If you’re buying a home for the first time, you might not be familiar with some of the legal and financial terminology used throughout the process. This glossary outlines a number of terms, but if you’re in any doubt about what they mean, your legal adviser will be happy to explain further.
The complete and outright ownership of a property.
A sum of money you’re lent so you can buy your home (usually by a bank or building society).
A banker’s draft is signed on behalf of the bank by a manager or one of their authorised staff. Because it’s not signed by the customer, the cheque will be treated in the same way as cash.
Bank of England base rate
This is the benchmark lending rate regulated by the Bank of England. It can be moved up or down to help control the national economy, which usually means mortgage lenders will do the same with their standard variable rate products.
Usually arranged through a clearing bank but occasionally through a building society, a loan arranged over a short period of time until permanent funds are available.
Someone who works as an intermediary between you and different mortgage lenders to give advice and offer a range of home loans.
An entry in the Land Registry title that shows a property has been used as collateral for a loan, such as a mortgage.
An insurance policy or property used as a guarantee that a loan will be repaid.
This is when a home is transferred from the seller to the buyer in exchange for the remainder of the purchase price. The necessary documents will be provided to show ownership has been handed over to the buyer.
A contract is any type of legally binding agreement. When applied to the sale of a property, it’s a document containing two identical parts; one signed by the buyer and the other by the seller. Once both parts have been exchanged, both parties are committed to completing the transaction.
The legal process of transferring the ownership of a property from one owner to another.
A person who specialises in the legal aspects of buying and selling property.
Council of Mortgage Lenders (CML)
The CML is the UK’s main trade body for mortgage lenders. Its members are banks, building societies, and other lenders who account for approximately 95% of residential lending.
A demonstration of a property and how it works. It will take place during the site’s working hours, which are normally weekdays.
All legal documents relating to a property.
A percentage of the full purchase price, paid by the buyer on exchange of the contracts with the seller.
Energy Performance Certificate (EPC)
Anyone selling property in England and Wales is required to provide a valid Energy Performance Certificate (EPC), which gives details about the energy efficiency of the property.
The difference between how much you need to pay back to your mortgage lender and the value of your home.
Exchange of contracts
The contracts become legally binding when the signed part of the buyer’s contract and the signed part of the seller’s contract have been exchanged.
This is when a deed is signed, sealed and delivered in front of a witness.
An interest rate that applies to a loan for a specific term. Both the interest rate and loan repayments are fixed for the agreed term, regardless of any changes to the Bank of England base rate or home loan market. The agreed term is usually anywhere between 1 and 7 years.
The outright and absolute ownership of land and any property which stands on it.
A payment made at specific times as required under the terms of the lease.
This is a type of home loan where you pay only interest to your lender throughout its term. The balance of your mortgage won’t reduce.
A certificate issued by the Land Registry as proof of ownership.
An official government office which registers and maintains all details of land ownership and any changes relating to ownership.
Land registration fee
A fee that applies to the value of the property being purchased for registering the ownership of the property in a new owner’s name.
A document recording the terms of ownership of a property.
Where a property is built on land owned by a person or organisation other than the owner of the actual property. The leaseholder will have occupational rights for a fixed term, which will be outlined within the lease.
A person or organisation who authorises and grants a lease.
Local authority search
Carried out by your solicitor, this establishes if your new home is likely to be affected by any planning decisions.
A management company is responsible for maintaining the common and landscaped areas of a new development, including roads, street lighting and open spaces. The management company recovers its costs from each property owner through a service charge.
Also called a legal charge, a mortgage is a legal document which pledges freehold or leasehold property as security for a loan. If the mortgage payments aren’t paid in full when they are due, it gives the lender rights to the property. Once the mortgage and interest have been paid, the lender’s rights to the property will be cancelled.
Any person or organisation that lends money for a mortgage, such as a building society, insurance company, bank or private individual.
Mortgage indemnity guarantee
This is an insurance policy taken out by your lender in the event you aren’t able to meet the repayments on your mortgage. If you default and your home is repossessed, the lender would use the mortgage guarantee to cover any shortfall.
You will pay a certain sum in interest in return for a mortgage from your lender. The interest rate can be affected by economic conditions and the general financial state of your lender. The rate might fluctuate, unless you have a fixed-rate mortgage.
This simply means the borrower.
A written offer to lend money on a property, which will contain all the terms of the loan and any conditions that apply.
Mortgage protection policy
An insurance policy taken out against a mortgage which ensures that, in the event of your death or sickness, the full outstanding amount of the loan will be paid. It is also possible in certain circumstances to take out a similar policy, which ensures that in the event of the borrower’s redundancy, the mortgage repayments are met for a fixed period. This allows time for the borrower to find alternative employment.
The fixed time period that applies to your mortgage.
National House Building Council (NHBC)
The National House Building Council is the body which provides insurance-backed warranties to many new homes built in the UK.
Also known as capital sum, principal is the amount of the loan used to calculate interest over the term of the mortgage.
The mortgage is finished when you make your final payment. In the event of a mortgage being repaid earlier than the agreed fixed term, some organisations make a specific charge called a redemption fee. If applied, this fee will vary depending on the lender’s terms.
The point at which the roof is fully complete on your new home.
Questions asked by solicitors on behalf of a potential buyer about a property and the land on which it is built.
Legal documents describing the rights and liabilities attached to the property and that prove ownership.
Project production manager
A representative who is responsible for the day-to-day control of a housing development.
Stamp Duty Land Tax
The tax charged by the government on transfers of property ownership valued at more than £125,000.
The point at which the house is ready for its final NHBC inspection.
Subject to contract
A provisional agreement has been made either verbally or in writing between the buyer and seller. Either party may still withdraw from the transaction without having to give a reason.
An inspection of a property carried out by an independent surveyor, usually on behalf of the person who plans to purchase the property or a financial body.
Your solicitor will usually use this method of transfer during the completion process to move the remainder of the property’s purchase price to the bank of your solicitor or seller. After receiving the money, the bank will tell your solicitor it has been received and your keys will be released.
Legal documents confirming you are entitled to own your property.
When a vendor has received either verbally or in writing an offer for the property but no contracts have been formally exchanged.
A professional assessment of the value of the property at the time of inspection. It’s carried out for mortgage purposes and your lender will nominate someone to carry out the report on your behalf.
An individual, company or organisation which owns a property and wishes to sell it.