Affordability
This is a lender’s way to calculate how much they are willing to let you borrow and if they think you can
keep up with payments. To work this out, they will look primarily at your annual income and outgoings
to see what they think you can afford. Lenders also consider affordability based upon higher interest
rates to ensure that the mortgage is affordable in the event interest rates rise in the future.
Agreement In Principle
An agreement in principle (also known as a mortgage in principle and a decision in principle) is an initial
indication from the lender stating how much they would be willing to lend you. This is not a mortgage
offer as you will still need to go through the full mortgage application process when you find a property,
but it can be very useful as it can help you understand your borrowing capacity.
Annual Percentage Rate of Charge (APRC)
APRC is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you
compare different offers and it comprises of the lender’s ‘initial’ interest rate and standard variable
rate, costs to be paid on a one-off basis and costs to be paid regularly. There are other costs that are
not known to your lender, which are therefore not included in the APRC, which includes things like legal
fees and the Land Registry Fee.
Capital & Interest Mortgage
A capital and interest mortgage (often called a repayment mortgage) is where you pay both the capital
and interest over an agreed period of time known as the ‘term’ of the mortgage. As long as you keep up all
your repayments you will be guaranteed to have repaid your mortgage at the end of the mortgage term.
With a capital and interest mortgage you will initially pay small parts of capital and large parts of
interest in the early years followed by large parts of capital and small parts of interest in the later years.
Capped Rate
A capped rate mortgage is a type of variable rate mortgage. The interest rate can go up or down in line
with the lender’s standard variable rate (SVR) or by tracking the Bank of England Base Rate.
This type of mortgage has a fixed upper interest rate limit, known as a ceiling or ‘cap’. No matter how
high interest rates rise, the interest charged on your mortgage won’t go above that limit. This means
you get the security of knowing your monthly payments won’t go up beyond a certain level, but you can
still benefit from reductions in your monthly repayments if interest rates go down.
Credit Score
Your credit score or credit file is a record of your financial behaviour held by credit reference agencies.
It will be looked at by the lender when assessing whether they will give you a mortgage, and how much
they are willing to lend. Your actual score will vary from one agency to another, the lender carries out a
credit check to look at the way you conduct your credit agreements and that they are paid on time.
The lenders also apply their own way of interpreting this information to determine if they can offer
you a mortgage.
Debt Consolidation
Debt consolidation is the act of taking out a single loan to pay off debts. You can use a secured or
unsecured loan for a debt consolidation.
Deposit
This is the down payment that you need to provide when you take out a mortgage. The size of deposit
you need will depend on a range of factors, including the type of mortgage and property, as well as
your circumstances, but typically ranges between 5% and 40% of the property value. Typically, lenders
require larger deposits as the value of the property increases.
Discounted Rate
A discounted mortgage is a variable rate mortgage where the interest rate is set a certain amount
below the lender’s standard variable mortgage rate (SVR). This could be for either a set period or the
whole of the mortgage term. The discounted rate will change in line with any changes made by the
lender to their SVR meaning the amount you pay could change from month to month.
Early Repayment Charge (ERC)
This is a charge made by a lender if you repay all your mortgage or part of it before the date at
which the ‘initial’ rate ends. The amount of the charge can be found on your illustration and will vary
depending on how early in the term you make the repayment.
Some lenders have a specific amount you can overpay without penalty during the ‘initial’ rate period,
and so it is important to remember that an early repayment charge will apply above this amount If you
do not use an allowance in a year, you cannot roll this into the following year.
Equity
Equity is the portion of property you own compared to its current value. This can change both as you
repay your mortgage, increase ownership (if you are buying under a Shared Ownership scheme) and
when the market value goes up or down.
Fixed Rate Mortgage
This is a mortgage where the ‘initial’ interest rate is fixed for either a specific number of years or to a
specific end date. During that time the monthly payment will not change providing you do not miss any
of the payments, pay less than the amount due to the lender or make overpayments, all of which can
cause your payments to be recalculated.
Guarantor Mortgage
A guarantor mortgage (also known as a family-assisted mortgage) is a mortgage where another person,
usually a family member or close friend of the mortgage applicant agrees to be party to the mortgage.
This is to assist you in obtaining the mortgage, usually because your income is not sufficient on its own.
Your guarantor agrees to take on responsibility for the repayments if you are unable to pay them. Both
you and your guarantor are jointly liable for the mortgage secured on your property
Interest Only Mortgage – Residential
An Interest Only mortgage is where your monthly payments only pay the interest owed on the amount
you’ve borrowed, and the amount borrowed does not reduce. At the end of the mortgage term, you
must pay back the full outstanding loan amount.
