If you’re currently in the process of finding a mortgage, you’ll be forgiven for finding the profusion of jargon somewhat confusing. It might even feel like some terms are designed to confuse you, but the truth is that there is just a lot of detail involved in the mortgage lending process, and a huge number of options out there. And given what a big step it is to buy a home, or even to remortgage your current home, it can help to be sure you understand what it all means. That’s why we’ve put together a glossary of some of the most useful (but often confusing) vocabulary associated with mortgages, in our mortgage jargon alphabet.
A is for ‘agreement in principle’ (AIP)
This is a document from a mortgage lender confirming the amount you will be able to borrow. It is normally valid for between 30 and 90 days and can be used to prove to a seller or estate agent that you are a serious buyer who can afford their property. In fact, many estate agents will insist you have an AIP before passing on an offer from you to the seller. Even if you have an agreement in principle, you’re under no obligation to take out a mortgage with the same lender who gave it to you, so when you DO find your dream home, we can help you to shop around for the best deal.
B stands for ‘base rate’
This is the most important interest rate in the UK, and is set by the Bank of England. It influences most interest rates, including savings accounts, credit cards, loans and mortgages. Tracker mortgages and standard variable rate mortgages usually follow this rate of interest. The current outlook is that mortgage interest rates will rise in the new year and that you will soon be paying more for your mortgage unless you lock in now to a low fixed rate.
C is for ‘conveyancing’
This is the name of the legal process you must go through when you buy or sell a property. It is carried out by a solicitor or a licensed conveyancer, who will deal with the Land Registry, carry out searches, draw up contracts and transfer the funds. They will also make sure legal ownership of the property passes from the seller to the buyer. Conveyancing fees range from around £400 to £1,500, depending on the cost and location of the property. Cost will also depend on the complexity of the transaction, for example, in the case of a leasehold property.
D is for ‘deposit’
This is the amount you have to put down yourself when buying a house. The minimum deposit you’ll need is normally 5%, but the best deals are usually available to those who can pay a deposit of at least 40%. If you’re buying for the first time or moving house, speak to us about getting the best mortgage deal. We can see thousands of offers, updated daily. We can also see specialist lenders who are not publicly available, so if you’re self-employed or have a poor credit record, we may be able to help when others can’t.We’re committed to getting you the best rate and there’s nothing to pay as our fees are paid by the provider.
E stands for ‘early repayment charge’
Also known as early redemption charge, or ERC, this is sometimes payable if you switch or partly repay your mortgage within a certain period. This could be during a fixed-rate period or while a discount or capped rate applies. Our free Dashly service scans the market and tracks the value of your home and the amount of your current mortgage on a daily basis. If a better deal comes along, even taking into consideration any ERC, you’ll be alerted. Ask us for more details.
F is for ‘flexible mortgage’
A flexible mortgage lets you overpay, underpay or take a ‘payment holiday’ (see ‘P’ below). Some flexible mortgages also let you borrow back any money you’ve overpaid. A flexible mortgage could help you pay off your mortgage early and save money on interest, and it doesn’t have to mean a more expensive rate. If you think you’re likely to need flexibility in your mortgage, ask us to find you the best deal.
G stands for ‘gazumping’
Gazumping describes the situation where an offer has been accepted on a property but a different buyer then makes a higher offer, which the seller accepts. It’s most common in areas where there is higher demand than supply for property, with multiple buyers competing for the same home. Being gazumped can be a terrible experience; you not only lose the house you’d set your heart on, but also any money you’ve spent on applying for a mortgage, conveyancing and surveys.
H is for ‘Help to Buy’
Help to Buy is the name given to a collection of government schemes aimed at helping first-time buyers get on the property ladder. If you’ve already saved a small deposit, you may be able to borrow up to 20% of the cost of a new-build home with the Equity Loan scheme. Other help is also available, including Mortgage Guarantee and Shared Ownership schemes. The government website https://ownyourhome.gov.uk is good place to find information, or contact our friendly team.
I stands for ‘interest only mortgage’
This type of mortgage is becoming less popular and is certainly seen as more risky by lenders, but can still be a suitable choice for some borrowers. With an interest only mortgage, you only repay the interest each month. The original loan amount and any unpaid cost and charges that have been added to the loan will remain outstanding at the end of your mortgage term. You must therefore have a suitable payment vehicle in place by the end of the term.
J stands for ‘joint mortgage’
This is simply a mortgage taken out by two or more people. It could be used when you buy a house with a partner or friend, or perhaps also by parents who want to help their children buy a property. J also stands for ‘joint tenancy’, which is a type of ownership where each person owns the whole of the property. If you want to sell the property, you must all agree. As a joint tenant, you can’t leave part of the property to someone else in a will. If one of you dies, the property automatically passes to the other owner. Married couples who own property together would typically be joint tenants.
