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JARGON BUSTER

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OUR PLAIN SPEAKING MORTGAGE JARGON BUSTER

Our useful mortgage jargon buster helps to explain commonly used terms that you might encounter on your mortgage journey.
A
ACCEPTANCE A document indicating acceptance of a mortgage provider’s offer. ADVERSE CREDIT/POOR CREDIT This is a term used by lenders to describe an applicant for a mortgage or loan that has some degree of poor credit history. It could be anything from a missed or late credit card payment, to a bankruptcy. Different lenders take different views on adverse credit. Some will refuse to lend to anyone who has missed any sort of payment, whilst others may be more lenient in their view. AFFORDABILITY ASSESSMENT The process which lenders complete to establish if someone can afford to repay the loan repayments over the term of the loan. AGREEMENT IN PRINCIPLE (AIP) A statement from a mortgage lender confirming they’ll lend a certain amount before the purchase of your property is finalised. ANNUAL PERCENTAGE RATE (APR) A numerical value that represents the true cost of a loan or mortgage, taking into account not just the interest rate, but also the other costs, such as arrangement fees and charges. ANNUAL PERCENTAGE RATE OF CHARGE (APRC) APRC stands for annual percentage rate of charge. It shows you as a percentage, the annual cost of a mortgage over its lifetime and brings together all charges for your mortgage, such as fees and variable interest rates over the full term. While APR includes just one rate, APRC is designed to show borrowers the effect different rates and charges will have over the mortgage lifetime. ARRANGEMENT FEE A fee paid to your mortgage provider at the start of your mortgage. ARREARS If someone is in “mortgage arrears” this means that they have failed to meet their contractual obligations in relation to their loan; in simple terms they have not made their monthly mortgage payment for 1 month or more. The lender has specific procedures to follow when dealing with borrowers who fall into arrears. Ultimately, falling into arrears may cost you your home if you do not take action to make them up. You should always contact your lender immediately if you have trouble paying your mortgage. ASSIGN To hand over the rights to a property from one individual to another. ASSURED SHORTHOLD TENANCY (AST) A common type of periodic or fixed term rental agreement in the UK, between a private landlord (or letting agent) and tenant/s. If you have a buy to let property then you will have one of these. AUCTION FINANCE Auction finance is a type of bridging loan that is used to buy properties at auction. The properties can be commercial or residential.
B
BASE RATE The Bank of England Base Rate (BBR) is set by the Bank of England (BOE) Monetary Policy Committee and is reviewed every month. The rate is used to control money flow in the economy and can move up or down. It is likely that a tracker product rate will be linked to BBR. This means that the interest rate charged on your mortgage will increase or decrease in line with changes in BBR. A discount rate is not usually linked to BBR but is likely to change if the lender decides to change their Standard Reversion Rate following a change in BBR. A fixed rate is not affected by changes in BBR during the fixed period. BREAK CLAUSE A contractual clause in a tenancy agreement that allows either party to terminate the arrangement after a fixed term, for example, six months into a 12 month contract. BRIDGING LOAN A short-term loan designed to help the borrower to buy property for a short period, for example, before they have arranged a longer term mortgage, or if they intend to sell the property soon afterwards. By referral only and Some Bridging Loans are not regulated by the Financial Conduct Authority. BUILDING INSPECTION A property inspection and report conducted by a qualified surveyor to identify issues or faults with the property that may affect its safety or value. BUY TO LET A residential property bought with the sole intention of letting it to tenants on a long term basis. Some Buy to Let Mortgages are not regulated by the Financial Conduct Authority. BUY TO LET MORTGAGE A loan designed specifically for landlords to purchase a residential property they wish to rent out. These mortgages are generally set up as interest only. BUY TO SELL MORTGAGE A buy to sell mortgage is a short term mortgage that is suitable for property investors and developers who want to ‘fix and flip’.
C
CAPITAL AND INTEREST MORTGAGE With a repayment mortgage the lender calculates the monthly payment needed to fully settle the mortgage over a fixed term. Monthly payments comprise of mortgage interest and capital repayment. Also known as a ‘capital and interest’ mortgage. CAPPED RATE MORTGAGE This is a variable mortgage product, either a tracker or discount rate, which has a maximum ceiling interest rate. The maximum rate chargeable will be shown on your mortgage offer. These are not very common in the current market. You are, however, likely to see what are known as collared rate mortgages, particularly if you have a tracker type product. Your documents will state that the interest rate you pay will never be lower than a specific minimum rate, no matter how low the BBR goes. CHAIN A string of property