The Annual Percentage Rate of Charge, often referred to as APRC is the total cost of the credit to a consumer, expressed as an annual percentage of the total amount of credit.
Base Rate
The UK’s interest rate set by the Bank of England.
Buildings Insurance
Cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). Buildings insurance covers the cost of repairing damage to the structure of your property. Garages, sheds and fences are also covered, as well as the cost of replacing items such as pipes, cables and drains. Buildings insurance usually covers loss or damage caused by fire, explosion, storms, floods, earthquakes. The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.
Business Buy to Let
The practice of buying a house or flat for investment purposes. Income is provided by the tenants’ rent, and capital growth (if any) by the property’s increasing resale value.
Capital and interest
In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month until at the end of the term the entire loan is repaid. In contrast, an interest-only mortgage involves only paying off the interest.
Capped Rate
A mortgage which allows your interest rate to climb no higher than a specified level, usuallyfor the first few years of the loan.
Cashback
A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an incentive to enter into a mortgage contract with the mortgage lender.
Completion
The final stage of the house-buying process, and the day the property you are buying legally becomes yours and the day you are able to collect your keys.
Consumer Buy to let
Buy-to-let mortgages that are driven by certain circumstances where the potential borrower (a) did not set out to borrow for business or investment purposes, (b) does not have any other buy-to-let properties and (c) is only looking for a remortgage. For this reason, these mortgages are regulated giving you greater protection than with a business buy to let mortgage.
Contents Insurance
Insurance cover for the belongings within your home.
Conveyancing
Normally carried out by a solicitor or licensed conveyancer on the buyer’s behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property’s value.
County Court Judgement (CCJ)
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans or be expected to pay a higher rate than other customers.
Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies and contain information from many different aspects of your life.
Deeds
The formal written document which lists exactly who owns a property and enables transfer of a property’s ownership from seller to buyer.
Decision in principle
This is the first step in a lender confirming that they may be prepared to give you a mortgage, based on the initial information received from your broker. This is only an indication; more details are required when you’re ready to go ahead with the full mortgage application.
You may hear this also referred to as an ‘Agreement in Principle’ or a ‘Mortgage in Principle’. AIP or DIP.
Deposit
An amount of money that you pay towards the property purchase. This will make up the difference between the mortgage you have applied for and the property’s purchase price.
For example, if the total property price is £175,000 and you have £17,500 to put towards it, this would be a 10% deposit.
Debt management plan
A debt management plan (DMP) is an informal repayment arrangement usually made through a debt management firm, between you and anyone you owe money to. If you are struggling to make your contractual repayments, the firm will liaise with your creditors on your behalf to agree on a repayment plan. DMPs are normally put in place for debts that are classed as non-priority, such as credit cards, loans and other credit agreements, such as a mobile phone contract.
Discounted Rate
A mortgage which has an interest rate below the lender’s standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.
Early Repayment Charges (ERC's)
A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges.
Employment Status
A term used by lenders to describe potential borrowers’ working arrangements.
Endowment Mortgage
A mortgage funded by an insurance-based savings plan. The borrower only pays the interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instance’s overpayments can occur
Equity
The difference between the total outstanding balance of your mortgage and the market value of your property.
ESIS
A document that lenders produce, outlining the key features of the mortgage. It is designed to help make it easy for you to compare the total cost of different mortgages because the information is the same, and includes details such as what your monthly mortgage repayments will be, and any fees you’ll need to pay.
Exchange of Contracts
The terms of a property’s purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date.
FCA
The FCA are an independent body that regulates mortgage lenders and other financial services companies to ensure that consumers remain protected and that the industry remains stable. You can find out more about them here: https://www.fca.org.uk/
Fixed rate mortgage
A fixed-rate mortgage charges a set interest rate over an agreed period of time, which could be anything from 1 year, 3 years, 5 years, or occasionally even longer. At the end of the fixed rate, the mortgage will normally revert to the lender’s standard variable rate.
Flexible Mortgage
A mortgage which allows borrowers to make overpayments when they have spare cash.
Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next.
Gross
Before tax or deductions.
