If you’re on the lookout for a mortgage, there’s a bewildering choice and the main element you’re going to need is advice. Luckily, there’s plenty of that too, but before you ask for it, you may like to familiarize yourself with some of the jargon.
With LTV’s and HLC’s to think about, never mind the ERC’s it’s a whole new world and far removed from the days when a one-size fits all mortgage was what you got. Good old repayment mortgages have been replaced by interest-only, flexible, BTL’s and with new ones coming out all the time, there’s no wonder the whole thing remains a mystery to most people.
One particular mortgage came to light recently, which seemed to include all the initials and more. Reading through the benefits of HBOS’s 125% LTV product, which is marketed through its BM Solutions brand, we find that the mortgage is made up of both a mortgage amount and an unsecured loan. Fair enough, they’re not the first lender to offer this type of deal and there’s obviously a market for them BUT the criteria which BM lays down is that in every case a minimum deposit of 5% from the buyer is to be paid, which has to be from their own funds and not part of the loan. In that there are many limitations in this deal, one of them being that to get the full benefit of the 125% mortgage, due to a cap on the unsecured loan amount, effectively it applies only to property with a value of less than £100,000, then it’s probably unlikely that any adviser would recommend this mortgage to them if they can afford the 5% deposit. Strange. The reasoning behind this ruling is understandable. BM feel that further borrowing is possible and even likely in the first few months in a new home, for furnishings and updating and points to evidence that many new borrowers do in fact take this action. They need some proof that the buyer can handle the borrowing. To enforce this rule they are very firm with their instructions to the mortgage conveyancer and state “Please note that it is a condition of the product that where the customer/s is using the mortgage to fund the purchase of a property, the balance of the purchase monies must be paid from the customer’s own funds. The customer cannot use the loan funds for this purpose and you must not release the loan funds to the customer until after the completion of the purchase.”
As far as the initials are concerned, LTV simply means loan to value – the maximum amount which can be loaned on a property value. Basically, as an example, if a property is valued at £100,000 and there’s an LTV of 125%, then £125,000 could be borrowed on the property.
HLC stands for higher lending charge. This may be applied when someone is applying for a high percentage of mortgage. It’s designed to protect the lender against some, or all, of the losses should the property need to be taken into possession because of serious arrears. Usually lenders pass this charge on to the borrower. In these cases, deals that may have initially appeared to be cheap mortgages are in fact far from cheap. This charge crops up sometimes, along with ERC’s – early repayment charges. Self explanatory really, it’s a charge imposed if you wish to pay any part of a loan before the end of the term. Watch out for this one.
BTL has nothing to do with sandwiches – that’s BLT! BTL is simply buy to let. There are specific BTL mortgages designed for the buyer entering the rental market.
We use these illustrations simply to point out the intricacies of the mortgage market. By getting on to a mortgage broker, you’ll be saved from this financial alphabet. They’ll know what’s available and give you all the help and advice you need. An on-line broker is the way to do it and who knows, you might even understand some of the lingo.