Our mortgage jargon buster should explain some of the terms used within the mortgage process.
An initial acceptance document from the mortgage lender, usually obtained before you make an offer, where you and the lender will reach an agreement on the type of mortgage to be provided. This agreement is subject to standard credit checks and confirmations about your personal circumstances.
A financial calculation is used by lenders to show what the cost of borrowing is on an annual basis. APR does not include costs associated with early repayment or changes in market conditions.
An initial fee is made to a lender to cover the costs of processing your application for a mortgage. This may be refunded if you are not approved, reduced if you accept alternative services, or declined if you withdraw your application.
A fee charged by the lender to set up a repayment plan for any mortgage (and include an additional charge if it is repaid early). This includes arranging the necessary paperwork and checking that the client meets all eligibility criteria for their chosen deal.
This is a phrase used by mortgage providers to describe someone who wants to apply for a mortgage or loan that has some degree of bad credit history. This could be as little as one missed payment all the way to defaults, CCJs, IVAs, Debt Management Plans, and even bankruptcy. Lenders all have different attitudes to bad credit and some specialise in adverse credit, many applicants believe they cannot get a mortgage due to their previous adverse credit history but this is usually not the case.
A form of agreement used by landlords to let a property to tenants.
A term used by lenders to indicate a mortgage or other credit account is in arrears. This means the borrower has missed at least one monthly payment or more.
This occurs when a lender sells on your mortgage to another financial organisation.
Property or valuables you own.
An assessment is undertaken by a mortgage lender to establish if you can afford the repayments on your chosen mortgage. This is usually done as part of a credit search or affordability check and uses information about your income, outgoings and future plans for employment etc.
This is a form of borrowing that is designed for people who want to bid on properties at an auction but without necessarily having to purchase them. Auction Finance enables you to place bids and borrow the funds required to complete the purchase.
The interest rate is set by the Bank of England and used as a reference for lenders to set mortgage rates.
A clause in a tenancy agreement that allows a tenant to leave before the end of a tenancy
A short-term loan is taken from one lender to fund the purchase of a home until another mortgage is arranged.
This form of finance allows an investor to buy a property as a rental investment.
This is a valuation of the property that reports on it’s condition, highlighting any repairs or renovations needed.
This is when you are declared legally bankrupt by a court. This will have serious implications for your credit rating and future borrowing.
A person who can help you find and advise on a mortgage and complete the application with a lender.
Some people receive bonuses, many believe this cannot be used as income because they are usually performance-based but this is not true.
A charge is made to reserve a mortgage or remortgage product from a lender. This fee usually needs to be paid before the application is submitted to the lender and can range from £100-£1500 depending on the lender.
This is a form of insurance that covers the cost of repair to your property in case of fire, theft, etc.
This is simply the repayments against your loan plus any interest charged.
This is performance-based income, usually, people in sales-based roles will receive commission income, Lenders will look at commission income but as it’s not usually guaranteed not all lenders will use 100% of it in affordability.
A type of variable rate mortgage that has a maximum rate cap. The rate can fluctuate like any variable rate but will not go above the maximum cap that has been set.
This refers to money that is lent to buy a property.
A CCJ is a legal judgment granted by the court and is often issued against anyone who fails to repay debts such as credit cards and loans.
A cashback mortgage is a home loan that offers the borrower money back when they take out the loan. The amount of cashback offered varies but is usually between 1-5% of the loan value.
this term is used to describe property sales that are linked together.
The process of transferring ownership of property from one party to another is usually completed by a solicitor.
The official exchange of a property title or land.
A rebate is offered by some lenders on a mortgage e.g you might get £500 cashback with a lender as an incentive to help towards costs, the cashback is usually paid to your solicitor on completion.
A statement you receive from your solicitor after completion of your property purchase.
This is an offer made by a lender to provide you with a mortgage as long as certain conditions are met. One Example of Standard conditions that you would find on the offer would be vacant possession on completion (the property being empty on completion)
The official date that the sale of a house will be completed.
This act covers most types of consumer credit agreements.
This means a rate has a floor that it can’t go below, usually, these are part of tracker rates to protect the lender if the base rate drops below a certain level.
