The vast majority of mortgage deals come with an arrangement fee which basically covers the cost of setting up the mortgage.
Arrangement fees are typically around £1,000 but in some cases you can pay as much as £2,000. The fee therefore has a big impact on the total cost of your mortgage.
When comparing mortgages you need to work out the total cost over the term of the deal. So if you are wanting a two year fixed rate for example, you would multiply your monthly payments by 24 (the length of the fixed term) and add on the arrangement fee.
In some instances, it can actually work out cheaper to pay a slightly higher rate of interest in return for a lower arrangement fee.
Agreement in Principle
A mortgage Agreement in Principle (AIP) is a document from a bank or building society which states that, based on the information you have provided, such your salary and monthly outgoings, it will lend a stated amount.
AIPs are useful in demonstrating to the seller of a property that you are a serious buyer.
But remember, the bank or building society is entitled to change its mind if your circumstances change – and, in fact, even if they don’t.
This is the point when, literally, the buyers' and sellers’ solicitors exchange contracts and the buyer pays a deposit of usually 10% of the agreed price.
This is the point at which the deal becomes legally binding and neither party can pull out.
A completion date is also agreed at exchange which is usually no longer than four weeks’ time.
Conveyancing is a term that applies to the legal work carried out by your solicitor or property lawyer – who can themselves also be known as conveyancers.
The conveyancing process involves registering your property with the Land Registry, conducting Local Searches into the area and amending the property deeds.
You will need to pay for these legal services but in some cases, it is possible to fix a price upfront.
A valuation is what the lender will carry out to ensure the home you are buying is adequate security for its loan.
Even though a valuation is for the lender’s benefit, you will have to pay for it. The cost will depend on the price of the house but you should budget for several hundred pounds.
It’s important to remember a valuation is not the same as a survey. Whether you have a survey on the house you are buying is entirely up to you, but it’s a good idea.
On most homes a Home Buyer’s Report, which will expose problems such as damp, dry rot and subsidence, is adequate.
But if you are buying an older or unusual home – a lighthouse for example – a full structural survey is more appropriate.
Survey costs will vary according to the property but budget for several hundred pounds for a Home Buyer’s Report and even in the realms of £1,000 and beyond for a full structural survey.
Loan to value (LTV)
When you see a mortgage advertised it will show a maximum loan to value – often shortened to LTV. This indicates the maximum you can borrow in relation to the property’s value.
So, if the LTV is 75% you would need a deposit of at least 25% in order to qualify for that mortgage deal. On a property worth £100,000 that would mean the maximum you could borrow would £75,000 and you would need a deposit of at least £25,000.
Completion is when the property is legally transferred from the seller to the buyer – and when you get the keys and move in!