purchases and sales dependent on one another to progress. CLOSED BRIDGING LOAN When you know how you are going to pay back your bridging loan, and more importantly when, then a closed bridging loan is a cheaper option. By referral only and Some Bridging Loans are not regulated by the Financial Conduct Authority. COMPLETION The final stage of a property sale and the point at which a buyer receives the keys and becomes the legal owner. COMPLETION STATEMENT A solicitor’s record of the transfers and transactions conducted as part of the completion. CONDITIONS OF SALE Items in a contract relating to the responsibilities of the various parties involved. CONTRACT An agreement and accompanying legal document between two parties. In a property context, these are usually the buyer and seller of a specific property. CONVEYANCER/CONVEYANCING The individual who undertakes the legal procedures involved in property sales on behalf of the buyer and seller, and the work they undertake. COUNTY COURT JUDGEMENT (CCJ) A County Court Judgement is a ruling of bad debt issued by a Court and registered on a debtor credit file. Anyone to whom you owe money can apply to have a CCJ registered against you, usually where no attempt to repay the debt has been made. It will be visible to the lender when they do their credit searches. A mortgage applicant with a CCJ registered against them would be classed as “adverse” and their options for borrowing may be limited. CREDIT REFERENCE AGENCY Credit files are held by Licensed Credit Reference Agencies and information must be held in accordance with the Data protection Act. CREDIT SEARCH This is a search of your credit file carried out by a lender to establish suitability for credit. When the lender does a credit search they are able to see not only what credit agreements you have but also whether you have made each payment and on time. It is the credit search that will reveal any CCJs registered against you. Not to be confused with credit score; see below. CREDIT SCORE Lenders use a scoring method based on points attributed to various pieces of information provided by an applicant and credit reference agencies. Each lender has its own score that has to be satisfied in order to qualify for the loan. Do not assume that because a Credit Reference agency says you have an excellent score, that a lender will share that opinion. The reverse is also true.
D
DEBENTURE This is a type of secondary security sometimes used when Limited Companies borrow money. A Debenture places a charge on assets owned by the company as additional security for a mortgage loan. It would only be used if necessary if the company was trading (rather than an SPV). DECISION IN PRINCIPLE (DIP) A statement from a mortgage lender confirming they’ll lend a certain amount before the purchase of your property is finalised. DEEDS The legal documents establishing the ownership of a property. It will also show any mortgage against the property. DEPOSIT A lump sum of money a buyer (mortgage deposit) or renter (tenancy deposit) pays to a property owner to secure the right to own or rent their property. DILAPIDATIONS Items requiring repair or replacement at the end of a tenancy due to damage by the tenant. DISBURSEMENTS Costs and expenses incurred and paid during the conveyancing process, such as search fees and stamp duty. DISCOUNTED RATE MORTGAGE A mortgage deal where the interest rate is a set amount less than the mortgage lender’s standard variable rate (SVR), usually for a fixed period of time. DRAFT CONTRACT An early version of a contract that may be updated before the contracts are exchanged.
E
EARLY REPAYMENT CHARGES (ERC) If you pay off your mortgage early, or overpay by more than your lender allows, you may have to pay an early repayment charge. This is so your lender can make up for the lost interest they would have made over the remainder of your mortgage agreement. EASEMENT A right to cross or use an area of land that may affect a property owned. ENDOWMENT MORTGAGE You pay money into a type of investment plan called an ‘endowment policy’ to pay off an interest-only mortgage at the end of the term. These types of mortgage are no longer available. ENERGY PERFORMANCE CERTIFICATE (EPC) An EPC is a document that displays a property’s energy efficiency rating and environmental impact. Legally required for the sales and lettings process. EQUITY The value of a property owned outright by an individual (versus the value they are still required to make mortgage repayments on). EXCHANGE OF CONTRACTS The moment at which a property sale is final, and the buyer and seller have both signed the contract of sale, which can no longer be amended. EXIT STRATEGY An exit strategy is the way you will eventually repay your bridging loan or development loan. The exit strategy should be realistic and credible enough to convince lenders that it can reliably be used to repay the bridging loan. At the end of the loan term, you are expected to repay the bridging loan in full, including any fees and accrued interest.
F

FIRST CHARGE

Mortgages are secured by way of a legal charge on a property and a first charge ranks ahead of subsequent Mortgagees charges in terms of priority. In practice it means that your main mortgage lender has first call on any money raised from the sale of the property. Everybody else, including you, ranks behind them.