Property that can be used to secure a loan from a bank or building society.
a mortgage that is combined with your current account so that your mortgage is in effect a large overdraft. This means that any credit to your current account like wages would offset the debt and interest would only be charged on the difference. They are no longer available as a product but they are similar to offset mortgages which are still available.
A company that holds information on how you manage your debts and whether you repay loans. The three main Credit reference agencies in the UK are Experian, Equifax, Callcredit
This is a term used to describe the legal process of transferring properties from one owner to another.
A search of the information held by credit reference agencies to show if you are likely to be able to afford a mortgage.
this is where the buyer is purchasing a property of a family member at below market value (BMV). Some lenders will allow the buyer to use the difference in the purchase price and the open market value (OMV) as gifted equity forming part of their deposit. Some lenders also allow the seller to remain in the property after completion which is usually when parents are selling to children.
A score that is based on how well you have managed your debts in the past and what type of credit you currently hold. If you have a poor score and try and apply for a mortgage lenders may reject your application even if you have a good income to repay the loan because they see it as too much risk to lend money to someone who has failed to maintain credit agreements in the past.
A portion of a property price is offered in cash by a buyer when a sale is agreed upon. Most deposits are held by solicitors pending completion and the balance of the purchase price being paid at that time.
This is the same as an agreement in principle.
A discount rate mortgage allows the borrower to discount their rate at a certain percentage below the lender’s standard variable rate (SVR) for a certain period of time.
A comparison of how much debt you owe to the amount of income you receive. For example if your total recurring debt is £500 per month and your salary is £1000 per month then your DTI would be 50%, you calculate the debt to income ratio by dividing the monthly debt payments by your monthly gross income and then multiplying by 100. To work out the recurring debt totalif you have outstanding credit card balances you would multiply the entire credit card balances by 3% to get the monthly commitment that most lenders will use. some lenders have policy on how your debt to income ratio and if your DTI is high then they may reject the application.
The costs incurred during the legal process of buying a home for example paying for the search fees.
A plan that allows you to consolidate all your debts into one payment, these are only typically used for those struggling to maintain their liabilities, if you have a current debt management plan then there are lenders that will consider the case.
If you miss consecutive payments on your credit agreement then this is considered a default. A lender may start any legal action they choose if the borrower defaults on their credit agreement.
A preliminary contract that can be changed before final contracts are exchanged, the buyer’s solicitor would inspect the draft contract and raise any enquires with the seller’s solicitor if required.
An agreement between a buyer and a seller to complete the sale of the property. At this point, a completion date is locked in and deposits are handed over, there would be financial consequences if either buyer or seller were to pull out of the sale after this point.
A charge is imposed on borrowers who repay all or part of their mortgage before the end of a tie-in period.
The amount by which the value of your home exceeds what you owe on it. If your house is worth £100,000 and you have a mortgage for £90,000 then you have £10,000 equity.
A certificate produced by an energy assessor shows how energy efficient a property is.
A Scheme where an older borrower can unlock the value in their home and use it as an income for either themselves, to repay debts, home improvements, or to pay off an interest-only mortgage. There are two types of equity release schemes, lifetime mortgages and home reversion plans.
A savings policy that combines life assurance and a lump sum investment. The contract is based on the idea that it will pay off your mortgage or fund your retirement, they are no longer being offered today and many who took them found that in practice they often did not work out as planned and the performance did not meet expected targets leaving many using them as savings plans for interest-only mortgages having a shortfall.
Mortgages are loans secured against property, they are secured with a legal first charge in the charges register as on the land registry. This gives the lender the first right to any funds when the property is sold.
The FCA regulates mortgages and any other financial products.
A person who has never owned a home before. Lenders have first-time buyer mortgages that are only for first-time buyers, some lenders will consider someone a first-time buyer if they have not owned the property for at least three years although this is not the case for consideration of any stamp duty.
Items that are attached to the property such as built-in wardrobes, ovens, or chimneys.
A rate of interest that remains the same for a set period of time protects you from any changes in interest rates. The term and product will be subject to a tie in and valuation fees and early redemption penalties may apply.
