Are you a baffled first-time buyer? Here some of the key phrases you'll need to know and what they mean.
The personal finance experts at The Money Pig have looked at the terms many first time buyers will hear, but may not understand to make the right decision.
This is a government tax based on land and property transactions. It is costly so factor it into your costs early on. Stamp duty is charged at different rates depending on the property. Due to the latest Covid-19 announcement, stamp duty has temporarily been cut until March 2021.
Freehold or leasehold
Freehold is the outright ownership of the property and the land its on. A leasehold is when you own a property for a fixed period of time. This usually applies to flats.
There are two main types of mortgage, a fixed rate mortgage and a tracker mortgage. The interest rate on a fixed rate mortgage is fixed for a period of time – usually between one to five years - so you know exactly how much will be coming out of your account each month. Once the fixed rate ends, you will move to a variable rate although you can apply for another fixed rate mortgage.
A tracker mortgage follows the Bank of England base rate. If the rate is low, you’ll save money. If it goes up, you’ll be paying more.
Repaying your mortgage
There are three ways you can repay your mortgage – a repayment mortgage, interest only mortgage or part repayment and part interest-only mortgage.
A repayment mortgage is where you pay extra each month on top of the interest. This extra pays off the loan over the life of the mortgage.
An interest only mortgage is when each month you pay off the interest with the mortgage loan being repaid at an agreed time in the future. You do need to have a plan in place to pay off that loan.
A part-repayment and part interest-only mortgage combines both type of repayment with your mortgage being split into capital and interest repayment and interest-only repayment. This means at the end of the term you’ll still have a lump sum to pay off.
A house survey is recommended to any first-time buyer on the property that they are intending to purchase. There are different levels of survey you can get depending on the needs of the property (how old it is for example). This will then identify any significant problems with the property and will properly inform your decision.
This is offered by registered social landlords or local authorities. You buy a share of the property and then pay rent of the other bit. You can keep buying shares until you own the whole property.
This is the sum you put down initially. The banks and building societies normally ask for at least a 5 percent deposit.
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