FIRST-TIME BUYER

A first time buyer is someone who has never owned a property or land. Lenders create first time buyer mortgages specially for this group of borrowers.

FITTINGS

Items currently within a property that do not constitute part of the property and are not included in the sale, such as furniture.

FIXED RATE MORTGAGE

The mortgage interest rate stays the same for the initial period of the deal.

FIXTURES

Items attached to the land or property that are included in its sale.

FREEHOLD

The freeholder owns both the property and the land that it stands on. In England, houses are usually freehold with flats being mostly leasehold. Lenders are not usually keen on lending on English freehold flats, unless it is a leasehold flat with a share of freehold. In Scotland most flats are freehold

G

GAS SAFETY RECORD

A document legally required of all landlords to demonstrate that all gas appliances have been checked by a qualified engineer and declared safe.

GAZUMPING

An alternative buyer makes a higher offer to buy a property that is already under offer.

GAZUNDERING

When the buyer lowers their offer to buy a property at the last minute, just before contracts are exchanged.

GREEN MORTGAGES

Green Mortgages are a new type of mortgage finance that is designed to encourage property owners to make energy efficient improvements to their homes or purchase greener properties. The advantage is generally financial by way of a lower interest rate.

GROUND RENT

A charge paid by a leasehold owner to a freehold owner of a property, usually on an annual basis.

GROSS DEVELOPMENT VALUE (GDV)

With Development Finance, the Loan To Value (LTV) may be calculated against the future value of the security, after the development work has been completed. This future value is referred to as the Gross Development Value (GDV).

H
HIGHER LENDING CHARGE A higher lending charge is a fee (insurance premium) that lenders may charge borrowers where the proposed mortgage is more than a certain percentage of a property value (LTV). HOMEBUYER REPORT A property inspection and report conducted by a qualified surveyor to identify issues or faults with the property that may affect its safety or value. HOUSE IN MULTIPLE OCCUPATION (HMO) A property rented out by at least three separate people who are not from the same household (eg a family) but share facilities like the bathroom and kitchen. House in Multiple Occupancy Mortgages are not regulated by the Financial Conduct Authority.
I

INTEREST ONLY MORTGAGE

Interest is paid on the mortgage each month, without repaying any of the capital loan itself. This would be the opposite of a repayment mortgage.

INITIAL RATE/TERM

Many mortgage lenders offer an initial rate for a introductory period, this is typically 2 to 5 years but 10 years plus are sometimes available. After the initial term the mortgage will revert to the SVR for the remainder of the mortgage. Many people choose to remortgage at this point to avoid any higher charges.

INVENTORY

A document stating the contents and condition of a property at the start and end of a tenancy period, to record any loss or damage.

J

JOINT APPLICANTS/MORTGAGE

This is where you hold property ownership rights equally with another person or persons. If one person dies, ownership reverts entirely to the surviving person or persons. This legal agreement supersedes any Will the deceased may have made.

K

No mortgage jargon here.

L

LAND REGISTRY

HM Land Registry (HMLR) is the central record of ownership of land and property in the UK, to which a fee is paid when ownership changes hands.

LEASEHOLD

A type of property ownership (see also ’Freehold’) that indicates that an individual has purchased the right to live in a property for a fixed period, although the land and building belong to a freehold owner.

LISTED BUILDING

A property or structure that appears on a register due to its special historic or architectural interest.

LOAN TO VALUE (LTV)

The size of the mortgage as a percentage of the property’s value.

Loan to Value is the loan size calculated as a percentage of the property value. Most lenders use this percentage as part of their product pricing, charging a higher rate of interest as the loan to value increases. For example, you may initially apply for a product that will lend up to a loan to value of 75% and find that your property is not worth what you thought and that your loan to value has increased to 77%. This will mean either changing product (potentially paying a higher rate of interest) or reducing the loan so that it falls back to 75% (in the case of purchase this will mean you pay more deposit).

