Mortgage Glossary

Adverse credit history – is defined as a poor track record of credit repayments in the past. It would include missed payments, defaults on credit, CCJ and bankruptcies. If you had an adverse credit history you might still be able to apply for a mortgage with a specialist mortgage lender.

AIP – Agreement In Principle or Decision In Principle (DIP) is a first decision provided by the lender confirming they are willing to consider the mortgage application based on the initial information provided by the applicant. The AIP would also include an indicative amount of money they are prepared to lend. AIP is typically valid for between 30 to 90 days.

APRC – Annual Percentage Rate Charge is the annual charge for the borrowing and includes the interest rate, fees and other charges that are averaged over the mortgage term. It is used for true comparisons between different mortgage offers.

Arrears – a failure to pay any contractual monthly payments, including but not limited to mortgage, loan payments, or credit card payments.

Assured Shorthold Tenancy (AST) –  a tenancy agreement, usually for 6 to 12 months between a landlord and a tenant. AST is usually required for buy-to-let properties.

Automatic Valuation Model – an automated valuation that is driven by a computer AI, taking into account local market information, price trends, and sales history. It is used by lenders to reduce the cost of valuation.

Bank of England base rate – The Bank of England’s official borrowing rate. This is set by the Monetary Policy Committee.

Bridging loan – A loan lent by your bank or another lender to cover the gap between two transactions, such as buying a property before your current home has been sold.

Broker – A specialist who can give you professional advice on mortgages. Some brokers work in estate agencies, while others may be independent. We are independent mortgage brokers that have access to the whole market.

Building insurance – An insurance policy covering the cost of repairing or rebuilding your home if it suffers serious damage in a storm, fire, flood or another disaster.

Building Survey – When buying a property, you might want to arrange for a surveyor to inspect the building to identify any faults, structural problems and any other potential issues. This is different from the survey carried out for a mortgage valuation, which is carried out by the lender.

Buy-to-let  – A buy-to-let property has been bought purely to rent it out to tenants. Mortgage lenders offer specific buy-to-let mortgages to suit these types of buyers. Often, these are at higher rates than standard mortgages and interest-only (no capital repayments are made)

Capital – This refers to the amount that you borrow through a mortgage to buy a property.

Capital repayment mortgage (Capital and interest) – a mortgage agreement requiring to pay off capital and interest. At the end of the term, the mortgage will be paid off and no obligations left.

Capped rate – An interest rate that has a maximum limit, meaning if rates increase it can only rise to a certain amount. Capped rates can still reduce if rates decrease.

Cashback – an incentive given by lenders to the clients at the time of completion of the mortgage.

Chain – a situation when the buyer and seller would have to sell or buy other properties. The chain can be short or long. All properties in the chain will have to complete at the same time.

Completion – When the sale has been completed and you’ve become the legal owner of the property.

Completion Date – The date when the legal process of buying a house has been completed, the documents and funds have been distributed to the right people and the estate agent is told to give you the keys to the property.

Consumer Buy to Let – otherwise known as a mortgage for an accidental landlord. This can happen if you want to sell but are unable and decide to rent out, or when you move away for a job but are coming back in the future. It is treated as a regulated mortgage, just like standard residential.

Contents Insurance – An insurance policy covering items that aren’t attached to the property, such as furniture, appliances and personal possessions, in case they’re accidentally damaged or stolen.

Contract – An agreement between the buyer and seller outlining the terms and conditions of the sale. This will be drawn up by your Conveyancer or Solicitor.

Conveyancing – The legal transfer of property from one owner to another prepared by solicitors.

County Court Judgment (CCJ) – You can get a CCJ if someone takes you to court over missed payments and the court orders you to repay that debt. If this happens, it will also appear on your credit file and will be recorded for 6 years. You need to disclose any CCJ at the time of the mortgage application.

Credit report – your personal report provided by the Credit Reference Agency, including your credit history in the last 6 years. it would include all your bank accounts, credit arrangements and payments. It will include any missed payments, defaults, CCJs, and other personal associations.

