How to give mortgage terminology the ‘heave ho’ !
We thought pirate terminology was hard enough to get our heads around, but mortgage terminology is something else !
Ahoy me hearties. This straightforward guide helps simplify some of the mortgage terminology that you are likely to encounter when purchasing or remortgaging a property. Mortgage lenders and brokers like to use jargon. It is unavoidable. However, with a little ‘heave ho’ we can have you talking like a Mortgage Pirate in no time. Arrrr !
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
If there are any mortgage terms you would like us to add to this list, please use the contact form below.
A.
Accountants Certificate.
A form sent to the accountant of a self employed person to help verify the income figures that the lender will be using. Not required in every case.
Additional borrowing.
When you ask your current lender to increase your mortgage. They will ask for the reason for the extra money i.e. home improvements, paying off debts etc. They will also check you can afford the new monthly repayments. Can also be used to increase your mortgage in you are moving into a more expensive property.
Adverse Credit.
Applications where there are missed, late or defaulted payments on credit agreements showing on the applicants credit check. This may mean that a larger deposit would be needed, higher interest rates may be charged and the number of available lenders may be limited.
Affordability
Mortgage lenders use your income, debts, living expenses and other outgoings to decide if you can afford the new mortgage repayments or not.
Affordable Housing.
Usually refers to low cost ownership schemes. Property can be purchased at either a reduced cost, or with limited income / deposit. Examples of this are shared ownership, right-to-buy or shared equity although there are many others and new schemes are added all the time.
Age.
Lenders have a maximum age to consider when granting a loan. They will look at your age at the point of application, as well your age on the final mortgage repayment. This is used to work out the length of the loan and the monthly repayment. It also determines if the lender will need to check plans for lending into retirement.
Annexe.
A property which may have an additional living area that is separate from the main building. Usually this means a self contained dwelling with its own kitchen and bathroom. Lenders will want to check what this will used for and may have issues if it is likely that the annexe will be rented out.
Applicants.
Applicants are the people who form part of the mortgage application. They will have their details checked by the lender. Most lenders are happy with up to 2 people to apply for a mortgage but a lot will also allow up to 4. In some cases the applicants do not need to reside in the property i.e. if it were a combined mortgage with parents and children.
Arrears.
Mortgage arrears are where 1 or more months of mortgage payments have been missed. Mortgages in arrears can cause issues when trying to move house or remortgage to better deal. These can also be classed as a form of adverse credit on an application.
AST.
Assured shorthold tenancy agreement. Requested on buy-to-let mortgage applications to confirm if a property is currently let and what the monthly rental income is. If the AST is an agreement with a company and not the occupier this will more than likely require a specialist lender.
B.
Bank Statements.
Bank statements could be requested for any account held and could be personal or business. The most common request is for the last 3 months of statements for the account a salary is paid into. Ideally these should also show day-to-day expenditure. Statements can also be used as proof of deposit. All statements should clearly show a name and address.
Basic Pay.
Usually this means your guaranteed and contracted gross pay before deductions and will not include any additional income such as overtime or bonus etc.
Benefit Income.
There are many different types of benefit related income and every lender will accept a difference combination of these. Check carefully if your source of benefit income is acceptable to them and be prepared to provide evidence of the payments such as bank statements and the letter confirming the benefit award.
Bonus Payments.
The lender will check the previous track record of non-guaranteed bonus payments and the likelihood they will continue. Evidence will be P60’s, and payslips showing previous bonus payments. They may choose to only accept a certain percentage of the payments in their calculations or choose to take an average.
Builders Cashback.
Some builders or developers may include a cash sum paid to the purchasers as part of the deal. Alternatively, they may also provide financial help with legal costs, deposit contributions or payment of stamp duty. Check exactly what is being offered and make sure that the mortgage lender is aware. Sometimes the incentives on offer can be applied as a reduction of the purchase price instead of being treated as a separate entity. Each lender will have limits on the financial incentives they will allow.
Buy-To-Let (BTL)
A mortgage specifically for someone who wants to rent a property out. Subject to different criteria and rules compared to standard residential mortgages. Interest rates, minimum deposits and fees tend to be higher in general because of the increased risk to the lender. The rental income, type of tenancy and minimum income levels can all be important factors to a mortgage lender when deciding if a mortgage will be agreed.
C.
