Annual Percentage Rate of Charge (APRC)
Mortgage lenders must quote an Annual Percentage Rate (APRC) as well as their standard interest rate.
The APRC can be slightly confusing for borrowers, but it factors in the total cost of credit to you as a consumer and is then expressed as an annual percentage of the total amount, including interest and charges.
This helps to provide an indication of which mortgage is cheaper over the entire term of the loan.
Approved in Principle / Agreement in Principle
Also known as a Mortgage in Principle (MIP), an Approved in Principle or Agreement in Principle (AIP) is written confirmation that a lender is willing to provide you with funding subject to certain conditions.
AIPs are extremely useful when making an offer on a property as they show the seller that your proposed lender is willing to consider your mortgage application.
Lenders often charge an arrangement fee to set up your mortgage account.
Charges for arrangement fees can vary, but you may be able to choose to either pay the fee up front, or have it added to your mortgage.
By adding an arrangement fee to your mortgage, you’ll pay more as you’ll pay interest on the amount over the term of the mortgage.
Arrangement fees are also sometimes charged as a percentage of the mortgage amount rather than a flat fee.
Being in arrears means you have missed at least one monthly payment on your mortgage.
Base rate refers to the UK-wide interest rate set by the Bank of England when it lends to other banks.
The base rate is generally used as a benchmark when lenders set their own rates, while Standard Variable Rates and Tracker mortgages are usually linked to the base rate.
Some lenders will charge a booking fee up front while your mortgage application is processed.
Booking fees are sometimes called ‘reservation fees’ and are often non-refundable.
While the cost of a booking or reservation fee can vary, they are usually around £100.
Your mortgage lender will require you to take out a buildings insurance policy as a condition of your loan.
You don’t have to arrange buildings insurance through your lender, but you must have a valid policy in place before you move into your home.
Buy to let
Buy-to-let mortgages are specific loans designed for buyers who purchase property to then rent out to tenants.
A buy-to-let mortgage is not suitable for you if you want to move into the property yourself, while lenders often offer a specialist buy-to-let mortgage which is usually more expensive than a standard residential mortgage.
Capital refers to the total amount of money you borrow to purchase a property.
Cashback is sometimes offered by lenders with certain mortgage products.
These kinds of mortgages see a lump sum paid out following completion and are sometimes offered with reduced interest rates or other incentives.
Cashback mortgages generally have early repayment charges if you redeem the loan amount within a certain period of time after you complete your purchase.
A CCJ refers to a County Court Judgement.
This is a court order in England, Wales and Northern Ireland that can be registered against you if you fail to repay money you owe to a lender.
Collar refers to the minimum rate of interest you’ll be charged and is applied by a lender to a variable interest rate.
This means if interest rates fall, the rate you are charged won’t fall below the lender’s ‘collar’ rate.
Conveyancing refers to the legal work carried out by a solicitor that enables you to legally buy or sell a property.
Current account mortgage
Current account mortgages are linked to your bank account.
With a current account mortgage, you’ll only be charged interest on the net amount you owe your lender after your savings or current account balance has been offset against the amount remaining on your mortgage.
Defaulting refers to a failure to fulfil a legal obligation – such as repaying a loan or mortgage.
Your deposit is the amount you put down towards the cost of buying a property.
The remaining funding required will be through a mortgage, with the minimum deposit amount required by most lenders being 5% of the property’s purchase price.
In most cases, the bigger deposit you put down, the better interest rate you’ll be offered by your lender.
Discounted rate mortgage
Discounted rate mortgages offer borrowers a percentage reduction off the lender’s standard variable rate (SVR) for a period.
Because discounted rates are related to the lender’s SVR, if the SVR goes up, your rate will go up and if the SVR goes down, your rate will go down.
Most discounted rate mortgages come with early repayment charges and arrangement fees.
Early repayment charges (ERCs)
Early repayment charges (ERCs) are fees that are payable if you repay your mortgage in full or in part before the end of a set penalty period.
ERC fees generally range from 1% to 5% of the outstanding loan amount and normally apply for the period of a fixed interest rate or a tracker or discount period.
Equity is the amount of money that remains after you have paid off an outstanding mortgage.
Fixed Rate Mortgage
A fixed interest rate mortgage means the interest rate you pay is predetermined for a period – meaning your monthly repayments stay the same.
Fixed rate mortgages usually run for a specified number of years and following that period, your mortgage rate will revert to your lender’s standard variable rate (SVR).
If you pay off your mortgage, in full or in part, during the fixed rate period, early repayment charges may apply.
Flexible mortgages offer various benefits.
These often include being able to vary your monthly payments in line with changing circumstances, take a payment ‘holiday’ or borrow back any money you have overpaid.
There are a wide variety of flexible mortgages available, and your mortgage broker will be able to provide more details if you’re interested in these types of mortgages.
If you own the freehold of a property, this means you own both the property itself and the land it stands on, with no time limit on the period of ownership.
Guarantors are people who legally agree to take on the financial responsibility of someone else’s mortgage should they be unable to pay it back.