Credit score – You may be familiar with a credit score. This is the score that everyone who borrows money (from mortgages to a mobile phone contract) has and it is used to see how suitable you are for lending to. Several different credit reference agencies can tell you your credit score. However, some lenders will have their own scoring system to assess suitability. A low, or poor, credit score is generally a sign of previously missed payments and will make you less appealing to lenders.

Deed – A legal document stating who owns a property.

Defaults – Default is the failure to meet the legal obligations of a loan. If you fall behind with your mortgage payments, a company can record this as a default once you are at least three months behind.

Deposit – An amount of money that you pay towards the property purchase. This will make up the difference between the mortgage you have applied for and the property’s purchase price. It is usually calculated as the percentage of the purchase price.

Disbursements – Extra charges that arise while you’re buying a property, such as Land Registry fees, search fees, Land and Buildings Transaction Tax and stamp duty. This money will be given to your Conveyancer or Solicitor and they’ll pay it to the relevant parties on your behalf.

Discounted rate – An interest rate that is discounted from the Standard Variable Rate (SVR), meaning that if the SVR changes, so will the rate you pay meaning your payments can go up and down.

Draft Contract – An early version of your contract, covering details such as the agreed sale price of the property, the address and the names of the seller and buyer.

Early Repayment Charges (ERP) – Sometimes a mortgage deal sets an early repayment charge if you pay some or all of your mortgage off ahead of the end of your mortgage term, or if you transfer to another rate before the end of the product period.

Equity – The value of your property minus the amount that’s outstanding on your mortgage.

Exchange of Contracts – The point at which contracts are exchanged and you’re legally committed to completing the purchase.

Fixed-Rate Mortgage – A home loan with a fixed interest rate for a specified period, usually 2,3 or 5 years.

Fixtures and Fittings – Fixtures are items that are fixed to the property, such as walls, and fittings are items that aren’t attached, such as furniture.

Freehold –  An arrangement that gives you outright ownership of a property and the land it is standing on.

Full Structural Survey – A comprehensive report on the condition of a property, looking at everything from the roof and walls to the plumbing, electrical wiring and drains. This could be crucial for anyone purchasing an older property.

Further advance – additional capital raised with a remortgage.

Gazumping – When a seller accepts an offer from a buyer but then accepts a higher offer from somebody else.

Guarantor – Somebody who guarantees to pay someone else’s loan or mortgage if they can’t afford to. For first-time buyers, this is often a parent.

Help To Buy – A government scheme set up to help anyone struggling to save a deposit, such as first-time buyers who feel priced out of the housing market.

Higher Lending Charge – A fee that is charged by some mortgage providers if you take out a large mortgage, due to the larger risk this may carry for a lender.

HMO – A house in multiple occupation (HMO) is a property rented out by at least three people who are not from one ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’. You might need to have a licence from a local council to operate an HMO.

Home Buyer’s Report – A report outlining the general condition of a property to identify if there are issues such as subsidence and dampness that could mean repairs are needed in the future.

House Insurance – You must consider insurance when taking out a mortgage. There are two parts to household insurance: Buildings insurance – You are required to have this as a minimum when taking a mortgage. It is designed to protect your property’s structure, fixtures and fittings. Contents insurance: This is an optional extra and is designed to protect the things inside your home, for example, your furniture.

House Price Index (HPI) – This is used to give you an idea of the current value of your home and provide general information regarding the property market. This can be found on the Government’s website.

Illustration – This is a document that sets out all of the details of a mortgage that the borrower will need to know.

Income-to-value ratio (ITV) – a ratio that is used to calculate a maximum amount of mortgage based on the gross annual income.

Interest Rate – The percentage of your mortgage that you pay your lender in exchange for borrowing the money.

Interest-only mortgage – An interest-only mortgage allows the borrower to only pay the interest portion of the sum total borrowed. However, this means both that your mortgage balance doesn’t reduce and that you will not be building equity in the property as you make payments. The full mortgage amount will still be due at the end of the mortgage term.

Joint Mortgage – A mortgage with more than one person named, such as a husband and wife.