The freehold of a property is the land and buildings you own outright, it means that you are not subject to a lease. Most houses are freehold and most flats are leasehold. Most high street lenders do not lend on freehold flats.
A regular payment is made to the freeholder of a leasehold property (usually flats). Lenders tend not to like unreasonable increasing ground rents that double every 10 years, they also do not like the ground rent being usually any more than 2% of the property value.
These types of mortgages are usually where parents or another family will promise to pay the mortgage if you fail to keep up the repayments, contrary to popular belief these mortgages are no longer available but those needing assistance from parents and family for affordability can look at joint borrower sole proprietor mortgages and those needing assistance with deposit can look at family springboard mortgages.
A threat by a seller to accept another buyer’s offer, possibly in order to get a better deal. Most gazumping happens when the current buyers need mortgage approval and they are unable or unwilling to wait for it, much gazumping is considered bad practice.
When a buyer reduces the amount they offer for a property, this is usually done as part of negotiations and can be considered bad practice if the seller feels they have no reasonable grounds for a reduction in price or it is done right near the exchange of contracts.
A document that authorises the executors to deal with a person’s estate.
A detached or semi-detached property that is joined onto the main house by a link or door, these are more usual for larger properties so it can be made part of the overall living space. Some lenders will not lend on properties with granny annexes due to a reduced market for these types of property.
A mortgage that is supporting energy-efficient housing, lenders are now offering lower rate products for properties that have an energy efficiency rating of A or B.
The value of the land once any buildings on it are built. This is important for lenders to know as they will usually lend based upon the GIV, also known as GDV or the development value.
A government-backed equity loan that provides a deposit boost to first-time buyers buying eligible new build properties. The equity loan will be offered at a 20% share of the value of your new build home and in London, you can borrow up to 40% of the property value, with the buyer fronting a minimum 5% deposit. Lenders like these products as they reduce their exposure by having a lower loan to value but retaining the first charge ( so they still get paid first).
An ISA that helps buyers save towards a deposit for their first home or retirement, this is in addition to the regular ISA allowance and works by giving a 25% government bonus on up to £12000 of savings, contributions are capped at £200/mth.
A financial penalty imposed by lenders to compensate for the additional risk involved in lending on a loan with a high loan to value (a low deposit), usually only small building society or specialist lenders will apply higher lending charges.
A survey of the condition and structural soundness of a home, is done by surveyors usually before the exchange of contracts when the buyer has already agreed to buy.
A property that is shared by more than one household. Many lenders are not willing to lend on these properties as they are often harder to let but there are lots of specialist lenders that offer HMO mortgages, HMO status can be obtained from the local council or housing authorities. You will usually require a license from the council if you are letting to three separate people, not from the same household.
A loan that requires interest-only payments.
An itemised list of items included with a property and their condition.
A person who is authorized to act on behalf of another party, mortgage advisors are intermediaries.
A type of property that will produce income either through rent or capital growth.
An agreement made between a debtor and their creditors to pay all or part of the money owed over an agreed period, often lasting five years.
The maximum a lender will lend to a borrower based on a multiple of their assessable income, most lenders will go to a maximum of 4.5x income but depending on your deposit, income and occupation some lenders will go to 5.5x – to 6x income.
When two or more people own a property, equally with no definable share of ownership.
A mortgage that is taken out by more than one person.
A mortgage taken out by more than one person where all borrowers are jointly liable for the mortgage but only one principle borrower owns the property. Commonly used to add parents to the loan to increase affordability.
A government organization that records all changes of ownership in land or property.
This record shows who owns what in England and Wales (Scotland has its own system).
A tenure of land or property that gives the right to hold it for a fixed period, usually in return for payment of ground rent. Generally, leasehold is used in flats. The leases are usually for a very long time, some as long as 999 years but other older leasehold properties may have shorter leases.
A building that has been placed on the list because it is considered to be of historic and/or architectural interest.
The percentage of a properties valuation that the mortgage represents, for example if you wanted to borrow £100,000 but your property was worth £250,000, your LTV would be £100,000 divided by £250,000 which gives a ratio of 40%.