CCJ
A form of adverse credit that may restrict your mortgage options. Check your credit report before applying for a new mortgage so that you have details of the dates and amounts to offer the lender.
Chain.
A chain is where there will be more than just yourself and the seller involved in the completion of a purchase. For example the seller of the property you would like to buy may need to move into another house, and the person they are buying from needs to move into another house. This continues until someone can break the chain by moving into rented accomodation, or by purchasing from someone who does not need to move themselves. A chain can collapse if any of the links pulls out so the shorter the chain the better.
Chain Free.
Someone who does not have a property chain behind them. Such as first-time buyers, deceased estates, someone buying a property who is currently renting etc. Those parties who are not part of a chain are sought after as they can complete a property purchase quicker and there is less chance of the deal falling through. As a result they may be able to secure a better deal when negotiating.
Coach house style property.
These are properties that are built above a block of garages or parking spaces that are owned by other people. In most cases these are classed as a house and the respective criteria is applied. However some lenders will treat them as a flat which could mean that a larger deposit will be required.
Commercial Property
If a property is purchased for use by a business this will require a commercial mortgage. In these cases a business plan, personal collateral or larger deposit may be requested.
If a residential property is located above or near a commercial unit, this may make it harder to secure a property loan. The type of business and how close it is to the purchase property makes a difference. Antisocial hours, strong smells and noise all come into play when the mortgage lender inspect the property for their mortgage. Some areas of the country are less sensitive to this criteria and larger cities such as London often have more lenient rules.
Commission Income.
The lender will check the previous track record of commission payments and the likelihood they will continue. Evidence will be P60’s, and payslips showing previous commission payments. They may choose to only accept a certain percentage of the payments in their calculations or choose to take an average.
Commonhold.
The latest iteration of commonhold ownership is a modern alternative to a leasehold tenure. Property consisting of multiple units such as a block of flats or group of leasehold houses can be set up on a commonhold basis. This offers communal management via a commonhold association. This is where combined funds provided by the residents are used for common area upkeep and maintenance. However, each owner retains a freehold of ownership on their individual property. There are no reducing term leases that can affect the value of the property over time and no ground rent to pay.
Not every lender will offer mortgages on commonhold property so check in advance if your property will be suitable.
Concessionary Purchase.
When a property is purchased at below market value. This is common where an immediate family member offers to sell you their house at a heavily reduced price. The discount from the market value can either be used to reduce the purchase price, or in some cases it can be treated as a form of gifted equity deposit. This means that a property could be purchased without a deposit being required.
Also known as a Genuine Bargain Price.
Consent To Let.
A property that has a residential mortgage on it gains permission to be rented out to a tenant and no longer be lived in by the current occupier. Useful if you want to rent your current house out instead of selling it when buying a new house elsewhere to live in. Usually a short term measure until the current mortgage rate comes to an end. After which the lender can insist that a regular buy-to-let mortgage be used instead.
There may be a small fee or uplift in the current interest rate when applying for consent to let. Assessed on a case by case basis.
Construction types / non-standard construction.
Property can be built using many materials. Standard construction means something common and prevalent across the country. Something such as brick or stone walls with a tile or slate roof is classed as standard. Other construction types such as concrete, timber framed/clad, mundic, steel framed etc are classed as non-standard and some lenders will not be able to provide a mortgage on them.
If you feel that the house you are buying is not standard in construction type, speak to your mortgage lender about it and find out as much detail on the house as possible. There are many different types of non-standard construction type all with varying sub versions so it is important to find out as much information as possible.
Contractors.
A type of employment agreement which usually has a defined start and end date. Mortgage lenders like stability so if a contract has been running for 6 or more months or has been renewed previously this can help. Also 6 plus months remaining on the current contract will be beneficial. Check who pays tax and NI contributions on the contract as this can help the underwriters understand your income position. Advise them if you use the services of an umbrella company.
Credit Scoring.
Lenders will credit score / search you when completing a decision in principle or when making a full application. These checks can leave either a soft or hard footprint. A soft footprint is one that will not leave a mark on your credit file and should not affect your actual credit score. Hard footprints leave a mark and can last for 5+ years. Too many hard footprints in a short space of time can lower your credit rating.
D.
Decision in principle.
Also known as a DIP. The initial affordability and credit checks carried out by a lender to see if you are eligible for a mortgage with them. It provides a maximum potential loan amount and the deposit required. A DIP does not secure a mortgage product and full acceptance will be subject to a full underwriters assessment once a property has been found. Useful when booking viewings with estate agents to confirm your finances are provisionally in place.
