Glossary[divider] Here are some useful terms and facts. The specific features of your mortgage are shown in your Key Facts Illustration (which your adviser will give to you). This is an important document which you must read as it highlights any conditions that apply to your mortgage.
Arrears and Repossession
If at any time you are unable to meet your mortage payments, you should speak to your lender straight away. Repossessing a property is generally a last resort – your lender will try to reach an arrangement with you to enable you to keep your home. If your lender sells your property after repossessing it you’ll be responsible for any shortfall including fees associated with the sale.
Annual Percentage Rate (APR)
As well as telling you the rate at which they will charge you interest, lenders must also calculate the APR of your mortgage. This is the total cost of the loan, including interest and fees shown as a percentage rate. The APR is intended to help you compare different types of mortgages from different lenders. In calculating the APR, lenders assume you’ll pay the mortgage for the full term. All lenders will tell you what their APR is before you sign up with them. Generally, the lower the APR, the better the deal, assuming you stay on the same mortgage product throughout the term of your mortgage.
With a cash back mortgage, your lender pays you a lump sum when you complete your mortgage. The cash back can be a fixed amount or can be worked out as a percentage of your mortgage. You should be aware that if you move to another lender in the early years, in other words within the early repayment charge period (see Early Repayment Charge section) then you’ll have to repay some or all of the cash back received.
When you apply for a mortgage (or any sort of credit) the lender will usually ‘credit score’ your application. This helps them decide whether to accept your application, the amount of money they’re prepared to lend to you and what rate of interest you’ll pay.
Credit scoring works by awarding points based on your circumstances. Each lender has their own scoring system. You’ll generally score more points if you’ve been in your job longer, own your own home and have paid all of your loans on time in the past. Having a good credit history will improve your chances of getting the best rate mortgage.
You can get your individual credit report by contacting Experian or Equifax. This will help you understand your credit file and what aspects lenders use to make a credit decision.
Early Repayment Charge
This is a charge that you may have to pay if you want to pay off your mortgage before the end of a set period. Some charges may apply only for as long as the set period lasts. In other cases, they can extend beyond this.
Some lenders offer arrangements that include the cost of completing the legal work involved in arranging a mortgage and buying a home. These arrangements vary but they all reduce the amount you’ll need to pay at the outset.
Higher Lending Charge
Lenders sometimes charge a fee if your mortgage is a high percentage of the property’s value. This fee is used by your lender to buy insurance that protects them if they repossess your property and sell your home for less than the amount outstanding on your mortgage. This insurance does not protect you. You would still be responsible for any shortfall after the sale of your property.
Home Reports For Properties For Sale in Scotland
Houses for sale in Scotland now have to be marketed with a Home Report.
This is a pack of three documents: a Single Survey, an Energy Report and a Property Questionnaire. The Home Report will be made available on request to prospective buyers of a home. The Single Survey contains an assessment by a surveyor of the condition of the home, a valuation and an accessibility audit for people with particular needs. The Energy Report contains an assessment by a surveyor of the energy efficiency of the home and its environmental impact. It also recommends ways to improve energy efficiency. The Property Questionnaire is completed by the seller of the home. It contains additional information about the home, such as Council Tax banding that will be useful to buyers.
For more information please go to http://www.scotland.gov.uk/Topics/Built-Environment/Housing/BuyingSelling/Home-Report
When your mortgage is confirmed, your lender may agree to lend you a pre-agreed amount of extra money without having to go through a formal application process. This is known as a drawdown facility. You may also be able to borrow back the amount of any overpayments that you’ve previously made.
If the value of your property falls below the amount you owe on your mortgage this is called ‘negative equity’. If this happens, and you need to sell your property, you’ll still be responsible for repaying the full amount of the mortgage.
Some lenders let you move your mortgage to a new property when you move house.
Most mortgages now offer you the option of increasing your monthly payments. When you do this, you’ll be paying an additional amount off your mortgage each month. Making overpayments can help you to repay your mortgage before the end of the term.
Underpayments and Payment Holidays
Some mortgages allow you to reduce the amount you pay each month, or to stop making monthly payments, if you’ve previously overpaid. Lenders only normally allow you to make underpayments or take payment holidays for a limited period. This can be useful if your income falls for a period of time. In both cases you’ll be paying less than the normal monthly payment so the amount of your mortgage will increase, resulting in increased monthly payments once the “holiday” is over.
Some lenders will give you a mortgage that allows you to borrow additional amounts on an unsecured basis. This means it’s not secured against your property. An unsecured loan generally costs more as the lender has no security that they can use to repay some or all of the loan if you’re not able to pay it back. The Consumer Credit Act covers unsecured borrowings.
Tax and Wills
In some circumstances you may need to think about the tax implications of buying your property. Your adviser can’t give you any advice about the tax implications of buying property. If you are at all unsure about this, you should get advice from a tax specialist. When you buy a property, we strongly recommend that you ensure your Will is up to date. This means that your assets, including your property, are given out in line with your wishes.
Valuations and Surveys
There are three types of valuations and surveys – valuation reports, homebuyer’s reports and building surveys:
Basic valuation report
– This is a basic report paid for by you, but completed by the valuer for your lender. Your lender will use this report to help them decide whether they’ll lend you the amount of money you need to buy your property.
– This is a more detailed report that a surveyor completes for you. There’s an important difference between a basic valuation report and a homebuyer’s report. The valuation report belongs to the lender and the valuer completes the report for them. With a homebuyer’s report, the surveyor works for you and they’re responsible to you if they fail to spot things. Whilst this costs more than a basic valuation, you should consider asking for a homebuyer’s report as it will give you a lot more information about your property. It’s particularly useful if you’re buying an older property. Your lender will normally use the homebuyer’s report to help them decide whether to lend on your property, so you won’t normally need more than one report. Your lender can arrange this.
previously known as a full structural survey – This is the most detailed type of survey that’s completed by a surveyor working for you. The surveyor is responsible to you if they fail to spot things. Building surveys are normally asked for by those who are looking to buy:
an older property;
one which needs substantial refurbishment; or
where there have been structural problems in the past.
This has to be arranged by the buyer. Additional surveys or reports may be needed by your lender before they’ll make you a mortgage offer.