LOAN TO GROSS DEVELOPMENT VALUE (LTGDV)

LTGDV relates to development finance. The loan to gross development value is the maximum loan expressed as a percentage of the Gross Development Value (GDV) – the value of the project once completed.

M

MARKET VALUE

The estimated value that a property would sell for at the current time on the open market.

MORTGAGE ADVISER / MORTGAGE BROKER

A qualified individual who has FCA permission to give advice on regulated mortgage contracts.

MORTGAGEE

The mortgage lender.

MORTGAGOR

The person taking out the mortgage.

MORTGAGE VALUATION

A report on the value of a property by an independent surveyor on behalf of the mortgage provider.

MULTI-UNIT FREEHOLD BLOCK (MUFB)

A multi-unit freehold block comprises of multiple, self-contained units, on a single freehold title. An example would be a house converted into flats, or a block of flats with no individual leases.

MULTI-UNIT FREEHOLD COMPLEX

This term is often used in relation to holiday complexes, where there are several buildings on one legal freehold title. An example would be a barn conversion complex, often restricted to holiday let use only.

MUNDIC

Mundic can be found in some properties in Cornwall and Devon. It was used in the making of concrete and can cause serious structural problems for properties. A valuer will always report to the lender if he believes a property is constructed using Mundic and it is likely the lender will ask you to obtain a specialist report assessing the construction and condition of the concrete. Some lenders will not lend on this type of property.

N

NEGATIVE EQUITY

A state in which the owner of a property owes more to their mortgage provider than the total value of the property.

O
OFFSET MORTGAGE A mortgage linked with a savings or current account. Credit balances are offset against the mortgage debt so interest is calculated daily and only charged on the difference, while also paying off the capital. Sometimes referred to as a current account mortgage. OPEN BRIDGING LOAN Open bridging finance is offered without knowing the exact date of repayment. Due to this uncertainty the lender will charge a slightly higher interest rate than for a closed loan. By referral only and Some Bridging Loans are not regulated by the Financial Conduct Authority.
P

PART AND PART

This refers to the repayment of a mortgage. Part and Part is a combination of both repayment and interest only mortgage. EG a loan of £150,000 could be made up of £100,000 repayment and £50,000 interest only, so there would be a remaining balance of £50,000, to repay at the end of your mortgage term.

PERSONAL GUARANTEES (PG)

A Personal Guarantee (PG) is an undertaking by an individual, usually a director or shareholder of a company, to accept liability for a debt should the company become unable to keep up repayments. The person issuing the PG then becomes responsible for making the payments until the debt is repaid. Most buy to let lenders insist upon personal guarantees from the directors when lending to corporate vehicles (SPVs, trading limited companies, LLPs, etc.)

PORTABILITY/PORTING

The lender will allow the borrower to transfer (or port) an existing mortgage product to a new property, subject to both borrower and property meeting its lending criteria at the time of the request. It is a way of holding on to a good product or avoiding ERCs. It is however a new mortgage and is fully underwritten.

Q

No mortgage jargon here.

R
REDEMPTION Paying off your mortgage. REFLECTION PERIOD A formal period of time, given by the lender, allowing you time to consider the mortgage offer. REGULATED BRIDGING LOAN A bridging loan will be regulated if the loan is secured against a property which the borrower currently occupies or intends to occupy. By referral only and Some Bridging Loans are not regulated by the Financial Conduct Authority. REMORTGAGE Changing a mortgage without moving property to save money, change to a different type of mortgage or release equity from the property. RESIDENTIAL MORTGAGE The most common type of mortgage which is used to purchase or remortgage the home you live in. REVERTING OR REVERSION RATE This is the interest rate that you will pay on your mortgage once any special product rate period has expired. RETENTION The lender will offer the amount you have asked to borrow but will hold back all or part of the loan until you have met certain specific conditions that will be clearly stated in your offer. Your solicitor will have to confirm these have been met before the lender will release the funds offered in full. Usually this occurs where a property is in need of substantial repairs and the lender wants to ensure that they are carried out. REPOSSESSION Used by a secured lender to enforce its right to take the property sell or rent it out to cover its costs if the borrowers fails to make repayments or breaches the mortgage agreement in some way. The lender will follow its internal procedure for dealing with the breach and if this does not bring a satisfactory result can apply to the court for a Possession Order – repossession. It is an act of last resort and does not discharge you from your responsibility for the debt. If the sales proceeds do not cover the balance outstanding on your mortgage with the lender, they can pursue you for the difference. REPAYMENT MORTGAGE With a repayment mortgage the lender calculates the monthly payment needed to fully settle the mortgage over a fixed term. Monthly payments comprise of mortgage interest and capital repayment. Also known as a ‘capital and interest’ mortgage.
S

