Guide To Mortgage Terms

Affordability

AIP (Approval in Principle)

An AIP, or Approval in Principle, is a document that confirms your eligibility for a mortgage based on your current financial situation. If your circumstances change, you’ll need a new AIP. This is also known as a DIP (Decision in Principle).

Arrangement Fee

Some banks and building societies charge an arrangement fee for processing your mortgage. Typically, the lower the advertised interest rate, the more likely you’ll encounter an arrangement or application fee.

Your Liquid Expat Mortgage  advisor will help determine whether the best mortgage deal for you includes a fee. They will also explain the benefits and risks of paying the fee upfront versus adding it to your mortgage balance. Depending on the products available, they might even recommend a deal with cashback, free legals, free survey and many other offers lenders sometimes . Consulting an expert is crucial to calculate the true cost of your mortgage.

At Liquid Expat Mortgages, our experts are here to guide you through these decisions and ensure you get the best deal for your needs.

Base Rate

Understanding the Bank of England Base Rate

The Bank of England, the central bank of the United Kingdom, plays a crucial role in maintaining economic stability. Here’s what you need to know-

What is the Bank of England Base Rate?

The Bank of England Base Rate is the interest rate set by the Bank of England, influencing inflation to keep it low and stable. By adjusting this rate, the Bank can control the cost of borrowing and lending across the economy. Additionally, the Bank of England is responsible for issuing banknotes, while the Royal Mint produces coins.

Why Do We Have a Central Bank?

A central bank ensures trust in the financial system. The value of money is largely based on public perception, and the Bank of England works to maintain that perception by stabilizing the currency. Unlike the volatile nature of cryptocurrencies, where values can fluctuate dramatically, the Bank of England strives to keep the value of the pound stable by monitoring financial markets and adjusting the base rate. This directly influences the cost of savings, loans, and mortgages.

How Does the Base Rate Affect Mortgages?

When the base rate is low, borrowing is cheaper, resulting in lower interest rates for savings and loans, including mortgages. Conversely, when the base rate rises, the cost of borrowing increases. This is why your Mortgage Advisor ensures that your mortgage is affordable both now and, in the future, considering potential rate changes.

How Are Banks Loan So Much Money?

Banks can offer substantial loans, including mortgages, through various mechanisms-

• Offering savings accounts and ISAs with competitive interest rates.
• Attracting high earners with premier current accounts.
• Providing current accounts with benefits like cashback or free travel insurance.
• Borrowing from the Bank of England.

These strategies help banks maximise profits and maintain liquidity. The Bank of England sets a baseline rate for lending, influencing the rates offered by banks.

Types of Mortgage Rates

When applying for a mortgage, you’ll encounter different interest rates-

Fixed Rates- The interest rate remains constant for a set period.

Tracker Rates- These rates track the base rate, meaning your mortgage payments can change with fluctuations in the base rate.

Your Expat Mortgage Advisor will evaluate the suitability of these rates based on your circumstances.

Staying Informed

It’s important to review your mortgage at the end of any fixed-rate period, as interest rates can change. The Bank of England reviews the base rate approximately ten times a year. For the latest base rate information and historical data, visit the Bank of England’s website.

At Liquid Expat Mortgages, we ensure you stay informed and prepared for any changes in the financial landscape, helping you secure the best mortgage deal tailored to your needs.

Cash Back

Some lenders offer a cashback incentive as a thank you for taking out a mortgage with them. You’ll receive this lump sum upon completion of your mortgage.

Completion

Completion is the final step in the mortgage process when all funds have been transferred, and you receive the keys to your new home. You can then move in.

Credit Check

When you apply for an Approval in Principle (AIP) or Decision in Principle (DIP), the bank conducts a credit check. This involves reviewing your credit history with specialised agencies like Experian or Equifax to ensure you have no missed payments or credit issues, confirming your suitability for a mortgage. Liquid Expat Mortgages offers a Free Credit Report for 30 days.

What determines changes in variable-rate mortgages?

Interest rates can be adjusted using a specific reference rate or benchmark.

SONIA (Sterling Overnight Index Average) and the Bank of England base rate are two benchmarks used to determine changes in variable rate mortgages.

Deposit

The deposit is the amount of your own money you put down towards the purchase of your property, in addition to the mortgage. You can start with as little as 5% of the property value. A larger deposit generally results in lower monthly mortgage payments.

DIP (Decision in Principle)

A Decision in Principle (DIP) is a document that confirms your eligibility for a mortgage based on your current financial situation. If your circumstances change, you’ll need a new DIP. This is also known as an Approval in Principle (AIP).

If you’d like a free quote for a Decision in Principle from Liquid Expat Mortgages, click here.

Early Repayment Charges (ERC)

If you repay your mortgage above the agreed level during the initial deal period (usually the first 2 or 5 years), you may incur an Early Repayment Charge. This fee compensates the lender for lost interest. Speak to an expert to explore ways to avoid this charge.

