Mortgage Comprehension Test

If you’re looking for a mortgage, there’s a bewildering choice, and the main thing you’ll need is advice. Fortunately, there’s a lot of that, too, but before you ask, you might want to familiarize yourself with some of the lingo.

With LTV and HLC to think about, never mind the ERC, it’s a whole new world and a far cry from the days when what you got was a one-size-fits-all mortgage. The good old payday mortgages have been replaced by flexible, interest-only BTLs, and with new ones coming out all the time, it’s no wonder it’s all still a mystery to most people.

One mortgage in particular came to light recently, which seemed to include all the initials and more. Reading the benefits of the HBOS 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 are not the first lender to offer this type of deal and there is obviously a market for them, BUT the criteria that BM sets is that in each case a minimum 5% deposit must be paid from the buyer, which has to be of your own funds and not part of the loan. In the sense that there are many limitations in this agreement, one of them is that in order to obtain the full benefit of the 125% mortgage, due to a cap on the amount of the unsecured loan, in practice it only applies to properties with valued at less than £100,000. , then it is probably unlikely that any adviser would recommend this mortgage to them if they can afford the 5% deposit. Weird. The reasoning behind this decision is understandable. BM believes it is possible and even likely that more loans will be taken out in the first few months on a new home, for furniture and upgrades, and points to evidence that many new borrowers do, in fact, take this step. They need some proof that the buyer can handle the loan. To enforce this rule, they are very firm with their instructions to the mortgage grantor, stating: “Please note that it is a condition of the product that when the client is using the mortgage to finance the purchase of a property, the balance of the the purchase money must be paid from the customer’s own funds. The customer may not use the loan funds for this purpose and you must not release the loan funds to the customer until after the purchase is complete.”

As far as initials are concerned, LTV simply stands for Loan-to-Value – the maximum amount that can be lent out on the value of a property. Basically, as an example, if a property is valued at £100,000 and there is an LTV of 125%, then £125,000 could be borrowed on the property.

HLC stands for Higher Loan Charge. This can be applied when someone is applying for a high mortgage percentage. It is designed to protect the lender against some or all of the losses in the event that repossession of the property becomes necessary due to serious arrears. Lenders generally pass this fee on to the borrower. In these cases, transactions that may initially have appeared to be cheap mortgages in fact, they are far from cheap. This charge sometimes arises, along with the ERC – Early Refund Charges. Really self explanatory, it’s a charge imposed if you want to pay off any part of a loan before the end of the term. Careful with this.

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 complexities of the mortgage market. If you access a mortgage broker, you will be saved from this financial alphabet. They will know what is available and will give you all the help and advice you need. An online broker is the way to go and who knows, he might even understand some of the lingo.