Debt Consolidation.
The process of repaying loans, credit cards or other debts by increasing the amount borrowed on your mortgage. Care should be taken when consolidating debts into a mortgage. The long term cost of repaying the debt may be higher than simply repaying them as normal as the cost is spread over many years. Also securing previously unsecured debts against your property means that your home will be at risk if you do not keep up the repayments on your mortgage.
Decline.
A decision taken by the mortgage company to not lend a mortgage. A decline decision can be given at any time and for any reason. For further information check out our guide on handling decline decisions.
Deposit.
A sum of money provided by the buyers to assist with the purchase. The larger the deposit amount, the less mortgage funds need to be borrowed and the lower the risk for the lender. Cheaper interest rates are offered to those with larger deposits. If a buyer provides a deposit of 25% of the property value, they will mortgage the remaining 75%. This would be a 75% loan-to-value (LTV) mortgage. In many cases a gifted deposit from a family member is used but check to see if this will be acceptable with your chosen lender as some like to see at least a small portion coming from the applicants own funds.
Dual Representation.
Normally a single solicitor is required for a property purchase, and they deal with the requirements of the buyer and also their chosen lender. However, in some cases a solicitor may not be on the recognised panel for the mortgage lender and therefore they may insist that a second solicitor be appointed purely to act on their behalf. If this is the case the buyer will be expected to pay for both solicitors so should be avoided unless absolutely necessary.
E.
Early Repayment Charges.
When a mortgage is repaid early, either in full or in part, lenders may charge an early repayment penalty. These charges are usually common when a mortgage product is active that has a specific end date. For example, repaying the mortgage in full when 2 years into a 5 year fixed rate deal. The charge is usually a percentage of the amount repaid and will be set out in the terms of your mortgage offer.
There are times when no early repayment charges apply. On many mortgage products there will also be an amount that you can repay without incurring a penalty. These are known as overpayments. Again, check your mortgage offer for details.
Employment.
A lender will treat you as employed if you are on a full / part time contract with an employer. This is regardless of whether or not the employment is fixed term or temporary. Payslips will usually be required to evidence the income and in some cases a copy of the contract may be requested.
Self employed applicants with shares in a ltd company may be treated as employed for the purpose of a mortgage application. This is usually the case if the shareholding percentage is less than a certain amount. Typically, around 20% but this can vary between lenders.
EPC – Energy Performance Certificate.
Most property in the UK should have an EPC to show how energy efficient the property is currently, and what it could be with a little investment. Some property types are exempt such as listed buildings where improvements cannot be made without interfering with the listed building rules. These give a good idea of the expected running costs of the property and are a useful tool when deciding whether or not to make an offer to a seller.
Equity.
Equity is the amount of the total property value that is not mortgaged. For example, if a property was worth £200,000, and the mortgage balance was £150,000, the equity in the property would be £50,000. Equity belongs to the owner so the higher the better.
This is a low cost home ownership scheme which aims to help buyers purchase a property with a lower deposit as well as reduce their overall mortgage borrowing. Recently in the UK this was most common as part of the Help to Buy scheme, but it is still available via different channels.
It works by providing the buyer with an equity loan which can be used to top up their deposit. On recent schemes the minimum borrower deposit needed to be 5% of the purchase price. The provider of the equity loan would then offer an additional 20% of the purchase price as an equity loan. In this case the borrowers total deposit would have been 25% and they would only need a mortgage for 75% of the property price. The benefit of this is that the mortgage rates on offer would be lower because of the larger deposit being used.
The equity loan will of course need to be repaid and a rate of interest will be applied to it. Each month you will need to make a regular mortgage repayment plus a payment towards the interest on the equity loan. The first few years may be interest free but as the term the amount of interest payable on the equity loan increases. Also, when the property is sold the equity loan will need to be repaid from the proceeds of the sale. As the loan is percentage based, you would need to repay 20% of any increase in value as well as the original sum.
Not all lenders offer shared equity mortgages.
ESIS (Product Illustration / KFI)
Details the chosen mortgage product and contains information about the rate of interest, monthly repayment, any fees, the chosen term, the total amount repayable, any early repayment charges and also incentives on offer from the lender. Should be provided by the lender or broker in all cases before a mortgage application is made.