K is for ‘Key Facts Illustration’
This is a document provided by your mortgage advisor or lender before you make a full mortgage application. It is tailored to your personal situation and lays out key details about your potential mortgage, such as monthly payments, fees and the overall amount you will repay. It can be used to help you compare mortgage deals.
L is for ‘LTV’
LTV means ‘loan to value’ and is the size of your mortgage as a percentage of the value of your property. For example, if you have a mortgage of £50,000 and your home is worth £100,000, your LTV is 50%. Our free Dashly service tracks the value of your home and the amount of your current mortgage on a daily basis. If your LTV improves and a better deal comes along, you’ll be alerted. Ask us for more details.
M stands for ‘mortgage term’
This is the amount of time you are taking the mortgage out for. The standard mortgage term in the UK is 25 years, but longer-term mortgages of 30 or more years are increasingly common. The shortest mortgage term available is generally five years, but can be less. Some lenders won’t agree to a term that extends into your retirement and so may stipulate a maximum age you can be when your mortgage term will end. The term you are offered will also relate to your financial situation and the affordability of the loan.
N stands for ‘negative equity’
Negative equity is when the value of your home falls below the amount of your mortgage, meaning you owe more than your property is worth. Homebuyers with smaller deposits are more at risk of negative equity. For example, a 5% deposit would mean you only have 5% equity in your property when you complete the purchase. That means that just a 5% fall in house prices would be enough to cause negative equity. If you want to sell your home and the value is less than your outstanding mortgage, you’ll still have to pay off the remaining mortgage balance. Unless you have savings, this could be tricky. It can also be difficult if you want to remortgage. You may not be accepted for a new deal with another provider while you are in negative equity.
O is for ‘overpayment’
Overpayment is simply when you pay more than your normal monthly mortgage repayment. This could be a one-off lump sum overpayment, or it could be a regular amount each month. Overpayments save you interest and could significantly shorten your mortgage term. Most lenders limit the total amount you can overpay without penalty, for example, setting a maximum of 10% of the total mortgage amount outstanding.
P is for ‘payment holiday’
This is a period during which you make no payments on your mortgage. Although this can be helpful in some circumstances, you should be aware that interest will continue to be charged. This feature is usually only available on a flexible mortgage, or if you have already overpaid (see ‘O’ in our mortgage jargon alphabet!)
R stands for ‘repayment mortgage’
This is by far the most common type of mortgage taken out in the UK. You pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any repayments, you are guaranteed to have paid off the mortgage by the end of the term. As you pay off more of the loan, the amount of equity in your home will increase, meaning you may be eligible for a better deal. Our Dashly app keeps track of the value of your property and the amount of your mortgage outstanding. As soon as you qualify for a better rate, Dashly will make sure you know about it.
S is for ‘stamp duty’
This is a tax which is payable when you buy a property for more than £125,000. There is no stamp duty on a property purchase of less than £125,000, but for any amount over this, you will have to pay a percentage of the price in stamp duty. As the price you pay increases, so do the rates of stamp duty, ranging from 2% to 12% of the purchase price, depending upon the value of the property bought, the purchase date and whether you are a multiple home owner.
T stands for ‘tracker mortgage’
A tracker mortgage, unlike a fixed rate mortgage, means your interest will rise and fall. The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it. This would normally apply for a certain period of time, usually two or five years. If the rate drops, your monthly mortgage payments will also drop. You could take advantage of these lower rates by overpaying on your mortgage. However, if the base rate went up, the interest rate on your tracker mortgage would also rise, increasing your repayments.
U stands for ‘underinsurance’
Underinsurance means that the level of insurance you have isn’t enough. It refers to the gap between what something is worth and what level of cover it has. This can be for your home or the things in it. Your mortgage lender will require you to have buildings insurance that covers the cost of rebuilding your home from scratch.
V stands for ‘variable rate mortgage’
This means the interest rate on your mortgage can go up or down, according to your lender’s standard variable rate. A standard variable rate mortgage is what you’ll be transferred onto when a fixed, tracker or discount deal comes to an end. Standard variable rates tend to be higher than the rates on other types of mortgage, and this is the default interest rate you’ll be charged if you don’t remortgage. If you’re on a standard variable rate, talk to our team, as most people will immediately save tens or hundreds of pounds a month by switching to something more suitable.
W is for Wealth Management Group…
Mortgages are complicated, so you need help from someone you can trust. Our advice is unbiased and our service is free, since our fees are paid by the lender. The small and friendly team at WMG will take away the hassle of moving, from guiding you through the application process, to liaising with your lender, and from helping you find a solicitor, all the way to moving in.
To book a free, no obligation consultation, contact us here.
