A guide to mortgage speak

What it all means

We know there's a lot of jargon in the world of mortgages. So whether you're new to it or you've been down this road before, there may be some words and phrases you need explaining.

So we've given you a quick rundown of all of the terms you might come across when you're looking through our mortgage information - or someone else's.

If you're looking for something specific and can't find the answer here, you can always give us a call.

A B C D E F G H I J L M N O P R S T V

Affordability Assessment

This is when we look at your income and expenditure (including credit and other commitments) and any known changes in future circumstances to determine if you can afford the mortgage you've asked for.

Application Fee

You pay this fee to cover the cost of assessing and processing your application (even if your application is unsuccessful or you withdraw it).

APRC

This stands for Annual Percentage Rate of Charge. This is the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit. The calculation assumes that you maintain the mortgage for the full term. You can use this to compare illustrations from different lenders.

B

Bank of England base rate

A rate of interest set by the Bank of England.

Buy to Let

This is when you buy a property specifically to let it out under a rental agreement.

C

Capital

The amount of money you borrow to buy a property plus any other amount added to the loan during the loan term.

Capital and Interest

With a capital and interest mortgage, your monthly payments will consist of repayments of capital and interest. As long as you keep up repayments your mortgage will be repaid at the end of the mortgage term.

County Court Judgement (CCJ)

These are made against you for non-payment of debt, and could make it harder for you to get a mortgage. Decrees are the Scottish equivalent.

Commonhold Property

Commonhold is a system of property ownership in England and Wales. It combines freehold ownership of a single property within a larger development, with membership of a limited company that will own and manage the common parts of the development. Although most likely to be used in relation to residential flats, commonhold is also suitable for houses, mixed use and commercial developments.

Conclusion of Missives

In Scotland, the buyer and seller's solicitors exchange formal letters to document the details of the deal. These letters are called 'missives'. The conclusion of the contract is called 'conclusion of missives'. Missives conclude once all of the terms of sale have been agreed. See Exchange of contracts for England, Wales and NI.

Conveyancer

A conveyancer is someone who is appointed by you or on your behalf to deal with the legal aspects of buying, selling or remortgaging a property.

Conveyancing

The legal process involved in buying, selling or remortgaging your property. Most people will instruct a solicitor or licensed conveyancer to carry out this work.

Credit Score

A tool used by lenders to decide whether you qualify for a credit product such as a mortgage, loan, credit card or current account.

Your credit score is based on various different factors, including but not limited to:

• information on your credit report such as how much of your available credit you're using and your total debts
• your history of credit account payments
• credit searches (when a credit application is made)
• public records (electoral roll and county court judgments (CCJs))

D

Decision in Principle

An initial application that gives you an idea of what we might be prepared to lend you. A decision in principle involves a 'soft credit check' where a lender looks at key pieces of information to check your creditworthiness. Before we make a final decision, you'll need to make a full mortgage application and this will involve a 'hard footprint' being left on your credit report. This is where you give permission to a lender to check your credit history with the intention of getting a new lending facility. Your credit score can be negatively affected by a 'hard footprint', especially if you are declined or conduct multiple credit searches within a short period of time.

E

Early Repayment Charge

You may have to pay an early repayment charge and other charges if you repay some or all of your loan out with your contracted monthly payments before the end of the product term. The details of these charges will be set out in your individual offer.

Equity

The difference between the value of the property that you own and the balance outstanding on your mortgage.

Exchange of Contracts

Exchanging contracts is a legally binding stage of home buying so you should be certain you want to go ahead before signing.

F

Fee-Free

Referred to in regard to mortgage products which do not have a product or arrangement fee chargeable, but may have a higher interest rate attached.

Financial associate

When you apply for finance with someone, a link is automatically created on your credit report. This is known as a 'financial associate'.

Once you are linked with this person then their credit report might also be taken into consideration when you apply for any credit in the future.

Fixed Rate

The mortgage interest rate stays fixed for an agreed period of time. This means you can be sure of exactly what you will be paying on your mortgage each month, as your rate won't go up or down within the defined fixed rate period.