Estate Charges.
Estate Rent Charges or Estate Management Charges can apply to freehold or leasehold properties and are payable for upkeep of communal areas on an estate. Be wary of the cost as not all lenders are happy if the charges are deemed to be excessive or can rise arbitrarily.
Ex-Pats.
People who are UK citizens but live or work outside of the UK. Acceptable to some lenders but not all as the applicant will not have a UK address history or evidence of income in sterling.
Expiry Dates (offer).
Once a mortgage has been fully agreed the formal offer is issued. This will be valid for between 1 – 6 months in most cases. If the offer expires you may need to apply again or choose another product. Some can be extended under special circumstances, but this is at the discretion of the lender.
F.
Fees.
Arranging a mortgage can be completed without incurring any fees. However, this may not represent the best overall value for money as sometimes a product featuring fees with have a lower rate of interest. Fees that are common when making an application for a mortgage consist of a valuation fee, product fee, booking / arrangement fee, completion fee, telegraphic transfer fee. Some of these can be added to the loan but others need to either be paid at the point of applying or at the end of the process. Check your product illustration for more details.
First Time Buyer.
A first time buyer is technically someone who has never owned a property anywhere in the world before. This could have been one purchased, inherited or won. Solicitors will check your status as a first time buyer for stamp duty purposes. Some mortgage lenders have specific first time buyer only products but can also class someone as a first time buyer in a different way i.e. someone who hasn’t owned a property in the last 3 years may be termed a first time buyer.
Flats.
Flats refer to a property that is one of multiple units in the same block. Often but not always these have some form of communal access or area within the main building. Be sure to check with mortgage lenders or a broker if you are intending on purchasing a flat which is in a high rise block, over or near to commercial units, has a short lease or has been set up on a freehold tenure basis.
Flying Freehold.
Flying freehold refers to an instance when a freehold property is built over land which does not form part of the property, one of which overhangs or projects out from underneath the other property.
Forces Help to Buy.
The Forces Help to Buy (FHTB) scheme was introduced in April 2014 to allow service personnel to borrow an interest-free loan of up to 50% of their salary (to a limit of £25,000) which they can then use towards their deposit. Rules apply as to how many FHTB loans can be included on a single application, and also what property schemes it can or ant be used in conjunction with.
Foreign Nationals.
Non-UK or ROI Nationals are classed as foreign nationals. Typically speaking the lenders will be looking for permanent rights to reside (indefinite leave to remain) to be able to provide lending with as few restrictions as possible. Those who do not have this status may have to provide additional deposit, have an address track record in the UK, or have certain requirements on their current visa.
Freehold.
A type of property tenure where both the property and the land within its boundaries is purchased together. This means that the applicant will own both and not have to pay any form of lease or ground rent charges. Preferable for houses, be cautious on freehold flats.
Further Advance.
G.
Gazumping and Gazundering.
Gazumping occurs when a seller accepts a verbal offer on the property from one potential buyer, but then accepts a higher offer from someone else. The seller may also ask for more money at the last minute, after previously agreeing to a lower one. In either case, the original buyer faces a difficult decision, and either has to offer a higher price or lose the purchase. More common during periods of house price increases.
Check out our Guide to house prices in 2024.
Gazundering is the opposite of gazumping. This occurs when the buyer of a property drops their asking price at the last minute leaving the seller in a position where they either have to concede to a lower sale price, or risk losing the buyer. More common during times of falling house prices.
Genuine Bargain Price.
Geographical Area.
The areas in which a particular lender will provide a mortgage. This could be the entire UK, mainland only, certain counties or postcode areas. Smaller building societies may be more restrictive in their lending area in order to control the flow of business and maintain expert knowledge in a certain area.
Gifted Deposit.
In many cases a gifted deposit from a family member is used to help purchase a property. These are normally fine but check to see if this will be acceptable with your chosen lender as some like to see at least a small portion coming from the applicants own funds. The lender may also want a letter confirming that the gift is purely its namesake and that it does not have to be repaid. If the gift is repayable then the lender may take the monthly repayments into account in their affordability checks.
Green Mortgages.
Certain mortgage products offer incentivised rates of interest, cashback or other benefits if the property meets the lenders green criteria. Often this will be related to the property’s EPC rating on the energy performance certificate as there may be a minimum score to qualify.
Ground Rent.
