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Mortgage Dictionary
This dictionary of common terms associated with mortgages is designed as a quick reference guide. Please click here to contact one of our Blue Pebble Advisers should you require further clarification on any point
Accident, Sickness and Unemployment Insurance (ASU)
In the event of an accident, sickness or involuntary unemployment, this type of insurance will cover the borrower's mortgage payments. Also known as Mortgage Payment Protection Insurance (MPPI).
Adverse Credit
This term is used to describe applicants with a poor credit history. This may include mortgage arrears, defaults, County Court Judgments (CCJs), bankruptcy, Individual Voluntary Agreements (IVAs), house repossession. Borrowers with adverse credit are typically offered higher rates than applicants with a good credit history. Also referred to as 'non-conforming' or 'sub-prime'.
Affordability
This term refers to your ability to repay a loan. Some lenders will underwrite your application for a mortgages on an 'affordability' basis rather than applying strict salary multiples.
Agreement in Principle (AIP)
This refers to an offer of loan for the purposes of a mortgage. The lender will offer a maximum lending amount based on your income and credit history. This is often beneficial to have in place when placing an offer on a property. Also known as: Decision in Principle (DIP), Mortgage Promise or Mortgage Certificate.
Annual Percentage Rate (APR)
This is calculated using a generic formula applicable to all lenders, which includes the costs associated with a mortgage. This allows for easy comparisons to be made between different mortgage products offered by different lenders.
Arrangement Fee
This fee covers the administrative expenses incurred whilst processing a mortgage application. The fee is payable on specific products and can be added to the loan, paid in advance, or deducted from the advance on completion.
Base Rate
The Bank of England Base Rate is set each month by the Monetary Policy Committee. All mortgage rates are linked to the base rate, either directly, as Tracker Mortgages, or indirectly as in all other cases.
Basic Survey
When purchasing or re-mortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is usually borne by the borrower and increases according to the value of the property. There are three levels of valuation. The Basic survey is usually undertaken for re-mortgaging purposes and can often be a 'drive by' valuation. This type of survey is often offered 'Free' to borrowers with certain products. See also 'Homebuyers Report' and 'Structural Survey'.
Booking Fee
The fee may be payable to reserve funds when a product is likely to sell out quickly. The fee is payable on specific products and can be added to the loan, paid in advance, or deducted from the advance on completion.
Borrower
This term is used to describe the person or persons applying to for the loan, or, in other words, the applicant/s.
Buildings and Contents Insurance
This insurance covers damage to the mortgaged property and/or its contents in a variety of specified scenarios. This must be in place prior to completion. The Lender may provide insurance services and may charge an administration fee is the Lender's own insurance is not taken up.
Buy-to-Let and mortgage (BTL)
These mortgages are specifically designed for properties that will be let out by the borrower to other tenants. Lenders will calculate the maximum loan available based on the projected rental income, rather than the borrower's salary.
Capital and Interest Mortgages
Also called Repayment Mortgage. The monthly mortgage payments will pay the interest on the loan and also repay the capital. At the end of the loan term, the debt will be entirely repaid.
Capital Rest Period
This refers to the regularity with which the Lender calculates the outstanding balance, and therefore the size of the monthly payments. This can be annually, monthly or daily. If the capital is being repaid monthly, via a repayment mortgage, then a monthly, or daily, interest calculation is preferable. The interest charged will reduce as the capital reduces, following each monthly repayment.
Capped Rate Mortgage
The monthly payments are guaranteed not to rise above a specific rate (the cap), within a set period. There are often early repayment charges applicable if the loan is repaid within the capped period.
Cashback Mortgage
The Lender refunds a cash sum to the borrower on completion. Again, early repayment charges maybe applied if the loan is repaid within a specified period.
Combination Mortgage
This mortgage is taken partly on a Capital and Interest basis and partly on an Interest Only basis. Also referred to as a 'Split Loan'.
Completion
This term refers to the legal transfer of the property. This can only happen once all legal documentation has been completed and funds have been transferred from the buyer's solicitor to the seller's solicitor.
Contents Insurance
This insurance covers damage to the contents of the mortgaged property in a variety of specified scenarios. Contents Only Insurance is usually taken up by purchasers of flats, where the Buildings Insurance is a block scheme for the entire property.