Fixtures and Fittings

Fixtures are items that have been fixed to land or a building so as to become part of it. Fittings are free standing items, for example, fridges and ovens. You'll usually discuss what's included in the purchase price with the estate agent before you buy a property.

Flying Freehold

Flying freehold is an English legal term to describe a situation where part of one property is built on top of part of another property and so the upper property owner does not own the building or land underneath the "flying part". Flying freehold can occur, for example, where there is a balcony which extends over a neighbouring property.

Freehold

Freehold means you own the building and the land it stands on.

Fund Transfer Fee

A fee charged to electronically transfer the mortgage funds to you or your solicitor.

G

Guarantor

A guarantor is someone who guarantees that the payments will be made on someone else's mortgage. If the mortgage holder can't repay, the guarantor is then responsible for making the payments.

H

Home Report (Scotland)

All houses for sale in Scotland have to be marketed with a Home Report. This is a pack of three documents; a Single Survey, an Energy Report and a Property Questionnaire.

I

Initial Rate

The initial rate of interest that will be charged on your loan before it reverts to the Standard Variable Rate.

Interest Only

Your monthly payments will only consist of interest and you will still have to repay all of the capital at the end of the term. You will have to show that you've got a repayment strategy in place that will mean you'll have enough money to be able to repay the mortgage in full by the end of the term.

J

Japanese Knotweed

Japanese Knotweed is an invasive species of plant, originally introduced as an ornamental variety. If it's left untreated it can cause physical damage to property. It can, however, be successfully treated and eradicated. If there's knotweed on or near the site of a property, then mortgage lenders will usually ask for proof that suitable treatment has been carried out before they'll agree to lend on that property.

L

Land and Buildings Transaction Tax

Land and Buildings Transaction Tax (LBTT) is the Scottish equivalent of Stamp Duty in England. LBTT is a tax on residential and commercial land and buildings transactions (including commercial purchases and commercial leases) where a property is purchased. The amount of tax you pay will depend on various factors including the value of the property and whether or not you own other properties. Find out more about LBTT.

Leasehold

You own the building but not the land it stands on, and only for a certain period (anything up to 999 years). Mortgage lenders usually need there to be a minimum amount of time left on the lease. Each lender's policy is different so please check beforehand.

Legal Fee

You will normally instruct a solicitor to act on your behalf when you're buying a property. You will need to pay their legal fees and costs as part of their work on your behalf. These fees / costs are normally charged by the solicitor, directly to you unless your mortgage lender tells you that the legal costs are covered as part of your mortgage deal. You are also usually responsible for your lender's legal costs.

Loan to Value (LTV)

The size of your mortgage as a percentage of the property's value. For example, if you have a mortgage of £150,000 on a property worth £200,000, your loan to value is 75%.

M

Mortgage Exit Fee

You might have to pay an exit fee if:

• your mortgage term comes to an end;
• you transfer the loan to another lender; or
• you transfer borrowing from one property to another.

You might also be charged a separate fee by your conveyancer for their work relating to redemption of the mortgage and discharge of the security.

Mortgage Illustration

Your personalised mortgage illustration (also known as a European Standardised Information Sheet “ESIS”) will explain the key features of your mortgage and will tell you what your initial monthly payments would be, based on the information you have provided. It is important that you read and understand this document.

Mortgage Offer

The mortgage offer sets out the terms and conditions of your mortgage such as interest rate, repayment method, monthly payments, reversion rate, any early repayment charge, and confirms that we're happy to offer you a mortgage. We'll send your mortgage offer out to you once we've fully assessed your application and approved any supporting documentation we asked for, like payslips and bank statements. A formal mortgage offer is needed before you can exchange contracts.

Mortgage Term

The amount of time you are taking the mortgage out for – 25 years, for example.

N

Note of Interest

Once you've found a property you like you can ask your solicitor to issue a note of interest which tells the sellers that you're interested in the property. A note of interest doesn't mean you have to buy, it just shows that you're interested and want to be kept up to date – for example if there's a closing date for offers to be made.

O

Overpayments

This is when you pay extra, over and above your contractual 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. There may be restrictions about the amount you can overpay in any one year before incurring an early repayment charge.

