MORTGAGE JARGON BUSTER

B

Base rate
The interest rate set by the Bank of England, which lenders use as a basis for setting their mortgage rates on products like standard variable rate and tracker mortgages.

Booking fee
Also known as a reservation fee, this is a type of set-up fee charged by some lenders. It is charged up front and won’t be refunded if you don’t end up taking the mortgage with that lender.

Bridging loan
A short-term loan that covers the shortfall between buying one home and selling another.

Broker
This is an adviser who can help arrange your mortgage for you by looking at your circumstances and searching the market for deals to suit. You may be charged a fee for this service, or the broker will be paid commission from the lender if you take their product based on the broker’s recommendation.

Buildings insurance
Insurance that covers the structure and permanent fixtures of your house (i.e. roof, walls, ceilings, floors, doors and windows, fitted kitchens and built-in cupboards and bathroom suites).

Buy-to-let
A mortgage product designed for properties bought specifically to be rented to tenants.

C

Capital
The amount of money lent to you by your mortgage provider to allow you to buy a property.

Capped rate
A type of mortgage product where your lender will set a maximum limit to the interest you will pay for a set period, regardless of increases to the Bank of England base rate.

Cashback
A mortgage incentive, where a lump sum of cash will be paid to you by your mortgage lender on completion of your mortgage.

CHAPS fee
CHAPS stands for Clearing House Automated Payment System and is a fee you pay to cover the cost of your lender sending funds to your solicitor.

Conveyancing
The legal process that needs to be followed to transfer ownership of a property from a seller to a buyer.

Credit rating
A lender’s assessment of your credit risk based on your history with them and information held by Credit Reference Agencies.

Current account mortgage (CAM)
Also known as an Offset Mortgage – this is a type of mortgage where your mortgage and other debts with that lender are offset against your savings and current account balance.  Your credit balances offset your debts so you only pay interest on the difference between the two.

D

Deposit
The funds that you will put down towards the cost of your property.  The greater the deposit you have, the lower the mortgage rate.

Discounted-rate mortgage
A type of mortgage deal where your interest rate will be set at a certain percentage less than your mortgage lender’s standard variable rate (SVR). This can mean that the rate you pay may change during your discounted mortgage deal term, depending on how often your mortgage lender changes their SVR.

E

Early repayment charge (ERC)
Charged on some mortgage products if you decide to pay off your mortgage during a specified period (i.e. at the beginning of the loan where you have taken a fixed or discounted rate).

Energy Performance Certificate (EPC)
This certificate tells buyers how energy efficient that property is and is required by all homes being sold.

Equity
Your share of the value of your property that you own outright (i.e. the overall value minus the amount owed on your outstanding mortgage).

F

Fixed rate
A mortgage product where the interest rate is guaranteed not to change during a specified period at the start of the loan (i.e. 2 or 5 years).

Flexible mortgage
A type of mortgage product where your lender will allow you to over or underpay, or take payment holidays.

Freehold
This term describes owning the building and the land it stands on.

Further advance
When you borrow extra money from your mortgage lender.

G

Gazumping
Most common in England, this is when a seller accepts an offer on their property, but then receives a higher offer and pulls out of the first deal to accept the higher offer.

Guarantor
A third party (often a parent) who guarantees to cover your mortgage payments if you are unable to.

H

Help to buy
The government launched schemes to support home ownership by making home buying easier.  There are several different types of scheme, and they vary depending on which country you live in – Scotland, England or Wales.

Higher lending charge (HLC)
Sometimes charged by mortgage lenders if you are borrowing more than a certain percentage of the property’s value.

Home Report
Applicable to all houses for sale in Scotland, this is a pack of 3 documents designed to provide information about a property to prospective house buyers.  It consists of a Single Survey, an Energy Report and a Property Questionnaire.

I

Income multiple
The calculation used by mortgage lenders to determine the maximum they will lend you.

Interest-only mortgage
A mortgage product where you pay only the interest on your mortgage each month.  No capital is repaid throughout the term of the mortgage so you are expected to find another way to repay this at the end of your mortgage term (i.e. through stocks and shares investment or pension lump-sum pay out).

J

Joint mortgage
When a mortgage is taken out by two or more people, for example, a couple, a parent and grown-up child, or friends buying together.

K

Key Facts Illustration
A document provided by mortgage lenders before you make a full mortgage application.  It lays out key details about your potential mortgage, such as monthly payments and fees and can be used to help compare mortgage deals.

L

Land and Buildings Transaction Tax (LBTT)
LBTT is a tax payable when you buy a property in Scotland. This replaced UK Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015.

Leasehold
More common in England and Wales, this term describes owning the property, but not the land it stands on, and only for a certain period

Loan to value (LTV)
Describes the size of your mortgage as a percentage of your property’s value.

M

Mortgage deed
This is the term given to the formal contract that sets out what is legally expected of the borrower and rights of the lender.

Mortgage payment protection insurance (MPPI)
Insurance designed to cover your mortgage if you are unable to work due to accident, sickness or unemployment.

Mortgage Term
The length of time you are taking your mortgage over.

Mortgage Valuation Report

A basic survey carried out on your property to check whether the property is worth the amount you are paying for it. Your lender will commission a surveyor to carry out this valuation before offering you a mortgage.

N

Negative equity
When the value of your property falls below the amount that is left outstanding on your mortgage.

O

Offset mortgage
Also known as a Current Account mortgage – this is a type of mortgage where your mortgage, and other debts with that lender offset against your savings and current account balance.  Your credit balances offset your debts so you only pay interest on the difference between the two.

Overpayment
This is when you pay extra, over and above your monthly mortgage payment. Not all mortgage deals will allow overpayments, without incurring fees.

P

Payment holiday
Some mortgage deals will allow you to make no payments on your mortgage during a specified period – referred to as a payment holiday.  You will continue to be charged interest during this time.

Portability
This is a type of mortgage that lets you transfer your borrowing from one product to another, without paying set up fees, if you move to a new home.

R

Rebuild cost
The cost of rebuilding your home if it was destroyed.  Used when calculating buildings insurance.

Remortgage
Changing your mortgage without moving property. You can remortgage with your existing lender or a new mortgage provider.

Repayment mortgage
A type of mortgage where you pay off the mortgage interest and part of the capital of your loan each month. At the end of your mortgage term, you will have fully repaid your mortgage.

Repayment vehicle
The means by which you pay off your mortgage at the end of your term if you have taken an interest only mortgage.

Repossession
When a borrower is unable to keep up their mortgage payments, a lender’s last resort is to take the property and sell it on to recoup their losses.  The legal term for this process is repossession.

Right to buy
A scheme providing local authority housing tenants with the option to purchase their homes at a reduced cost.

S

Shared ownership
Scheme allowing you to buy part of a property from your housing association or local authority while renting the remaining part.  Later on, you are able to purchase a larger share of the property if you can afford to do so.

Stamp duty
Applicable in England, Wales and Northern Ireland, this is a tax that is payable when you buy a property.  It is charged as a percentage of the purchase price and the tax rate increases as the property value increases. (Replaced by LBTT in Scotland).

Standard variable rate (SVR)
The mortgage interest rate that your lender will charge after your initial fixed, discounted or tracker mortgage deal period ends.

T

Term
The specified period during which you pay back your mortgage.

Tracker mortgage
A type of mortgage product where your interest rate follows the Bank of England base rate.  It can go up as well as down.

V

Valuation
A basic survey carried out on your property to check whether the property is worth the amount you are paying for it. Your lender will commission a surveyor to carry out this valuation before offering you a mortgage (also called a Mortgage Valuation Report).