A type of mortgage for older borrowers over the age of 55 looking to release equity from their homes. The mortgage only becomes repayable under certain events such as all borrowers dying, selling the property or all borrowers going into residential care.
An arrangement where a buyer lets out their existing home to try and afford the new purchase.
The price a seller can expect to achieve for their property in an open market at a given time.
The payments you make each month to repay your mortgage.
A financial intermediary who provides mortgage advice and assistance.
When your mortgage payments are in arrears, this is when you fall behind with your monthly payments.
The lender providing the mortgage.
The person who takes out a mortgage and is responsible for the monthly repayments.
A Government scheme designed to provide financial institutions with guarantees on mortgage lending, was introduced in order to give security to lenders so they could provide low deposit mortgages.
The report where a lender assesses how much its current market value a particular property is.
A freehold property that is divided into more than one unit such as flats but the units do not have their own leases.
A material used in the creation of concrete in Devon and Cornwall after the second world war. A surveyor will consider this high risk to the security of the property if it’s built from mundic bricks, this is because the mundic has over time caused serious structural issues. Any lender willing to consider will usually want a structural engineer’s report.
The same as an agreement in Principle.
A legal document between a lender and mortgagor that outlines the obligations of the applicants and the rights the lender has if you fail to keep up repayments.
The duration of the mortgage agreement. A longer-term will mean lower repayments but will also result in paying back more interest.
A legacy insurance policy that is generally not offered any more which covered your mortgage payments if you were incapacitated and unable to work, these policies have now been replaced by Income Protection Policies and Accident, Sickness and Unemployment Cover (ASU).
A policy where the borrower pays a monthly premium that will cover the remaining balance of their mortgage in the event of death or terminal illness.
A European directive that came into force on the 21 st March 2014, it dictates how lenders should handle mortgage applications from credit-worthy borrowers.
A review by the FCA came to a conclusion that lenders should consider borrowers ability to repay their home loan based on affordability, this was brought in to try and prevent borrowers from being overstretched.
Often this refers to a borrower who is unable to remortgage, move or even obtain a new rate due to having their mortgage before strict new regulations came into force, for example, many mortgage prisoners had mortgages with the failed when they have been turned down for another mortgage or remortgage.
A financial institution offering mortgages to borrowers.
When borrowers owe more on their mortgages than their homes are worth.
A property newly built that has not been occupied for the first time. Sometimes lenders may consider converted or heavily refurbished properties as new builds.
A type of mortgage that is linked to a savings account and the balance is ‘offset’ against your mortgage reducing the interest you pay.
When an existing homeowner purchases another property this is called the onward purchase.
This type of bridging loan will have no predetermined end date which provides greater flexibility at the expense of greater cost due to the increased risk to the lender.
Making extra payments to your monthly payment can cut down your overall cost substantially.
A mortgage that has part of the balance on capital and repayment and part on interest only.
A method of selling your own home that is included in the sale of another property. Usually, this is offered by new-build developers.
When you move home and take your mortgage with you. It allows borrowers to move and port their mortgage across without having to pay for expensive early repayment charges. Porting is still subject to lenders’ criteria and affordability rules as if the application was for a new loan.
A part share in a property you purchase that is combined with renting the other part of the council or housing association.
A personal guarantee is a promise that if the borrower fails to make payments as per their contract, either jointly or singly, the lender may seek repayment by pursuing the guarantors for all costs incurred. These tend to be used in a ltd company buy to let mortgages where the lender will usually ask for a directors guarantee.
This is the amount of money That is estimated To be required to rebuild the property In the event that the property is Unable to be repaired or refurbished and needs completely rebuilding from scratch. Insurers use this for buildings insurance to ascertain the cost to rebuild the property in the event of Something catastrophic happening to the property. This determines the risk to the insurer as a higher reinstatement value will mean they would need to pay out more money in order to rebuild the property.
When an existing homeowner wishes to move their mortgage to a new lender. This is usually done when Someone’s right is coming to the end of its current term, or for raising funds for home improvements.
A document sent from your lender to you or your solicitor stating the amount needed to settle the mortgage and any fees and penalties that will apply. Redemption statements last for a period of time so that it factors in any payments made by the borrower. Redemption statements are requested when remortgaging so that the solicitor can pay the current lender.