Ground rent is a sum that leaseholders pay to a freeholder. The freeholder is usually the entity that owns the land that a property was built on. This sum us usually paid annual and can be increased. Excessive ground rents or frequent increases may be frowned upon by a mortgage lender.
Guarantor.
In some cases a mortgage lender may require a guarantor to help provide additional security to the new loan. A guarantor is nearly always someone who owns their own home and would be in a financial position to step in and cover any mortgage repayments if the main borrower is unable to do so. Guarantors are often family members or someone with a close link to the applicants. In order to lower the lender’s risk, the guarantor may be asked to use their own property or savings as part of a guarantee.
In all cases, any prospective guarantor should seek their own independent legal advice.
H.
Homebuyer.
Someone who is purchasing a property. Also known as a purchaser .
Homebuyers Report.
Also known as a Home Survey Level 2 report, is the middle tier of property inspection carried out by a surveyor. It highlights any major issues with the property and will provide advice on any rectification work that may be required. Recommended in most cases unless the property is new or under guarantee. Not as detailed as the level 3 report which cover more detail and contains a full structural assessment. These reports can be arranged independently of the mortgage company as the report is for the benefit of the buyer and not the lender.
Housing Schemes.
Low cost home ownership schemes to help buyers purchase a property. Examples of a housing scheme are; shared ownership, shared equity, Help to Buy, Forces HTB and Right to Buy.
I.
Identification .
Mortgage lenders and solicitors will need to verify the identity of all borrowers. This is for data security and anti money laundering purposes. A current valid passport or driving licence are the most common documents used. However, firearm licences, EEA National Identity Cards, Tax Coding notification, benefit award letters and armed forces ID cards can also be acceptable in some instances.
Inter-Family Sale.
Interest Only.
A form of mortgage where the regular monthly repayment consists only of the interest charged on the remaining balance. As only the interest is being paid, the balance left on the mortgage remains unchanged. At the end of the mortgage term the full balance will need to be repaid. To facilitate this, lenders will expect the borrower to provide evidence of a suitable repayment vehicle that will cover the debt in full.
This may be proof of savings, other property, investments or by downsizing to a smaller property. The expected cost of paying into a separate investment will be taken into account when the lender assesses the affordability of the mortgage. As there is a risk that the value of the house could drop below the mortgage balance remaining, lenders often apply rigorous criteria checks to limit their risk. This includes large deposit requirements, high minimum income levels, reduced maximum borrowing on interest only and in some cases by taking a charge over other property.
Check out our Repayment Vs Interest only guide here.
The benefits of interest only include lower monthly repayments and realisation of a greater pure monthly income on a rental property portfolio. Landlords may not have the repayment of the capital debt as their main priority.
J.
Japanese Knotweed.
An invasive species of plant that causes damage to nearby buildings. Due to the level of damage caused by this plant, lenders will only reluctantly grant a mortgage if there is evidence that the spread of the plant is under control or covered with suitable insurances / guarantees.
Joint Borrower – Sole Proprietor. (JBSP)
Usually a mortgage is granted on the basis that all parties named on the mortgage will be residing in the property.
JBSP is where more than one applicant can be named on the mortgage, even though only one party will be living in the property. Common in cases where a second family member is named on the mortgage for affordability reasons, but will remain living in their own property. The running cost of any background property and commitments will be taken into account alongside the income being used to support the application as all parties are responsible for maintaining the repayments.
All applicants are named on the mortgage deed but the title deed is not signed by the non-residing party. Anyone thinking of becoming a joint borrower for this purpose should seek independent legal advice first.
Joint Tenants.
The mortgage set up in this way means that each person named on the mortgage deed is jointly and wholly responsible for maintaining the mortgage repayments. They are also wholly liable for the debt but likewise the equity in the property.
K.
L.
Large Acreage.
Property with more than 2 acres may be subject to additional checks by the lender and their chosen valuer. This is to ensure that all the property area is used for residential purposes.
Leasehold.
A form of property tenure where the property unit itself has its own defined lease. Most commonly found on blocks of flats where a freeholder effectively owns the land, with each flat within a block being subject to its own lease arrangements. The lease is granted for a set period of time and can be extended or renewed at the freeholders discretion. It grants access to the property through communal areas, defines the cost of service charges to cover any repairs or maintenance to the whole block, provides rules on what is permissible within each property, and covers ground rent payable to the freeholder each year. It is a legally binding document an must be adhered to.