Land Registry Fees – A fee to the Land Registry that must be paid when you register that you’re the owner of a property.

Lease – A contract that means you can occupy a property for a specific period, and will probably have to pay ground rent to the freeholder every year.

Loan-to-Value (LTV) – The ratio between the value of the loan you’ve taken out and how much the property is worth.

Local Authority Search – An application to the local authority for details on any issues that may affect buying or selling a property. This could include the property being situated in a conversation area, subject to a tree protection order or being a listed building.

Lump-sum Reduction – Where you pay off a large part of your mortgage early.

Mortgage – A type of loan that lets you borrow money from a lender to pay for a property. The loan is secured against your property and you will need to make monthly payments to pay back the loan over the agreed term. If you can’t keep up with the scheduled repayments, the lender has the right to start repossession proceedings.

Mortgage Offer – The formal offer given by a mortgage provider detailing how much they will lend you.

Mortgage Valuation – An assessment carried out by the mortgage lender to confirm the value of the property.

Mortgage Exit Fee – This is a fee paid when leaving a lender to remove their charge against your property. It is sometimes mentioned in the KFI.

Mortgage term – The mortgage term is the length of time in which you agree to pay off the mortgage. Generally, this is 25 years, but it can be longer or shorter than this.

Negative Equity – If the value of your property falls to less than the amount you owe on your mortgage

Offer – A non-binding bid made by someone who wants to buy a property.

Off-plan – A property that hasn’t yet been built, and only detailed plans for it currently exist.

Offset Mortgage – A home loan linked to your savings, where they are used to reduce the amount of mortgage interest you pay.

Overpayments – An overpayment is any payment toward your mortgage that you make over the agreed amount. Generally, lenders allow up to 10% overpayments per year on your mortgage without resulting in Early Repayment Charges, even if you are tied into a deal. Overpaying can result in paying less interest overall and shortening the time it takes to clear the full mortgage sum.

Part Exchange – Where you trade the value of your current property against a new-build house.

Portability – This is when the terms and conditions of your mortgage product can be transferred to a new property.

Redemption – The process of paying off all or part of your mortgage, along with other related fees.

Repayment vehicle – Defines how an interest-only mortgage loan’s capital is repaid. Examples include endowment policies, ISAs, sale of the mortgaged property, or personal pensions.

Repayments – The amount you have to pay back each month to your mortgage provider.

Repossession – A mortgage lender can look to repossess your home if you can’t maintain the repayments on your mortgage. However, this tends to be a last resort if you and your mortgage lender can’t agree to get back on track with your repayments.

Sale Agreed – The buyer has made an offer that’s been accepted by the seller of the property, but this is only a verbal agreement and not contractually binding

Searches – When your Solicitor or Conveyancer works with the local authority to find out any information that may be relevant to a new owner, such as local development plans.

Self-build mortgage – A self-build mortgage is designed to help you finance the building and ownership of a house you plan to develop on the land you own.

Stamp Duty – A tax you must pay when you buy a new property that’s set by the government.

Standard Variable Rate (SVR) – A lender’s SVR is the rate you will go on to once any initial fixed or tracker rate ends. Your mortgage broker can advise you on the best options as your fixed or tracker comes to an end.

Subject to Contract – The property owner has accepted an offer made by a buyer, but it’s not yet legally binding as no paperwork has yet been completed.

Title Deeds – Legal documents that prove you are the owner of a property or piece of land.

Tracker Rate – A mortgage with a variable rate, which usually tracks the base rate set by the Bank of England.

Underpayment – a mortgage payment that is below the agreed monthly sum.

Unencumbered property – a property that is owned outright and there is no mortgage secured against it.

Valuation report – This is a basic inspection of the property that will determine its value. There are many different kinds of valuation reports, but your broker can help you through these in greater detail.

Variable Interest Rate – An interest rate that can change over time. A lender can decide if it wants to increase or decrease its variable rate mortgage, and these sometimes come with an initial discount too. Alternative, a tracker rate mortgage moves with BBR, as outlined in the terms and conditions.

Vendor – the person who is selling the property.

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