Parents and relatives are the most common forms of guarantor, but any guarantor should always seek legal advice before they take on the role.
Help to Buy mortgage schemes
Help to Buy allows first-time buyers to purchase a home with a 5% deposit and an equity loan.
Higher lending charge (HLC)
Higher lending charges (HLCs) are charges made by lenders when a buyer’s loan to value (LTV) exceeds a limit specified by the lender.
HLCs help to cover the increased risk taken on by the lender and may be used to buy a Mortgage Indemnity Guarantee, which protects the lender should a buyer default on their mortgage payments.
Interest only mortgage
Interest-only mortgages see the borrower make no capital repayments until the end of the mortgage term.
Borrowers, instead, pay back the mortgage interest over the term of the loan.
Interest-only mortgages can be risky if the value of the property isn’t enough to pay back the capital at the end of the term.
Please note that Martin & Co does not provide investment advice, and should you require such advice, we recommend that you contact an Independent Financial Adviser. Martin & Co is not responsible for any advice you receive from a third party.
The Land Registry is the official body responsible for registering and holding details of property ownership in the UK.
Land Registry searches take place are part of the legal process when buying a property.
Most flats and apartments are leasehold properties, meaning the buyer owns the property for the period remaining on the lease.
At the end of the lease, the property would fall under the ownership of the freeholder.
Lifetime mortgages are equity release mortgages.
If you require a lifetime mortgage, you should seek independent financial advice.
Martin & Co is not responsible for any advice you receive from a third party.
Loan to value (LTV)
Loan to value (LTV) is your mortgage figure expressed as a percentage of your property’s total value.
So, a property worth £200,000 with a £130,000 mortgage would have an LTV of 65%.
Local Authority search
Local Authority Searches are carried out by solicitors and conveyancers when you buy a property.
These searches help to establish whether there are any local authority notices or plans that could impact the property and land that surrounds it.
This is the payment you make to your lender to repay the loan every month.
A mortgage is a loan secured against a property.
Mortgage deeds are legal documents that formally secure the mortgage loan against your property.
A mortgage broker is a type of intermediary who sells mortgages on behalf of lenders.
Your mortgage term is the amount of time you have to repay the loan.
Typically, mortgage terms are 25 years, but can be shorter or longer depending on the borrower’s personal circumstances and subject to a lender’s criteria and affordability checks.
The lender of a mortgage.
The house buyer who takes out a mortgage (also known as the borrower).
Negative equity is when the value of your property is less than your outstanding mortgage.
Offset mortgages are flexible mortgages that are often linked to savings or current accounts.
With an offset mortgage, you’re only charged interest on your net mortgage amount after savings or current account balances have been offset against your outstanding mortgage amount.
Portable mortgage are loans that can be transferred from one property to another when you move.
With a portable mortgage, you stay on the same interest rate you’re being charged, with early repayment charges avoided if they apply.
The cost of rebuilding your home.
Redemption of a mortgage
When a mortgage is fully repaid.
This is the process of changing your mortgage for a different one, without moving home.
A repayment mortgage sees you pay off both the capital and interest from your mortgage.
So long as you meet all the payments required by the lender, your mortgage will gradually reduce until it is repaid in full at the end of the mortgage term.
A repayment vehicle refers to an investment, usually an ISA, endowment or pension that is used to pay off an interest-only mortgage at the end of its term.
Please note that Martin & Co does not provide investment advice, and should you require such advice, we recommend that you contact an Independent Financial Adviser. Martin & Co is not responsible for any advice that you receive from a third party.
Your property is secured against your mortgage.
So, if you fall behind on your mortgage repayments, your lender could take away, or repossess your property to recover their losses.
Stamp Duty Land Tax
Stamp duty is a government tax charged to buyers on properties above a value of £125,000.
Standard variable rate (SVR)
A standard variable rate (SVR) refers to a lender’s standard interest rate, which can go up or down in line with the Bank of England’s base interest rate.
Lenders aren’t obligated to pass on full base rate changes to their own SVR.
But if your mortgage is on a lender’s SVR, generally you’ll pay less when the base rate falls and more when it increases.
A structural survey is a report outlined by a surveyor that tells a buyer whether a property is structurally sound or details defects that could require attention.
Structural surveys are the most comprehensive home-buying surveys in the UK.
Another name for adverse credit mortgages.
A tie-in period refers to the period of time you are committed to your mortgage deal.
Often, if you redeem your mortgage within a tie-in period, you’ll have to pay an early repayment charge.
The legal document which shows the ownership of land and property.
Tracker mortgages follow the Bank of England’s base interest rate and track it when it changes.
These variable rate mortgages mean when the base rate rises, you’ll pay more in monthly repayments and when the base rate falls, you’ll pay less.
To be certain that the property you’re buying is worth the amount you want to borrow through a mortgage, your lender will conduct its own valuation of the property.
Most lender valuations come with a fee chargeable to the borrower and lenders will not generally make a mortgage offer without a satisfactory valuation.