P

Part and Part

Part and Part is when your mortgage is split between interest only and capital and interest. You choose how much of the initial loan or mortgage you would like to be on interest only and you'll repay the rest as capital and interest. As part of the lending will be on interest only, you'll need to have a suitable repayment plan in place to repay the outstanding capital at the end of your mortgage term.

Porting

A portable mortgage allows you to transfer your mortgage product from one property to another when you move, this may be subject to a full financial assessment being carried out and the new property meeting your lender's lending criteria.

Property Chain

A property chain describes a line of buyers and sellers linked together because each is selling and buying a property from one of the others, apart from the people at the beginning and the end of the chain.

R

Redemption

This is where you pay off your mortgage at or before the end of the mortgage term.

Redemption Statement

A statement telling you how much you have to pay to pay off your mortgage (including all charges and interest to a certain date).

Remortgage

When you change your mortgage provider without moving house. You might do this to save money, to change to a different mortgage type or to release equity from your home.

Repayment Mortgage

See Capital and Interest

Repayment Plan

You need this if you take out an interest-only mortgage. This is how you show how you're going to pay off your mortgage at the end of the term - for example, from savings.

Right to Buy

A mortgage arranged in connection with the "right to buy your home" legislation for council or housing association tenants.

S

SA302s

The SA302 is a brief summary of the income that has been reported to HMRC. It is effectively a certificate that documents exactly how much income you have declared. Therefore SA302 is an easy way for a lender to check that the income on a mortgage application is the same as you've shown to HMRC.

Second Charge Mortgage

This is where you already have a first charge mortgage with one lender and take out additional secured lending with a different lender on the same property. This ranks below in priority to the first mortgage on the property.

Service Charge

The fee paid to a managing agent for the on-going maintenance of a leasehold property.

Shared Ownership

You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by a local housing association.

Soft credit check

A soft search of your credit report gives us a snapshot of your key information without affecting your credit score or leaving footprints for other lenders to see.

Stamp Duty

Stamp duty land tax (SDLT) is a tax on residential and commercial property transactions in England, Wales and Northern Ireland. The amount of tax you will have to pay depends on various factors including the value of the property you are purchasing and whether you own any other properties. Land and Buildings Transaction Tax (LBTT) is the equivalent in Scotland.

Standard Variable Rate (SVR)

A Standard Variable Rate is a type of variable rate that is managed by the lender and could move at any time – this means your payments can go up or down according to movements in interest rates. Most mortgage interest rates revert to the standard variable rate at the end of the initial rate period.

Our current Residential SVR is 7.49% and our Buy to Let SVR is 8.24%

Unlike a tracker, a Standard Variable Rate (or SVR) does not track movement of another rate.

Lenders set their own SVR, so, if the Bank of England base rate went up by 1%, the lender could choose:

• Not to increase the SVR
• To increase the SVR (they could choose to increase this by any amount, less than 1%, 1% exactly or even make an increase greater than 1%)
• To decrease the rate
• The mortgage lender may also increase or decrease their Standard Variable Rate at any time – it is not dependent on Bank of England Base rate changes.

T

Title Deeds

The legal documents which formally states who the owner of a property is, as well as details about the property and the land it's built on.

Tracker Rate

A type of variable rate mortgage which will track movements of another rate – usually the Bank of England base rate. Tracker rates don't match the rates they track, but are usually at a 'margin' above that rate for a pre-agreed period. As the rate is variable, you benefit from lower payments when rates are lower, but will pay higher payments if the rate being tracked goes up.

Tyneside arrangement

Tyneside Arrangements refer to flats in a property which looks like a single fronted terraced house, but is in fact two flats – one above the other. Each flat has a separate front and back door and outside space. As the flats share ownership of the roof and foundations the ground floor flat becomes a tenant of the upstairs flat and vice versa. This allows the responsibilities relating to shared areas to be enforced legally without the need for an external landlord or management committee.

V

Valuation

A lender will instruct a valuation survey to be carried out against the property to check whether it is valued at the amount you're paying for it. You should always have your own survey done too, to check for structural problems.

Valuation fee

A fee that you pay for a valuation survey to be carried out on the property you want to buy. This fee can vary depending on the value of the property as well as how detailed the survey is.