Leases can expire and ideally the property should have as long a lease remaining as possible. Mortgage lenders will have a minimum requirement for the lease term remaining on day 1, and also at the end of the mortgage term. A short lease can erode the value of the property as the cost of extending it can be expensive.
Leasehold houses are also fairly common, especially those built for shared ownership sale.
In general , leasehold properties are less desirable and a little cheaper than freehold alternatives. This is mainly due to usage restrictions in place with a lease and also because the buyer will not be purchasing the land itself as this remains with the freeholder.
Check the lease term remaining, usage restrictions, service charge and ground rent costs and if there is a management company in place.
Legal Fees.
Legal fees can apply to purchases and remortgages. For property purchases a solicitor will need to be instructed by the buyer to manage their interests and those of the mortgage company. Be sure to check that the chosen firm are on the lenders approved panel. If not you may have to select another firm, or use dual representation.
Some solicitors work on a no-completion no fee basis, where others will still charge you the full fee even if the purchase does not complete.
Compare costs from at least 2 local firms with those from 2 national firms to see which options best suit your requirements and budget. You are under no obligation to use a solicitor recommended by an estate agent.
On remortgage cases, many lenders will cover the cost of all basic remortgage work. However, be prepared for supplementary costs if there will be additional work for the solicitor to complete. i.e. change of names on the deeds, leasehold property, or property where a third party has an interest such as shared ownership.
Lender.
The mortgage company who provides the mortgage funds for a purchase or remortgage. Usually, a bank or building society but can also be other financial institutions.
Lending Into Retirement.
This applies when a mortgage term is chosen that takes the applicant past either their anticipated retirement age, or the state retirement age. Whichever comes soonest. In these cases, the lender will want to ensure that the mortgage repayments will remain affordable after the main source of earned income ceases. They may choose to verify pension provisions to do this. Alternatively, they could impose a maximum term limitation. Ideally a mortgage should be paid off before you retire but in some cases lending into retirement is the only way in which the monthly repayments are affordable.
Let-to-buy (LTB).
This is a scenario where someone is looking to rent out their current residential property, in order to help them buy another. They may or may not need to raise additional funds on the current property to do this. Lenders will want to ensure that the existing property will no longer be lived in by the applicants so they may ask to see a rental report from a letting agent, possibly a tenancy agreement if there is one ready to begin, and they may also check that the onward purchase completes on the same day as the let-to-buy mortgage begins.
This will require a swap from a residential mortgage to a let-to-buy variant. There are many lenders who can help with this, but they can be more niche than some of the high street offerings.
Like for like.
Also known as pound for pound. A mortgage swapped to a different product or new lender without there being any change to the balance of the mortgage or the term remaining.
Loan Purpose.
Lenders will always want to check what purpose any additional lending will be used for. This may be for consolidating other debts, paying for home improvements, car purchase or repayment of an equity share scheme. Many options are acceptable. However, some purposes are not acceptable and will cause an application for extra funding to be refused.
Loan To Value (LTV)
LTV is the percentage of the total property value that is mortgaged. For example, if a property was worth £200,000, and the mortgage balance was £150,000, the LTV would be 75%. The remaining £50,000 would be the owners’ equity.
M.
Maintenance Income.
This could be child maintenance or spousal maintenance. Can be used as income on a mortgage application if it can be evidenced with a track record. Either using bank statements, a court order or a CSA agreement.
Maternity Pay / Leave.
Lenders can sometimes accept mortgage applications where one or more applicants may be on maternity leave. In most cases they will want to check a return to work date, the expected income and hours.
Maximum / Minimum age.
Each lender will have a minimum and maximum age limit. This will determine the maximum term of the mortgage loan and in turn dictate the monthly repayments and the total amount payable. Mortgage terms are usually limited by the age of the oldest applicant on the mortgage.
Mortgage Term.
The length of the mortgage loan in years and months. The shorter the term the higher the monthly repayment but the quicker a mortgage will be repaid and with less interest incurred. The longer the term, the lower the monthly repayments will be, but the more interest will be payable in the long run.
Finding a balance is important to achieve the best value. Instead of just choosing a random number of years when arranging your mortgage, instead work out what comfortable monthly budget you can afford, and the term can be adjusted to fit this monthly repayment.
Mortgage.
