Mortgage Jargon Buster
An A-Z of Mortgage Terms
Agreement in Principle
An Agreement in Principle (AIP), also known as a Mortgage in Principle MIP) or Decision in Principle (DIP), gives you an understanding of how much you may be able to borrow towards the purchase or remortgage of a property. It’s a document that you can use with an estate agent, or those selling a property, to show that you may be in a financial position to purchase it.
The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you compare different offers.
This is a charge levied by the lender to cover the costs of administering and reserving the funds for certain types of mortgage. May be paid separately or added to the loan amount.
If you fall behind on your mortgage payments you are “in arrears”.
The transfer of ownership of an insurance policy or a lease.
The amount of loan owed at a particular time.
Bank of England Base Rate
A rate of interest set by the Bank of England, which tracker mortgage rates and lenders’ standard variable rates usually follow.
An independent adviser who can help you with mortgages and other financial matters.
Insurance against the cost of rebuilding a property from scratch following structural damage, for example by flood, fire or storm.
The health and safety requirements that any new construction must meet.
Capital and Interest Payment
Your monthly payment covers the interest and also reduces the total balance outstanding.
You receive a lump sum or a percentage of your mortgage in cash when you complete your mortgage.
A fee to cover the cost of electronically transferring the mortgage funds to the borrower/solicitor.
An interest in the ownership of a property; usually a mortgage or some other debt secured against the property.
Completion (Date of Entry in Scotland)
End of the purchase process. The seller moves out, the buyer moves in and ownership is transferred.
Conclusion of Missives
Final part of the contract process in Scotland.
Insurance against accidental damage or theft of all moveable contents, including furniture, appliances and soft furnishings.
A document that describes the agreement under which the property will change hands.
A condition, contained within the Title Deeds or lease, that the buyer must comply with, which is usually applied to all future owners of the property. A restrictive covenant is one that prohibits the owner from doing something.
A person other than a solicitor who may conduct the conveyancing.
The process of transferring property from one party to another, usually managed by a solicitor or a licensed conveyancer.
Lenders often use a system called credit scoring to help them decide whether to lend to you. They ask a series of questions about you and your finances and score your answers. Depending on your score you will be accepted or declined.
The process of combining outstanding debts e.g. loans, credit cards etc, into one loan.
Title deeds are the legal documents which record the ownership of a property and any accompanying land.
The amount you need to pay towards the total purchase price of the property. This varies depending on the product and lender.
A Direct Debit is an instruction from a customer to an originator authorising their bank or building society to make regular collections direct from their account.
All the various costs for carrying out the legal work in relation to buying or remortgaging your home.
Paying off a mortgage.
A discount offered by mortgage lenders to borrowers, reducing monthly mortgage repayments often for the first two or three years of the loan period.
Early Repayment Charge (ERC)
Some mortgages, such as a fixed rate mortgage, charge a fee if you pay back the loan early. This can vary, so check your original letter of approval or terms and conditions for the amount. This is known as an Early Repayment Charge (ERC).
A legal right over land, for example the right to access a specified area of land, such as a right of way.
Exchange of contracts
The point at which both buying and selling parties sign their copies of the contract which are exchanged by their respective legal representatives and are legally binding. The buyer usually pays a deposit at this point and the date of completion is agreed.
This is an administration fee payable to service providers when you fully repay your mortgage.
Financial Conduct Authority (FCA)
The regulatory authority for the UK financial services industry. The FCA oversees the regulation of mortgages and all lenders and mortgage intermediaries must be directly authorised and regulated by the FCA, or must be an appointed representative of an authorised firm.
Fixtures and Fittings
All non-structural items included in the purchase of a property.
An arrangement enabling the mortgage borrower to overpay, and with the overpayments that have been built up, borrow money back, take payment holidays or pay less in some months.
You own both the property and the land it stands on.
Full Structural Survey
A full structural survey looks at all the main features of the property, including walls, roof, foundations, plumbing, joinery, electrical wiring, drains, and garden.
An additional loan to your existing mortgage taken after the main mortgage has completed which is also secured against the property.
Gazumping occurs when a seller accepts an oral offer (a promise to purchase) on the property from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price or asking for more money at the last minute, after previously orally agreeing to a lower one. In either case, the original buyer is left in a bad situation, and either has to offer a higher price or lose the purchase.
A tactic whereby the buyer offers less than the agreed price just before exchange of contracts.
The annual fee which a leaseholder pays to a freeholder.
A third party who agrees to meet the monthly mortgage repayment if you are unable to. This is more common with First Time Buyers, with the Guarantor likely to be their parent or guardian.
Help to Buy
Help to Buy is the name given to several UK Government schemes generally designed to help first time buyers attain home ownership.
Higher lending charge (HLC)
This is 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.