Exchange

Exchange of contracts is the stage where you become legally committed to buying the house. After this point, you cannot back out of the purchase without penalties.

First-Time Buyer Mortgages

First-time buyers can access exclusive deals not available to current homeowners. Many of these offers are best accessed through a Mortgage Adviser who ensures you get the best available deal. Learn more here.

Fixed Rate

A Fixed Rate Mortgage keeps your interest rate unchanged for a set period, providing the security of stable monthly payments. However, selling your home during this period may result in extra charges.

Freehold

Freehold means you own both the house and the land it’s built on. Most new-build houses are freehold but confirm this with your solicitor.

Gifted Deposit

If you receive a gift towards your house deposit, it typically must come from an immediate family member like a parent or grandparent. Be transparent about any borrowed funds from family or friends, as these will affect your credit commitments and borrowing capacity. Consult an expert if you’re concerned about your deposit source.

Help to Buy

Help to Buy is a government-backed scheme lending you up to 20% of your home’s value (40% in London) interest-free for the first five years. It must be repaid in full after 25 years.

Homebuyers Report

A Homebuyers Report, often commissioned for older homes, identifies issues such as damp, roof problems, or structural cracks. This additional cost is for your records and ensures you’re aware of any potential problems.

ID Check

When applying for a mortgage, an electronic ID check verifies your identity using your passport or driving license, address history, and personal details, linked to credit reference agencies and other databases.

Incentives

Builders might offer financial or non-financial incentives like cash, blinds, or carpets to encourage you to buy a new home. These incentives must be disclosed to the mortgage lender, as they impact the mortgage application process. Consulting a mortgage adviser ensures you get the best deal while meeting lender criteria.

KFI/Mortgage Illustration

Before applying for your mortgage, your Adviser will provide a Key Facts Illustration (KFI), detailing the interest rate, monthly payments, term, and fees. Read this document carefully and keep it for future reference.

Leasehold

Leasehold means another entity owns the land your house is built on. Consult your solicitor to understand the implications based on the type of lease and remaining term.

Mortgage Offer

A Mortgage Offer means you’ve been approved for a mortgage, provided your financial situation doesn’t change. Offers can expire, so your Adviser will guide you on renewing or extending it if necessary.

Offer Extension

If your formal mortgage offer expires, your Case Handler can contact the bank to arrange an extension. If the offer has completely expired, your adviser will discuss making a new application.

Part Exchange

Part Exchange involves buying a property on the condition that the seller buys your current home, streamlining the purchasing process, especially for new builds with changing completion dates. Speak to an expert for more details.

Product Transfers

This is when you stay with your current mortgage provider but switch to a new interest rate.

Redemption Penalty

This term is synonymous with Early Repayment Charges.

Searches

Solicitors conduct searches as part of the legal work to buy a house. These include checks on land registry, council-owned drains, contaminated land, and nearby development plans. Speak to your solicitor for detailed information on searches specific to your property.

Standard Variable Rate

After your initial mortgage deal ends, you’ll move to the lender’s Standard Variable Rate, which changes with the Bank of England Base Rate. This rate is usually higher, but it allows for flexible repayment without early repayment charges.

Structural Survey

A full structural survey, recommended for very old or dilapidated properties, identifies any structural issues. Consult your mortgage expert for more details.

Survey

A survey is an inspection of a property by a third party, crucial for both property purchases and remortgages. Surveys can vary in scope and purpose, so it’s important to clarify what’s included. They may range from basic valuations, commissioned by lenders, to more detailed inspections like Homebuyers Reports or Structural Surveys.

Homebuyers Report– This mid-level survey provides more detail than a basic valuation, highlighting issues like structural problems or repairs needed.

Structural Survey- A comprehensive inspection, particularly useful for older or dilapidated properties, offering in-depth information on structural integrity.

If issues are found, you might need to hire a specialist surveyor for further advice.

When using Liquid Expat Mortgages, we can help guide you through your survey options. Ensure your surveyor is accredited by RICS (Royal Institution of Chartered Surveyors). Your Adviser will discuss the best options for your situation.

Tracker Rate

A tracker rate mortgage follows the Bank of England’s Base Rate, meaning your monthly repayments can fluctuate with changes in the base rate. Typically, these rates are lower than other variable rates, but selling your home during this period may incur extra charges. Learn more about expat mortgages here.

Valuation

A valuation is conducted to ensure the property is worth the amount you’re paying and is suitable for a mortgage. For second-hand homes, you might want a more detailed survey for your benefit, beyond the lender’s requirements. Your Adviser can help you choose the best valuation and survey options.

Valuation Fee

Some banks and building societies charge a fee for conducting a property valuation which can vary depending on the lender. Some valuation fees are offered free as part of the lender’s mortgage product.

Want to learn more?

We hope our guide to mortgage terms was helpful and we recommend our visitors to also browse our case studies, news and blog pages for more information, recommendations, and advice on all things expat mortgages and remortgages.