Whether you are looking at securing your first mortgage, are looking to re-mortgage or perhaps have just been out of the loop for a while, we felt it would be useful to provide a quick and easy jargon buster to make sure you understand all the phrases and terminology often used when talking about mortgages.
Adverse Credit - A poor track record of repayments on credit commitments, such as loans or credit cards. These can be CCJ’s, bankruptcy, defaults etc.
Agreement in Principle (AIP) - Can also be known as a Decision in Principle (DIP) or a Mortgage in Principle (MIP). This is a lenders provisional acceptance to lend a sum of money to purchase a property. This is assessed on your income, outgoings & credit history. Then used by estate agent or developer to evidence you may be in a financial position to purchase a property.
Arrears - Arrears occur if you miss or fall behind on a payment on a mortgage/loan or other credit commitment.
Bank of England Base Rate - This is one of the most important interest rates in the UK and is set by the Bank of England. It influences the rates that lenders charge for some mortgages and other types of credit they offer.
Buy-to-Let Mortgage (BTL) - A specific mortgage taken out by a landlord for the purposes to rent a property out.
Capital - The amount of money you borrow to purchase a property (the loan amount).
Conveyancing - This is the legal process when you buy or sell a property and is performed by a solicitor or a professional conveyancer.
Deposit - The downpayment you make towards the purchase of a property. Required deposit amounts vary depending on your circumstances; the lender; the property; and the product you apply for.
Early Repayment Charge (ERC) - A penalty fee that lenders charge for paying the loan back early. More common in fixed rate products. Varies depending on lender, usually stated on your illustration and/or mortgage offer.
Equity - The difference between the outstanding loan amount on your mortgage and the current market value of your property. This is the amount you would own.
Equity Release - A way for homeowners aged 55 and over to release tax-free cash from their home without having to move.
Fixed Rate - Where the interest rate stays the same for the length of time you fix for, therefore you have a secured monthly payment for that set amount of time.
Freehold - The property and the land it stands on is owned outright.
Gazumping - When the seller accepts an offer from one purchaser, but then accepts a higher offer from another purchaser.
Gifted Deposit - When someone provides some or all the deposit for your purchase, most commonly a family member.
Help to Buy ISA (HTB ISA) - A Help-to-Buy ISA (Individual Savings Account) is a government scheme to help save money for a deposit to purchase a home. Only valid to first time buyers, you pay in up to £200 each month, and the government top up the savings by 25% (up to £3000) when you purchase your first home. In 2019 HTB ISAs closed to new accounts so, providing you opened an account before this date, you can keep saving into it until November 2029 and claim the government bonus until November 2030. The replacement for a HTB ISA is the Lifetime ISA.
Interest Rate - The cost charged for borrowing money from a lender – it is a percentage of the loan amount.
Interest Only Mortgage - When you only repay the interest each month, meaning the full balance (the original loan amount) will still be outstanding at the end of the mortgage term.
Intermediary - Also known as a mortgage broker, this is an advisor who can help arrange a mortgage for you by liaising between yourself and the lender, so you don’t have to. They often work will large panels for lenders so can also shop around for the best product for you.
Joint Borrower Sole Proprietor (JBSP) - A specialist mortgage where not all borrowers on the mortgage are named on the title of the property. The additional borrower tends to be a family member and their income can be used to increase your borrowing. This does mean that they are legally liable to pay the mortgage if you don’t/can’t.
Leasehold – You own the property but not the land it stands on. The Freeholder “leases” you the property for a set number of years. You can request and pay for an extension to the lease from the Freeholder.
Lending into Retirement – Having a mortgage where the mortgage term extends beyond your retirement age.
Let-to-Buy Mortgage (LTB) – Where you keep your current home and let it out to tenants, and buy a new residential home to live in.
Lifetime ISA (LISA) – Lifetime ISAs are a government scheme to help save money for a deposit to purchase a home or for retirement. To open a LISA you must be aged between 18 & 40. You can pay in up to £4,000 per year, and the government will give you a bonus worth 25% of what you pay in every tax year (up to £1000 per year).
Loan to Value (LTV) – The size of your mortgage as a percentage of the value of your property. For example, if your home is worth £200,000 and you have a mortgage of £100,000, your LTV is 50%.
Mortgage Broker – An expert who helps you find the most affordable and suitable mortgage for your circumstances. They often work with a wide range of lenders, and their role consists of acquiring the most suitable deal for your requirements, and ultimately to ensure you are happy with the amount you will pay over your mortgage term.
Mortgage Deed – A legal document confirming you are entering into a contract with the lender, with your property used as security for the mortgage.
Negative Equity –When your property is worth less than the amount you owe on any mortgage on it.
Offset Mortgage – A way of linking your savings to your mortgage. Any savings balance will offset any interest paid on the mortgage. For example, your mortgage balance is £100,000 but you have a savings pot of £20,000, therefore you would only pay interest on £80,000.
Overpayment – Paying more than your monthly mortgage payment. Overpayments can save you interest and can also shorten the term of your mortgage.
Porting – Transferring your existing mortgage to a new property when you move house, often avoiding any Early Repayment Charges.
Product Fee – A charge lenders can apply for some mortgage products. Products that do have these fees usually have slightly lower interest rates, therefore meaning lower mortgage payments. Product fees can be paid upfront or added to your mortgage (if added you will incur interest on top).
Re-Mortgage – Taking out a new mortgage on the same property as your current mortgage and using it to pay off your current mortgage, leaving you with only the new mortgage remaining. Often done at the end of a fixed rate to secure a better deal.
Repayment Mortgage – Your monthly mortgage payments are made up of interest and capital repayment. At the end of the mortgage term the mortgage will be paid off in full.
Shared Ownership – You purchase a percentage of a property and pay rent on the remaining share owned by (usually) a housing association.
Stamp Duty – Tax some buyers must pay when buying a property. The amounts vary.
Standard Variable Rate (SVR) – The default mortgage interest rate that your lender will charge after your initial mortgage deal ends.
Mortgage Term – The length of time you are repaying your mortgage over (e.g., 30 years)
Transfer of Equity – The process of adding or removing someone from the title deeds of a property.
Tracker Mortgage – A variable rate mortgage where the interest rate is set at a fixed percentage above the Bank of England base rate and can go up and down in line with changes to the base rate.
Unencumbered – A property that has no mortgage on it – either purchased outright with cash or the mortgage has been paid off.
Underwriter – Assigned by the lender to assess the application and decide if the lender will lend you the requested loan amount. They evaluate things like your credit history, income and expenditure and the valuation on the property.
Valuation – A survey of the property you are purchasing to check the condition and whether the property is worth the amount you are paying for it. There are various levels of surveys from Basic to Home Buyers Reports and Full Structural Surveys.
Vendor – The seller of the property.
Wills – A legal document that contains your wishes for how you want your estate to be dealt with or left too after your death. Such as your property, money & possessions.
Rental Yield – The financial return a Buy-to-Let property can earn expressed as a percentage of the market value before taking property expenses into account.