
Lease and Leaseholder
A lease is a document which outlines the agreement between a freeholder and an individual who will own/occupy a property for a fixed amount of time (leaseholder). The lease will clearly define the roles and responsibilities of each side of the agreement.
Local Authority Search
The process of checking the information held by the local authority (council) in relation to a given property. Important things such as planning permission restrictions will be revealed from a local authority search, along with details of who is responsible for maintaining roads/paths which are adjoined to the property.
A protected property for which special permission is required from the local authority, if someone intends to make changes to it. Buildings of historical importance or special interest will fall into this category.
Loan to Value (LTV)
The amount of money a lender will agree to lend, in relation to the value of a property. For example, if a property is valued at £200,000 and the mortgage lender offers a LTV of up to 75%, then the maximum mortgage amount would be limited to £150,000.
A loan provided by a financial organisation such as a bank or mortgage lender which is secured against a property. The title of the property will be transferred to the lender, under the agreement of it being transferred back to the borrower once the balance of the loan has been fully repaid.
If the agreed repayments are not made, the mortgage lender can repossess the property.
An agreement whereby the borrower pays back some of the amount borrowed together with the interest due on the mortgage each month. Providing all repayments are made correctly each month, the borrower will have complete ownership of their home by the end of their agreed mortgage term, as all of the loan will have been repaid.
Stamp Duty Land Tax (SDLT)
A tax paid to HMRC when a property or piece of land is purchased over a certain price.
Subject to Contract
When an offer has been accepted but it has not yet been completed, i.e. it is pending the exchange of contracts (see definition above). At this point, the agreement is not yet legally binding.
A report commissioned by a mortgage lender to determine the value of a property.