Conveyance
This term refers to the legal process whereby the ownership of a property is transferred. This is usually carried out by a Conveyancing firm/solicitors.
Decision in Principle (DIP)
This refers to an offer of loan for the purposes of a mortgage. The lender will offer a maximum lending amount based on your income and credit history. This is often beneficial to have in place when placing an offer on a property. Also known as: Agreement in Principle (AIP), Mortgage Promise or Mortgage Certificate.
Default
This term applies when a debt has not been repaid according to the terms of the agreements.
Discounted Rate Mortgage
This is a variable rate mortgage which has been discounted for a set period by the Lender. Early repayment charges often apply if the loan is repaid within the discounted period.
Discounted Tracker Mortgage
This is a variable rate mortgage that is discounted from the Bank of England's Base Rate by a set percentage, for a set period. Early repayment charges often apply if the loan is repaid within the discounted period.
Early Repayment Charge (ERC) / Early Repayment Penalty (ERP)
This term refers to a penalty charged on traditional (i.e. non-flexible) mortgages when the loan is repaid in fill within a set period. The set period usually refers to the period during which the mortgage rate is fixed, discounted, stepped or capped. These will always be stipulated by the Lender, often on a pro-rata basis. Also known as 'Redemption Penalty'.
Endowment
This refers to an investment vehicle usually associated with Interest Only mortgages.
Exchange of Contracts
This is the point at which any deposit is paid and both parties are legally bound to fulfil the agreed conditions of sale and purchase. This applies in England, Wales and Northern Ireland.
Fixed Rate Mortgage
The mortgage rate charged is fixed at a specified rate for a set period. Early Repayment Charges often apply if the loan is repaid within the Fixed Rate period.
Flexible Mortgage
This type of mortgage allows flexibility over the payments to the lender. The lender will allow monthly or lump sum overpayments, or both. You may be able to take a payment holiday or borrow additional money, without further approval. Additional features will vary between lenders but in general this product allowing great flexibility.
Freehold
The buyer of a Freehold property owns both the property and the land on which it stands on indefinitely.
Full Status
This term describes borrowers with a good credit history who are able to prove their income.
Gazumping
This term refers to a situation where an offer has been made to the vendor, and the vendor has accepted that offer. The vendor then accepts a higher bid from a second prospective buyer.
Higher Lending Charge
This is a premium charged by Lenders to indemnify themselves, and NOT the borrower, against any financial shortfall they may incur in the event of repossessing a property, which must then be sold at a loss. This charge is applicable if the amount required is higher than a certain percentage of the property value, usually 75% LTV (Loan to Value). The charge may either be added to the loan or deducted from the advance on completion. More commonly known as Mortgage Indemnity Guarantee (MIG).
HIPS (Home Information Pack)
HIP, or Home Information Pack, is a government backed initiative designed to simplify property purchasing. Presently, HIPs are required for the sale of properties with four or more bedrooms. Smaller properties do not require HIPs at this stage but are due to phased in over time.
A HIP comprises important information that a buyer will need to know. Compulsory documents include Evidence of Title; Sale Statement; Energy Performance Certificate; Standard searches. Additional information regarding the condition of the property is optional. For more information regarding HIPs and the potential cost please visit the official government website. Click here for Useful Links.
Homebuyers Report
When purchasing or re-mortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases according to the value of the property. There are three levels of valuation. The Homebuyers Report is the intermediate level of survey and is for your own benefit rather than the mortgage lenders. The homebuyer's report is recommended for houses that are under 50-75 years old, conventionally constructed, and in generally sound condition. See also 'Basic Survey' and 'Structural Survey'.
Income Multiples
Refers to the multiples that the Lender will apply to the borrowers' income to determine the maximum loan they will offer. These vary between lenders but a generally are between 3 and 5 times income. Refer to our Mortgage Borrowing Calculator to find out how much you can borrow.
ISA (Individual Savings Account)
An investment vehicle associates with Interest Only mortgages.