Home Buyers Report
This is an intermediate-level survey which is usually offered by the mortgage lender and prepared by their own surveyor. The homebuyer’s report comments on the structural condition of most parts of the property that are readily accessible, but it does not involve in-depth investigation or the testing of water, drainage or heating systems.
Home Contents Insurance
A policy insuring household contents against theft and damage.
IDD / Initial Disclosure Document
This is a document designed to assist you in comparing the services provided and the fees and charges made by lenders and intermediaries.
Interest Only Mortgage
This is where you only repay the interest on your mortgage debt each month. Alongside this you will need to put money into a separate investment vehicle which is designed to grow sufficiently to pay off your loan when your mortgage comes to an end. You are responsible for the repayment of the capital when the mortgage reaches the end of its term. You may want to seek professional advice on the investment vehicle.
Joint Applicants / Joint Mortgages
This is where you hold property ownership rights equally with another person or persons. If one person dies, ownership reverts entirely to the surviving person or persons. This legal agreement supersedes any Will the deceased may have made.
A form of ownership frequently used by couples which ensures that when one dies, the property passes automatically to the other. The alternative is Tenancy in Common.
Key Facts Illustration (KFI) or ESIS
This document contains key mortgage information which is designed to help you compare the costs and features of different mortgages from one or more lenders. It is designed to make it easy to compare mortgages at a glance.
The official body that holds the details of property ownership.
Land Registry Fee
A fee paid to the Land Registry to register your details if you have bought a property or changed mortgage lenders.
You own the property but not the land it is built on for a specific number of years. Flats are usually owned on a leasehold basis. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Leases are renegotiable, but the shorter remaining terms, the more expensive it will usually be.
Insurance which pays out on the death of the policy holder. Policies can run alongside your mortgage and will pay off all or part of the outstanding debt in the event of your death.
Local Authority Search
A search of the local area to highlight anything that may impact on the property or surrounding area, e.g. planned road building, planning permissions etc.
LTV (Loan to Value)
LTV means Loan to Value. The size of your mortgage as a percentage of the value of your property. for instance, if you have £50,000 mortgage and your home is worth £100,000, your LTV is 50%.
The date the mortgage must be repaid in full, or by which a new agreement needs to be taken out.
A method of calculating mortgage interest on a monthly basis.
The amount you pay to your lender for your mortgage each month.
A legal document relating to the mortgage lender’s interest in the property.
A Mortgage Illustration should be given to you before you make a mortgage application. It describes the key things you need to know about your mortgage such as payments and fees.
This is your guaranteed offer. Once your mortgage is approved you’ll get a formal offer setting out the terms and conditions.
The amount of time you are repaying your mortgage over (e.g. 25 years).
National House Building Council. A warranty scheme for new properties providing cover against major structural defects for 10 years.
This is when you pay extra, over and above your monthly mortgage payment. You could choose to make a one-off lump sum overpayment or overpay a regular amount with your normal mortgage payment. Overpayments save you interest and will shorten your mortgage term.
This is a period during which you make no payments on your mortgage. While you make no payments interest will continue to be charged.
The permission granted by the local planning authority (usually the local council) for any new building or engineering operations or change of use of a building if it meets the public’s interest.
The amount you pay regularly, monthly or annually, to an insurer for an insurance policy.
This is a set-up fee for your mortgage. Lenders will charge different product fees so do shop around.
This is the process for changing interest rates or mortgage products with the same lender, when your current mortgage product finishes.
The amount it would cost to rebuild your home if it is destroyed (by fire for instance). This is needed for insurance purposes.
The process of moving your mortgage without moving home. You take a new mortgage with a different lender or your existing lender to pay off your old mortgage.
Also known as a Capital and Interest mortgage. Your monthly payments pay off the interest and some of the capital borrowed. By the end of the term of your mortgage you will have paid off all your mortgage debt.
Holding back part of a mortgage loan until any repairs to the property are satisfactorily completed.
Legal expert handling all documentation for the sale and purchase of a property. Sometimes referred to as a Conveyancer.
This is a tax you pay when you buy a property. This amount differs based on the purchase price of a property and what type of purchaser you are eg. A First Time Buyer or someone purchasing an additional property.
Subject to Contract
Words to indicate that an agreement is not yet legally binding.
A thorough report on the property you are planning to buy
Person who conducts the survey.
Tenancy in Common
A form of ownership by two or more people in which, if one dies, their share of the property forms part of their estate and does not automatically pass to the other(s).
People living in a property on a non-ownership basis.
The record of ownership of a property, the evidence of which is found in the title deeds.
Total Amount Payable
The total cost of repaying a mortgage.
Tracker Rate Mortgage
The mortgage interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate.
Transfer of Equity
Adding or removing a party to/from a mortgage.
The Land Registry document that transfers legal ownership from seller to buyer.
The charge for the valuation of the property.
This means the interest rate can go up or down if your mortgage lender decides to change their Standard Variable Rate.
The seller of a property or piece of land.