There are several ways in which you can do this. You may use a specific investment product such as
an ISA or stocks and shares portfolio, or you may own another property that could be sold to repay the
mortgage on your home. You may decide to sell your home to repay the mortgage and downsize to a
smaller property with money you have left from the sale.
Interest Only – Buy To Let
An Interest Only mortgage is where your monthly payments only pay the interest owed on the amount
you’ve borrowed, and the amount borrowed does not reduce. At the end of the mortgage term, you
must pay back the full outstanding loan amount.
There are several ways in which you can do this – you may use a specific investment product such as
an ISA or stocks and shares portfolio; you may own another property that could be sold to repay this
mortgage, or you may decide to sell this property.
Initial Rate Period
Sometimes referred to as the initial period and is used to describe the length of time that either the
fixed, tracker, discounted or capped rates are set for. During the initial rate period, there may be
early repayment charges to consider should you wish to pay off some or all of your mortgage during
this period.
Loan To Value (LTV)
LTV or Loan to Value is a ratio of the size of your mortgage loan compared to the value of the property
and expressed as a percentage.
Mortgage Term
This refers to the length of the entire mortgage (how long the loan is taken over) and is sometimes
called the repayment period. Lenders typically allow a minimum term of 5 years and a maximum term
of 40 years. You might have a 25-year mortgage, with a 5-year fixed rate, the mortgage term refers to the 25-year period.
Negative equity
Negative equity is where you owe more than the current value of your property. This refers to the
industry opinion on how much your property could be bought or sold for by any potential buyer
or seller.
Offset Mortgage
An offset mortgage is a mortgage that is linked to a bank account
taken out with the lender. The money in this account isn’t
used to pay off your mortgage, instead it is used to lower
the amount of interest charged on your mortgage each
month.
Part and Part Mortgage
A part and part mortgage is where you opt to mix the two repayment types together, meaning you
will have part of your mortgage on a capital & interest basis and part of your mortgage on an interestonly
basis.
Porting
Porting is where your lender allows you to take your existing product to a new property. If your lender
confirms your product is ‘portable’ it is important to remember portability is always subject to a
lender’s policy at the time of application. A lender will usually assess that the new property is suitable
security and check that the mortgage is affordable. This is particularly important where you are
borrowing additional money.
It is also important to remember that if you do not port your mortgage simultaneously with your new
purchase there is a chance you could lose your current rate. You must check what your current lender’s
policy is at the time.
Product Transfer
A Product Transfer is where you take a new rate from your existing lender. This can
either be when your existing initial rate is due to come to an end, or if you are
currently on the lenders standard variable rate. A product transfer does not require
the services of a Solicitor to assist with the process as the legal title of your
property does not change.
Remortgage
Remortgaging is the transfer of a mortgage from one lender to another. The
most common reason to remortgage is to obtain a more favourable interest
rate when your current initial rate has expired. You will need the services of a
Solicitor to assist with this process.
Self-Build Mortgage
This type of mortgage is to assist you when building your own home. The lender usually lends based
upon the value of the land and the cost of the building works. They will also consider the overall end
mortgage against the value of the property once it has been built. You usually have 1 – 2 years to build
your home and affordability is assessed on the basis that, once the property is complete, you can
afford the final mortgage amount.
Standard Variable Rate (SVR)
A standard variable rate (also known as standard mortgage rate or SMR) – is the standard interest rate
offered by a mortgage lender. It is the rate your mortgage reverts to once your initial rate comes to an
end. You can avoid this happening by either transferring to a new product with your current lender or
remortgaging to a new lender on the date the initial rate comes to an end.
The Bank Of England Base Rate
The Bank of England Base Rate is the interest rate set by the Bank of England to primarily control
inflation. The Base Rate influences the interest rates offered by Banks and Building Societies so if the
Base Rate goes up then most mortgage, loan and savings rates will generally go up too. Similarly, if the
Base Rate goes down then most mortgage, loan and savings rate will generally go down.
Tracker Rate
A tracker mortgage is a type of variable rate mortgage. It follows the Bank of England Base Rate or
another specified index for a specified period. The interest rate you pay on a tracker mortgage is
variable and is an agreed percentage above the Bank of England Base Rate or specified rate. Your
payments will go up or down in line with any increases or reductions in the Bank of England Base Rate
or specified rate.
Variable Rate Mortgage
A variable rate mortgage is any with an interest-rate that is not fixed, and therefore can change during
the mortgage rate period.