Interest Only Mortgages
The initial loan amount remains the same throughout the term of the loan and must be repaid in full at the end of the term. The monthly payments are only paying the interest on the loan and not repaying the capital. Therefore an alternative investment vehicle needs to be put in place to ensure there are adequate funds to repay the capital at the end of the term.
Introducer Fees
This is commission paid by Lenders to intermediaries for introducing the business to them. If the intermediary receives more than £250 they are obliged under the Mortgage Code to disclose the exact amount to the borrower.
Intermediary
Is the term used to refer to the broker, or IFA (Independent financial Adviser) that arranges the mortgage on behalf of the borrower.
Leasehold
The buyer of a Leasehold property owns the property for a set number of years, but doesn't own the land on which the property stands. Owners of leasehold properties often pay 'Ground Rent' to the Freeholder (i.e. the land owner).
Let to Buy Mortgage (LTB)
This type of mortgage is applicable to borrowers whose property is let to other tenants, and where the rental income received is used to cover the mortgage repayments on a new property, bought as the borrower's main residence. Lenders calculate the maximum loan available to the borrower based on the projected rental income, rather than salary income multiples.
Libor-Linked Mortgage
This is a variable rate mortgage that is linked to the London Inter-Bank Offered Rate, by a set percentage within a set period. The Libor rate is set every three months and is associated with Lenders that offer loans to borrowers with adverse credit.
Life Policy
This insurance repays the mortgage in the event of the insured person's death. Also referred to as 'Term Assurance'.
Loan to Value (LTV)
The term refers to a percentage figure of the loan amount in relation to the property value. A property is purchased with a £70,000 mortgage and is worth £100,000. The LTV is 70%. The higher the LTV, the higher the interest rate.
Mortgage
A mortgage is a long-term loan, secured against a property. The property offers the lender a guarantee of repayment and the lender can see
Mortgage Certificate
This refers to an offer of loan for the purposes of a mortgage. The lender will offer a maximum lending amount based on your income and credit history. This is often beneficial to have in place when placing an offer on a property. Also known as: Agreement in Principle (AIP), Decision in Principle (DIP) or Mortgage Promise.
Mortgage Indemnity Guarantee (MIG)
This is a premium charged by Lenders to indemnify themselves, and NOT the borrower, against any financial shortfall they may incur in the event of repossessing a property, which must then be sold at a loss. This charge is applicable if the amount required is higher than a certain percentage of the property value, usually 75% LTV (Loan to Value). The charge may either be added to the loan.
or deducted from the advance on completion. Also known as 'Higher Lending Charge'.
Mortgage Payment Protection Insurance (MPPI)
In the event of an accident, sickness or involuntary unemployment, this type of insurance will cover the borrower's mortgage payments. Also known as Accident, Sickness and Unemployment Insurance (ASU).
Mortgage Promise
This refers to an offer of loan for the purposes of a mortgage. The lender will offer a maximum lending amount based on your income and credit history. This is often beneficial to have in place when placing an offer on a property. Also known as: Agreement in Principle (AIP), Decision in Principle (DIP) or Mortgage Certificate.
Non-conforming
This term is used to describe applicants with a poor credit history. This may include mortgage arrears, defaults, County Court Judgments (CCJs), bankruptcy, Individual Voluntary Agreements (IVAs), house repossession. Borrowers with adverse credit are typically offered higher rates than applicants with a good credit history. Also referred to as 'adverse credit or 'sub-prime'.
Offset Mortgage
This type of mortgage allows you to reduce the interest chargeable on your loan. Your main current bank account and/or savings account are linked to the mortgage account. Each month, the balance of your personal accounts is deducted from the mortgage capital, before the interest is calculated.
Overpayment
Refers to an unscheduled capital repayment in the form of a lump sum, or increased monthly payments, in order to repay the mortgage before the end of the term. Flexible mortgages allow overpayments and allow borrowers to save considerable sums in interest. Traditional mortgages do not allow overpayments and will apply an 'Early Repayment Penalty/Charge' if overpayments are made within a set period.
Pension
An investment vehicle associated with Interest Only mortgages.
Personal Equity Plan (PEP)
An investment vehicle associated with Interest Only mortgages.
Portability
A portable mortgage can be transferred to another property without penalty if the borrower move house within the early repayment penalty period. The Lender will offer a new interest rate depending on whether the loan amount increases or decreases.