Help to buy
A Government scheme available to first time buyers as well as homeowners looking to move; the Government lend you up to 20% of the cost of a new build property.
This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout oesn’t cover their costs, they may seek further money from you. With many mortgages, you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.
Illustration
In the context of mortgages, a lender’s estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up. Also referred to as a kfi (key facts illustration).
Income
An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).
Interest
The premium which a borrower must pay a lender in return for use of the lender’s money.
Interest-Only Mortgage
An interest-only mortgage or interest only remortgage is where you simply pay the lender the minimum amount to cover the interest on your loan.
Let to buy
Let-to-buy is when you rent out your existing home and buy a new one to live in. Essentially, it involves having two mortgages at the same time. You convert your existing mortgage to a buy-to-let mortgage so you can let out your current home, and then take out a standard residential mortgage on the home you’re buying.
Loan To Value
A ratio describing the size of a mortgage (the amount you borrowed) in relation to the value of the property, expressed as a percentage.
For example, if you have a deposit that will cover 25% of the property price, then you will need a mortgage that is 75% of the property price, meaning the loan is 75% of the value of the property. If you had a 5% deposit, the LTV would be 95%.
London Inter-Bank Offered Rate (LIBOR)
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either “1” or “3” months LIBOR is what is normally used in setting mortgage rates.
Mortgage Deed
A legal document that, once signed, provides confirmation that you’re happy to proceed with the property purchase or remortgage, based on the terms of your mortgage offer.
Mortgage offer
A mortgage offer, otherwise known as an ‘offer of advance,’ is the formal document issued by a mortgage lender to a customer that confirms that the lender is happy to advance them the money. The mortgage terms and conditions together with the mortgage deed, illustration and special conditions and tariff of mortgage charges are generally incorporated into a mortgage offer.
Negative Equity
This is when the value of your property is lower than your total outstanding mortgage balance.
Net
After tax or deductions have been deducted.
Offset Mortgages
Most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. This is the basic principle behind offset mortgages.
With interest-only paid on the balance between savings and mortgage debt you achieve the same effect as overpaying a home loan: but you retain the ability to get the money back if you need it.
Overpayment
A mortgage repayment bigger than the one needed to meet the loan’s minimum requirements.
Payment Holiday
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income. Very commonly used during Covid 19.
Pension Mortgage
A mortgage whose capital repayment is funded by using a personal pension.
Premium
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.
Procuration Fee
The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender
Remortgaging
The process of switching your mortgage loan from one lender to another without moving to a new house.
Repayment Mortgage
A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less or more if preferred).
Repayment vehicle
The means by which a mortgage loan’s capital is repaid. Examples include endowment policies, ISAs, and personal pensions.
Search
A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property which could affect its future value or existing restrictions on the site.
Secured (loan)
If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be “secured” on the property.
Stamp Duty
Stamp duty, or stamp duty land tax to give it its full title, is the tax levied by the government on house purchases. The amount of stamp duty you’ll pay depends on if you are a first time buyer and whether you’re buying a main, secondary residential property or a buy to let investment.
Standard Variable Rate (SVR)
A mortgage lender’s main interest rate. Fixed rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank of England Base rate (or LIBOR)
Surrender
The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy’s early years.
Survey
An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.
Tracker
Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate.
The rate you pay moves up and down in line with the benchmark selected.
Term
The length of time that you have agreed to repay the mortgage over.
Valuation
Also known as a mortgage valuation, a valuation survey is an inspection of the property that is used by the lender to confirm its value. A physical inspection is not always needed, a desktop valuation or automated valuation can be used.
The Mortgage Company is a trading style of The Mortgage Company (London & Essex) Ltd and is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only.
The Mortgage Company (London & Essex) Registered Address: 187 Hoe Street, Walthamstow, E17 3AP. Registered in England & Wales No 11946321
“We always aim to provide a high quality service to our customers. However, if you encounter any problems and we are unable to resolve them you can take your complaint to an independent Ombudsman. Our advice is covered under the Financial Ombudsman Service https://www.financial-ombudsman.org.uk/consumer/complaints.htm
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