SA302 TAX CALCULATION

The SA302 Tax Calculation is a statement provided by HMRC that provides evidence of your earnings for a given tax year.

SEARCHES

Checks conducted as part of the conveyancing process before a property sale is made final.

SECTION 106 AGREEMENT

A Local Authority will often use a Section 106 planning restriction when they want to control how and possibly when a property can be used. Quite common for holiday letting situations.

SHARE OF FREEHOLD

A form of property ownership (see also ‘Freehold’ and ‘Leasehold’) where several individuals own a portion of the property through a limited company.

SOLE AGENT INSTRUCTION

A sale or tenancy managed by a single estate or letting agent.

SPECIAL PURPOSE VEHICLE (SPV)

Often used as a vehicle to purchase investment property, a Special Purpose Vehicle is a non-trading limited company that exists with a sole purpose. In the case of use for buy to let property ownership, the SIC code must reflect the intended use.

STAMP DUTY LAND TAX (SDLT)

A government tax paid when buying a property over a certain value. Read more on Stamp Duty Land Tax and use our stamp duty calculator to see how it would be for you.

STANDARD VARIABLE RATE (SVR)

The default mortgage interest rate a lender will charge after the initial mortgage deal period ends.

SUBJECT TO CONTRACT

A phase of a property sale after an offer has been made and accepted but before contracts have been signed and exchanged.

SURVEY

A property inspection and report conducted by a qualified surveyor to identify issues or faults with the property that may affect its safety or value.

T

TAX YEAR OVERVIEW

Your Tax Year Overview (TYO) is a statement that lists tax payable, tax paid and tax outstanding.

TENANCY/TENANT

A period in which an individual is granted the right to live in a specified property, subject to a tenancy agreement, and the individual involved.

TERM

The period of time that your mortgage will be set up for. It is possible to amend the term during a mortgage and also when remortgaging.

TOP SLICING

Typically used for holiday let and buy to let mortgages. The lender may offer a customer a higher loan amount by using some excess personal income in the calculation.

TRACKER MORTGAGE

The interest rate on the mortgage tracks the Bank of England base rate at a set margin above or below it.

TRANSFER DOCUMENT

The document that legally transfers the rights to a property from one party to another.

TRANSFER OF EQUITY (TOE)

A transfer of equity is the process of adding or removing someone from the title deeds of a property. Usually also involves a remortgage.

TITLE DEEDS

The majority of Land these days is registered at the Land Registry, so you are unlikely to ever receive paper bundles of ‘Title Deeds’ as was formerly the case. At its most basic The Title Deed confirms the property itself exists, ownership of the property and anyone who has lent money against the property, such as the mortgage lender. You can obtain copies from the Land Registry for a small fee.

U

UNDER OFFER

A phase of a property sale after an offer has been made.

UNENCUMBERED PROPERTY

A property is said to be unencumbered if there are no loans secured against it.

V

VALUATION

An appraisal of a property to establish its market value.

This is generally instructed by the lender for the lender. As the name implies it provides the lender with an estimate as to the market value of a property at that particular moment in time and brief details of the property being mortgaged. It will also draw the lenders attention to any issues that may adversely affect that value. The lender is then likely to ask the purchaser for further information, usually reports from specialist contractors, before deciding whether they will lend on the property.

A mortgage valuation gives the applicant no protection at all and should not be viewed as a comprehensive report on the structure.

VALUATION FEE

The fee charged by the lender for a mortgage valuation (see above).

VARIABLE RATE MORTGAGE

The Interest rate on this mortgage can go up or down according to the lender’s standard variable rate (SVR).

VENDOR

The person selling the property.

W

No mortgage jargon here.

X

No mortgage jargon here.

Y

No mortgage jargon here.

Z

No mortgage jargon here.

K

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