Procuration Fee
This is commission paid by Lenders to intermediaries for introducing the business to them. If the intermediary receives more than £250 they are obliged under the Mortgage Code to disclose the exact amount to the borrower.
Redemption Penalty
This term refers to a penalty charged on traditional (i.e. non-flexible) mortgages when the loan is repaid in fill within a set period. The set period usually refers to the period during which the mortgage rate is fixed, discounted, stepped or capped. These will always be stipulated by the Lender, often on a pro-rata basis. Also known as 'Early Repayment Charge/Penalty'.
Repayment Mortgage
Also called Capital and Interest mortgage. The monthly mortgage payments will pay the interest on the loan and also repay the capital. At the end of the loan term, the debt will be entirely repaid.
Re-Mortgage
This refers to the home-owner who has is either raising additional capital, or looking for a better mortgage rate. Re-mortgages can incur early repayment charges is the mortgagee re-mortgages during a specified period i.e. fixed, capped or discounted rate period.
Right to Buy (RTB)
This term refers to a tenant who is living in a council-owned property and purchases the property at a discount. The discount depends on the length of their tenancy.
Searches
These are performed by your solicitor who checks for details of any problems with services to the property (electric, water supply), applications for development in the vicinity of the property you are purchasing. In addition, a Land Registry search is performed to determine the boundaries of the property etc.
Self Build
This refers to a mortgage designed for a property under construction. The loan is staggered as the property is built.
Self Certification Mortgage (S/C)
This type of mortgage allows the borrower to state their and confirm their ability to repay the loan. The borrower is not obliged to provide evidence such as payslips, bank statements, or accounts if they are self-employed. The Lenders consider Self Certification mortgages to be higher risk than Full Status mortgages, and so mortgage rates tend to be higher.
Shared Ownership
Housing Associations operate schemes whereby the borrower owns part of the property and pays a mortgage on this part. The Housing Association retain ownership of the remainder, and the borrower pays rent on this part.
Solicitor
Your solicitor will assist you in your house purchase by arranging searches, contracts and transferring monies between buyer and seller.
Split Loan
This mortgage is taken partly on a Capital and Interest basis and partly on an Interest Only basis. Also referred to as a 'Combination mortgage'.
Stamp duty
This is a government tax charged on the sale of properties. The tax is calculated as a percentage based on the value of the property above a threshold set in the Chancellor's annual budget. The tax rate is divided into bands with the percentage increasing with the value of the property. It is not payable on re-mortgages.
Standard Variable Rate (SVR)
The interest rate charged on the loan amount is linked to the Bank of England's base rate. This means that mortgage payments may rise, or fall, in line with any fluctuations in the Bank of England's base rate. The SVR is the reverting rate at the end of any special offer period i.e. fixed, capped or discounted rates.
Structural Survey/Building Survey
When purchasing or re-mortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases according to the value of the property. There are three levels of valuation. The Structural or Building survey is the most comprehensive level of survey and can cost up to £1,000. A structural survey is recommended for houses that are over 75 years old, constructed out of unconventional materials such as timber or thatch; and properties which have had lots of alterations or extensions, or which you intend to alter or renovate. See also 'Basic Survey' and 'Homebuyer's Survey.
Specialist Survey
Specialist surveys can also be carried out on aspects such as foundations, damp proofing, or tree roots, either by a specialist within the firm of surveyors or by an independent specialist surveyor.
Term Assurance
This insurance repays the mortgage in the event of the insured person's death. Also referred to as 'Life Policy'.
Tracker Mortgage
This is a variable mortgages that is either above or below the Bank of England's Base Rate by a set percentage within a set period.
Underwriting
This term refers to the process by which a lender will determine your ability to repay the loan for which you have applied. Specific criteria must be met before a lender will agree lending the requested amount. This criteria will vary between lenders.
Valuation Fee
When purchasing or re-mortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases according to the value of the property. There are three levels of valuation. The Basic Survey, Homebuyers Report and the Structural/Building Survey. The cost of surveys will depend on the level required. Lenders will often offer 'Free' valuations on re-mortgages.