Mortgages Jargon Buster
If you’re looking to buy a house for the first time, you’ll probably come across some new words or phrases. Even experienced home-movers sometimes need a refresher.
Accident, Sickness and Unemployment Insurance (ASU)
A short term income protection policy.
Some lenders will reserve a proportion of the fee charged for the valuation to cover their own costs. This element of the valuation fee will normally not be refunded if the mortgage fails to go ahead.
Agreement in principle (AIP)
An upfront decision from a lender on how much you can borrow which may put you in a stronger buying position and means your property transaction could complete more quickly. This is not a guarantee as product rates and lending criteria can change.
Annual percentage rate of charge (APRC)
A figure intended to clearly explain the true cost of borrowing and to provide the borrower with a method of comparing the true costs of different types of loan.
A term used for a range of individuals who do not fit the traditional lenders criteria for a variety of different reasons.
Basic annual income
The amount of money earned that is guaranteed regardless of the individual or company performance.
To secure a particular deal, a lender may charge an upfront fee, this normally applies to special offer loans, such as fixed or capped rates.
Fee charged by an intermediary to the borrower for arranging their mortgage.
Insurance covering the structure of a building which is a prerequisite for having a mortgage.
A building survey (formerly known to many as a structural survey) is a detailed and comprehensive report from a surveyor which will highlight any major or suspected problems with the property.
Buy to let
Buy to let mortgages are for properties purchased for investment purposes i.e. for letting to someone else.
A type of mortgage which means that the mortgage interest rate will not exceed a specified value during a certain, specified period of time, but can fluctuate up and down below that level.
A type of mortgage where the lender will offer a lump sum of cash at the start of your mortgage. Often this will take the form of a sum of money towards the cost of legal fees or survey charges.
The point at which the legal formalities of a property purchase or mortgage are finalised and the funds are released by the lender. In the case of a property purchase, it is also the point at which the keys are released by the estate agent to the new owner of the property.
The insurance for the property within your home – i.e. furniture, clothes and other personal possessions.
A self-contained flat that has been converted out of part of a larger property.
The process a solicitor goes through to complete the legal aspects of your purchase.
Enquiry made on the credit history of an applicant, normally by reference to one of the major credit agencies such as Equifax.
The means by which many lenders assess the risk of taking you on as a borrower based on your financial record and personal circumstances.
The standard terms and conditions applied by a lender for acceptable loan applications. These vary from mortgage to mortgage.
The amount of money required from the buyer to pay towards the cost of the property.
Costs incurred by solicitors in carrying out their work which they re-charge to their client – this can include photocopying, postage and couriers.
A type of mortgage where the interest rate is lower than the current standard variable rate for a fixed period.
Early repayment charge
A charge levied by the lender as a penalty if a mortgage is repaid before the end of the initial term.
A written statement from an employer confirming employment, salary details and length of service.
The basis of employment – i.e. self-employed, employed etc.
The stake that you own in your home, i.e. the property value less the mortgage loan outstanding.
European Standardised Information Sheet (ESIS)
A thorough document showing the monthly cost of a mortgage and any other expenses associated with the loan.
Exchange of contracts
In England and Wales (not Scotland), this is the point when both buyer and seller are legally bound to the transaction and at which point the buyer should take out buildings insurance on the property.
Person buying a property for the first time. Some lenders offer preferential rates to first-time buyers and vendors often prefer to sell to them as they are normally able to move faster than someone with a property to sell.
A type of mortgage where the repayments are based on a certain interest rate for a stated period and the amount payable will not change regardless of any changes (up or down) in the lenders standard variable rate.
Land or property which is owned outright.
A person who agrees to guarantee that a loan will be paid – the guarantor is therefore fully liable for the repayment of the mortgage should the borrower default on their payments.
Higher lending charge
A fee charged by lenders when the LTV ratio on a borrowers property is above a certain level – typically 90%.
A fuller inspection of the property than the standard mortgage company valuation – payable by the borrower.
The interest rate that is payable from the start of the loan – many mortgage products e.g. fixed and discount have an initial rate of interest which will change at the end of the initial period.
A type of mortgage in which the borrower only repays the interest on the loan for the duration of its term and repays the full loan amount at the end of the mortgage period.
Irregular earned income
Additional income over basic salary that is of an erratic nature – additional payments to which the borrower may be entitled by which are not received on a regular basis.
A mortgage application involving more than one person.
A central register of property, ownership and mortgages held at HM Land Registry.
A type of ownership in which a person owns a property but not the land on which it is built. Typically the land will be leased to the owner.
Let to buy
Let to buy mortgages are for properties purchased when you have found your ideal onward home but have decided to keep your original property to let out. A ground rent will be charged to the property owner.
A policy which is payable upon death of the insured during the period of cover – sometimes referred to as life insurance.
The total amount borrowed.
Loan to Value (LTV)
The percentage of the loan borrowed against the value of the property.
Local authority search
A search of local authority records to confirm the status of the property which will reveal any proposed changes in the area such as road widening – the local authority search is normally carried out by your solicitor as part of your standard conveyancing.
Usually used to describe a flat which extends over more than one floor or a flat which has its own front door at street level.
A loan which is secured by the value of the land and the property occupying the land.
A legal document that confers ownership or title to a property.
Mortgage monthly repayment
The length of time before the mortgage loan is completely paid off (for a repayment mortgage) or when the capital is due to be repaid (for an interest only mortgage).
A situation which occurs when the amount loaned against a property is more than the market value of the property.
Newly or recently built properties.
Open market value
The value of a property on the basis of a willing buyer and seller in the open market.
The schedule of payments that are required to be made to pay back the loan.
A product feature of some mortgages which means that you can carry the same mortgage deal across to a new property if you move.
Purpose built flat or apartment
A self-contained residential unit contained within a larger structure containing several self-contained units or flats all sharing a common entrance.
Paying off the mortgage, either to move to another property, at the end of the mortgage term or when remortgaging.
Arranging a loan on the property that the borrower already lives in – normally to obtain more attractive terms, a lower interest rate or to raise additional capital.
The borrower pays an amount each month to cover the amount borrowed and the interest charged.
A property which is in the process of being built under the control of the borrower. Loans on self-build properties will normally be advanced in stage payments and are subject to strict limits on loan to value.
A method of property purchase which involves buying in partnership with a Housing Association. The borrower purchases part of the property and rents the remainder from the Housing Association.
A person currently renting and occupying a property who is legally protected against being removed.
A property that is occupied by the borrower and their immediate family only.
A Government land tax charged as a percentage of the purchase price of a property. It is charged on all property purchases of over £125,000 with the percentage rate varying by price.
Constructed of brick with a tile or slate roof – lenders tend to be more cautious of properties of non-standard construction.
A detached, semi-detached or terraced house or bungalow.
A type of flat comprising of a single habitable room plus a bathroom and possibly a separate kitchen.
Standard variable rate (SVR)
A mortgage lender’s main interest rate. Fixed-rate and discount loans usually switch to SVR when the special/initial offer period expires.
The loan to value ratio above which the higher lending charge is payable.
A type of mortgage where any changes in the rate of interest charged follow exactly (track) another specified interest rate. Typically, a tracker will track the Bank of England base rate.
The process of following the progress of a mortgage application.
Top up loan
A form of second mortgage normally used to provide an overall loan in excess of the loan to value ratio allowed by the primary lender.
An inspection carried out for the benefit of the mortgage lender to ascertain if a property offers good security.
The fee for the valuation paid by the borrower, usually on application.
An interest rate that will vary over the term of the loan – usually in line with the general cost of borrowing.