A loan provided by a bank or building society to help a homebuyer purchase a property. The mortgage will be secured against the property itself meaning that if the repayments aren’t maintained, the mortgage lender can repossess the property to reclaim their debt.
Mortgage Pirate.
An absolute legend.
Mortgage Product.
This is the deal that is offered by the mortgage lender. It will offer a certain rate of interest for a defined period, detail any fees applicable to that product. Many product types exist such as fixed rate, tracker, variable or offset mortgage. A mortgage broker can cover each option to see which would best suit your requirements. Check out our guides below for more info.
- Is a fixed rate mortgage suitable for me right now?
- Does a tracker mortgage offer reward or risk?
- How an offset mortgage makes your savings work harder.
Mortgage Valuation Report.
A basic mortgage valuation carried out by the mortgage lender. This may be free or have a small charge. It is purely for the lenders benefit to check that the property is suitable security for their loan. It will not include a detailed inspection of the property and in most cases the report will not be sent to the borrower.
N.
New Build.
A property that is currently under construction, has never been occupied before, or has undergone significant renovations recently. New build property purchases often require larger deposits, especially flats, and they need to have the necessary permissions and guarantees in place.
Non-Standard Income.
A source of income that is less common than normal, employed / self-employed income. Examples could be, allowance payments from parents, investment income, ad hoc payments from employers, paid in cash, income from overseas etc. In most cases non-standard income will be difficult to use in its entirety although some niche lenders can help.
Non-Traditional Construction.
O.
Offer.
Formal mortgage document confirming that the application has been assessed by an underwriter and that the mortgage loan has been agreed. Valid for up to 6 months in most cases. A copy of the offer document will be sent to the applicants and their chosen solicitor. The offer can be withdrawn if the lender feels that incorrect information was supplied during the application process, if there has been a change in circumstances, or if the solicitor report that there is a legal issue at a later date.
Outgoings.
Regular costs incurred by the applicants as part of their normal day-to-day lives. This may include credit commitments, committed expenditure, cost of running a house, costs of living and recreation and savings paid into investments. Outgoings are used to make sure that the new mortgage repayments will be affordable within a safe budget each month.
Overpayments.
Voluntary additional payments made to a mortgage in order to reduce the balance at a faster rate. Overpayments will help you reduce the mortgage balance faster and save interest in the long run. There are usually limitations to the maximum overpayment allowed without incurring any financial penalties. Check out our guide to making overpayments here.
Overtime.
The lender will check the previous track record of overtime payments and the likelihood they will continue. Evidence will be P60’s, and payslips showing previous overtime hours and payments. They may choose to only accept a certain percentage of the payments in their calculations or choose to take an average.
P.
Porting.
The process of moving your existing mortgage from the current property to a new property. This is beneficial if you have a competitive mortgage interest rate, or if you are tied into a deal with an expensive early repayment charge. You may be able to swap the mortgage from one property to another without breaking out of your current deal and therefore avoid paying any early repayment charges. If the new property is of higher value, you may need to “top up” the mortgage with some additional borrowing and this will be based on a product from their current range at the time.
Product Reservation.
A mortgage product is usually reserved at the point when a full mortgage application has been submitted and any related fees have been paid. Some lenders allow the chosen mortgage product to be secured at the point of a decision in principle being accepted but these lenders are in the minority. Once reserved, the product will be valid for a certain period of time even if the lender subsequently chooses to update their range of products. See ESIS for more information.
Product Transfer.
Also known as a rate switch. Moving from one mortgage product to another with the same mortgage lender. Can be done at any time but most common when coming to the end of the existing deal so that any early repayment charges can be avoided. Simple procedure with little to no paperwork required.
Q.
R.
Rate Switch.
See product transfer.
Remortgage.
The process of moving your mortgage to a different lender in order to obtain the best deal possible. May also be combined with a change in the amount borrowed and a new mortgage product. Remortgaging is also an opportunity to make large overpayments, add or remove someone from the deeds or make other significant changes to the structure of the mortgage itself.
Rental Income.
The money received from a rental property. Can sometimes be used as a source of income for a mortgage application but will depend on the lender.
The rental income expected or received on a let property is an important element of a buy-to-let mortgage. Mortgage lenders will want to see that the rental income covers the mortgage repayment using a stress tested calculation. If the rental income is not deemed to be sufficient then the loan amount may be capped.