A repayment mortgage is a form of repayment method that has a guarantee that the mortgage will be repaid at the end of the term.
A period of time that lenders give to borrowers to consider the mortgage before committing to go ahead.
A mortgage is taken out on a property that is used as private residence by the borrower or their family.
A lender’s reversion rate is the lender’s standard variable rate, they call it the reversion rate as this is what the mortgage reverts to after any rate with an expiry date on it finishes.
Money is held back by the lender of the loan advance until certain conditions are met. Usually, retention is used by the lender if the surveyor identifies repairs that the lender needs to be rectified before its able to release all the funds. For example, if the full loan is £200,000 but the surveyor says the property needs a new roof costing £20,000 the lender would release £180,000 and then once the roof repairs are completed they would survey the property again to make sure the repairs are done to the required standard and then release the remaining £20,000.
This process is used by a lender to recover their funds on a mortgage secured against the property. There are various reasons that a repossession may take place and they depend on the terms of your mortgage agreement. For example, if you fail to keep up with the repayments or breach any other term in your contract. Repossession is used as a last resort and the lender would have to prove that it has used all other options to the courts before a grant of possession is given by the judge.
The repayment strategy is the option you are going to use to repay a interest-only loan at the end of the term.
This scheme allows public sector tenants to buy their homes with a discount of up to 70% off the market value.
Reports requested by the conveyancer from the local council as part of the conveyancing process.
A legal entity set up for the sole purpose of holding property, it is a non trading business. Directors will take out ltd company buy to let mortgages with an SPV.
Usually on flats (although not always), These are Charges for the maintenance of communal areas within the development, service charges are set by the freeholder or company which manages the building.
This is a land tax paid by the buyer of a property. It only applies if the price paid is equal to or exceeds £125,000 andThe tax is due when you complete the purchase.
A shared ownership programme is a gov.uk scheme that provides a way to purchase a property even if you cannot afford to buy it outright. You would purchase part of the property instead and rent the remainder of the share owned by the local authority or housing association.
A solicitor is a qualified legal professional who can provide advice and guidance on all aspects of law. They are also able to represent you in a court of law. A solicitor is able to offer their services to anyone who needs them, this means that a solicitor can write, advise or negotiate on your behalf.
A self-employed person is someone who earns their income through running a business of their own or through working for themselves instead of an employer.
The SVR is set by the lender, at the end of any term-based rate you would usually transfer onto the lender’s standard variable rate.
The part of the process whereby the offer has been accepted but before the contracts have been exchanged.
A share of freehold is a type of property ownership, usually found in smaller blocks of flats and maisonettes. Several of the leaseholders will own a share of the freehold, this can be advantageous in regards to extending the length of the lease.
A sub-prime mortgage is a lending product designed for borrowers with little or no credit rating. These types of mortgages come with higher interest rates and fees.
The length of time that is agreed between the lender and you for repayment of the mortgage.
A tenant is generally an individual who rents a property from a landlord under a tenancy agreement.
This is where the lender uses the personal income to top up affordability on a buy-to-let mortgage if the rent is not high enough.
A tracker mortgage is a variable rate loan where the interest rate paid stays at a level which follows base rates up or down.
This is where the lender uses a percentage of the equity in your present home to help you buy you new home.
The title deeds show what proportion of the property you own and who else owns it. The property ownership is registered on the land registry.
This simply means that the property has no mortgage on it.
A property will be listed as under offer when a purchase has been agreed and it is just waiting for contracts to be exchanged.
A valuation is a report from a surveyor who will produce an accurate estimate as to what your property would currently sell for on the open market.
This is paid to the lender once the application has been submitted, many lenders does not charge for a basic valuation but some do.
The person selling their property to you, also known as the sellers.
Momentum Mortgages are mortgage brokers based in Sevenoaks, Kent. We help people to buy, invest or remortgage property while reducing stress and saving time. We have helped clients all over Kent including Tunbridge Wells, Tonbridge, Maidstone, Swanley, Dartford, Bromley, Orpington and more.