mortgage-jargon-explained

UK Mortgage Jargon Explained

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Our most recent article dove in to the various mortgage types, but with so much jargon to have to understand as a homebuyer, whether buying for the first time or re-mortgaging, here’s our A-Z of all the jargon you might hear when going through the mortgage process.

Agreement in principle (AIP)

An AIP is a simple document from a mortgage lender confirming the amount you will be able to borrow. You will need this to prove to estate agents and sellers that you can afford to buy their property.

APR

APR stands for Annual Percentage Rate. The APR is the overall cost of a mortgage, including the interest and fees. It assumes you will have the mortgage for the whole term, so may not be a useful way to compare deals. Your independent mortgage advisor can provide more clarity on deal comparison.

Arrangement fee

A set-up fee for your mortgage. Most mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the whole mortgage term.

Arrears

If you go into arrears, it means you have ‘defaulted’ or missed at least one payment on your mortgage. Always contact your lender as soon as possible if you think you may go into arrears.

Base rate

The base rate is an interest rate set by the Bank of England. Tracker mortgages and standard variable rate mortgages usually follow this rate which, as at [04 April 2022] is 0.75%.

Booking fee

A booking fee is a type of mortgage set-up fee.

Broker

The term ‘broker’ is another way of saying ‘intermediary’ or ‘adviser’. The best advisers to get advice from are ‘whole-of-market’ which means they are not limited to a small number of mortgage deals and can access deals from any lender in the UK. Sims Williams can put you in touch with an independent mortgage adviser.

Buildings insurance

If you’ve rented up until now, you’ll likely be familiar with contents insurance. Whilst contents insurance covers your belongings inside of your four walls, building insurance covers you for damage to the structure of your home. A lender will require you to have this in place when you take out a mortgage.

Capital

The amount of money you borrow to buy a property.

CCJ

CCJ is an abbreviation of County Court Judgement. These are made against you for non-payment of debt and could make it harder for you to get a mortgage.

Conveyancing

Conveyancing is the legal process you go through when you buy or sell a property and is done by a solicitor or licensed conveyancer. Sims Williams recommend you instruct your solicitor before commencing the sales process in order to speed it up as much as is possible. We can provide recommendations on reputable, local solicitors in Chichester, Bognor, Arundel and the Six Villages.

Deposit

This is the cash amount you are required to put down yourself towards the cost of the property, often 5% or more. So if you are buying a property that costs £200,000, it’s likely the minimum deposit you’ll need is £10,000.

Early repayment charges (ERCs)

An early repayment charge is a penalty fee you have to pay if you want to leave your mortgage early, similar to a normal loan. This is usually the period of the initial deal. For example, if you take out a 2-year mortgage but want to leave after 1 year, you’ll likely incur an early repayment charge.

Equity

Equity is the amount of the property that you own outright and includes your deposit and any capital that you’ve paid off your mortgage. For example, on a £200,000 property with a £10,000 deposit, £190,000 is mortgaged. Once you’ve paid £10,000 off your mortgage, you have £20,000 equity.

Freehold

If a property is freehold it means you own the building and the land it stands on. This is the opposite of leashold properties where you only own the building and not the land it stands on.

Guarantor

A guarantor is a third party who agrees to meet the monthly mortgage repayments if you are unable to. This is most common with first-time buyers, and the guarantor is usually their parent or guardian.

Help to Buy

The government has launched a number of different Help to Buy schemes, including equity loans, mortgage guarantees, Isas and specific schemes for Scotland and Wales. They all aim to make home-buying easier. Find out more about Help to Buy.

Higher lending charge (HLC)

This is a fee sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage.

Intermediary

The term ‘intermediary is another way of saying ‘broker’ or ‘adviser’. The best advisers to get advice from are ‘whole-of-market’ which means they are not limited to a small number of mortgage deals and can access deals from any lender in the UK. Sims Williams can put you in touch with an independent mortgage adviser.

Joint mortgage

A mortgage taken out by two or more people.

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Land Registry

The official body responsible for maintaining details of property ownership.

Leasehold

You own the building but not the land it stands on, and only for a certain period (anything up to 999 years). This is the opposite of freehold properties where you own both the building and the land it stands on. You may find it harder to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Ask us for advice.

Loan-to-value (LTV)

Loan-to-value is the size of your mortgage as a percentage of the property’s value. For example, if you have a 5% deposit and are getting a mortgage for the remaining 95% of the property, the loan-to-value is 95%.

Monthly repayment

Just as you would repay a credit card or other type of loan, this is the amount you pay your mortgage lender each month.

Mortgage deed

This is a formal contract between the lender and the borrower outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.

Mortgage payment protection insurance (MPPI)

An insurance that covers your mortgage, usually for a year, if you are unable to work due to accident, sickness or unemployment. It is also know as ASU insurance. If you’d like advice on mortgage payment protection insurance, Sims Williams can recommend independent advisors qualified to give such advice.

Mortgage term

The number of years you are taking the mortgage out for.

Negative equity

When the value of your home falls to a level that is below the amount remaining on your mortgage.

Portability

A portable mortgage allows you to transfer your borrowing from one property to another if you move, without paying arrangement fees or early repayment fees.

Rebuild cost

For insurance purposes: the cost of rebuilding your home if it is destroyed.

Re-mortgage

You might re-mortgage if you are not moving home but wish to secure a new deal. You can do this to save money, to change to a different type of mortgage or to release equity from your home.

Repayment vehicle

A repayment vehicle is required by lenders if you take out an interest-only mortgage. This is the means by which you’re intending to pay off your mortgage at the end of the term – for example, another property, or a stocks and shares portfolio.

Right to Buy scheme

This is a scheme that enables tenants of council houses or housing association tenants to buy the homes they live in.

Service charge

This is a fee paid to a managing agent for the ongoing maintenance of a leasehold property.

Shared ownership

A scheme whereby you purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association.

Stamp duty

Stamp duty land tax (SDLT) is payable when you buy a residential property for more than £125,000 (rates differ for second properties). Visit the government’s stamp duty calculator to work out how much stamp duty you would pay on your purchase.

Tie-in period

This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period.

Valuation survey

Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you’re paying for it.

Whether you’re moving or simply re-mortgaging, Sims Williams have access to highly recommended independent mortgage advisers that can give you advice when you need it. Contact us on 01243 551368 .

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