Repayment Mortgage.
Where each monthly repayment consists of the interest charged and a capital amount. Repayments reduce the debt with each installment until the balance hits zero at the end of the term.
Check out our Repayment Vs Interest only guide here.
Restricted Resale Market.
These can include, for example, a restriction that only permits someone with connections to the local area to purchase or occupy the property. The applicant’s solicitor should confirm the scheme meets the lenders requirements prior to submitting an application.
Right To Buy (RTB).
A type of housing scheme designed to help with low cost home ownership. Occupiers of council or local authority housing may be offered the opportunity to purchase their property at a discount from the open market value. The discount on offer with depend on the length of time the tenant has been in the property, but the sums can be considerable.
S.
Scotland.
A lovely place to be. Also, slightly different from the rest of the UK when it comes to purchasing property. Check with your lender that they can offer mortgages in Scotland and be mindful of the rules in place when making an offer on a property.
Second Property.
A second residential home that is owned by the same person and is not rented out. I.e. a holiday home or a weekend getaway.
Shared Equity.
See Equity Share.
A type of housing scheme where the buyer purchases a percentage of a property, and rents the remaining percentage from a housing association or local authority. The share purchased varies but typically starts at around 25% and increases to around 80%. A mortgage is obtained against the share being purchased. The deposit required is calculated against the value of the share and not the full market value.
For example, a house with a full market value of £200,000 is being sold on a 50% share basis. This means that that the buyer will only be required to provide a deposit on the £100,000 share and the rest will be mortgaged. So, if they had a 5% deposit of £5,000, the mortgage required would only be £95,000.
The remaining 50% share will be retained by the housing association and rent will be charged on that amount. The buyer should be able to increase their share in the property by purchasing the remaining percentage owned by the housing association. This is optional.
Some restrictions apply regarding what you can and cannot do with a shared ownership property and any changes to the mortgage or the property itself should be discussed with the housing association. The scheme is available on selected properties only and those interested are required to register their interest and check that they qualify.
Solicitors / Conveyancer
The chosen representative to manage the legal process of purchasing or remortgaging a property. Check they are on your lenders panel and compare legal fees from a few companies before proceeding.
Stress Testing.
Lenders apply a stress test when assessing whether to grant a mortgage. This will include checking that the monthly repayments will remain affordable at a much higher rate of interest just in case levels were to reach this high in the future.
Studio Flats.
Smaller properties that do not have defined bedrooms and living space takes the form of a single room. Not all lenders allow studio flats and those that do can have a minimum floor area requirement before they will consider a loan.
Swap rates and SONIA rates.
SONIA (Sterling Overnight Index Average) is an important interest rate benchmark. It helps banks and building societies to price their mortgage deals based on what costs they incur when buying in money. A swap rate is a transaction where firms exchange / swap one type of cash flow for another, usually based on a variable interest rate in exchange for a fixed interest rate.
SONIA is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors.
T.
Telegraphic Transfers.
A fee charged for an electronic fund transfer. Usually charged by both the lender and the solicitor.
Tenure.
Types of property ownership.
- Freehold
- Leasehold
- Commonhold
- Ownership (Scotland)
- Flying Freehold
Term.
See Mortgage Term.
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U.
Umbrella Company
An umbrella company is a business often used by recruitment agencies to pay temporary workers. In most cases, the umbrella company employs you and pays your wages through PAYE. Contractors often use an umbrella company to assist with their payroll situation.
Underwriter.
A person at the mortgage lender who will assess your mortgage application and decide if it meets the required criteria.
Unsecured Debt.
Any form of credit commitment that is not secured against property or some other asset.
V.
Valuation.
See Mortgage Valuation.
Valuation appeal.
If a property valuation result comes back lower than expected it may mean that the mortgage will no longer proceed, and the purchase could fall through. It can be appealed in some instances. Read our guide to mortgage declines here for more tips.
Z.
Zero Hour Contracts.
Employment contracts where there are no guaranteed minimum hours available, and income can vary day-to-day. Mortgages are available to those on Zero Hour Contracts but there are a lot of requirements in place to do so.
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Contact us below if there are any mortgage terms that you would like added to the list.
Post compiled by Grant Carpenter CeMAP, CeFA – 15 years of regulated mortgage advice.
Please note that the content listed within this remortgage guide is purely for information purposes only and does not constitute advice.
