Arrangement fees are fees charged by a lender for setting up a mortgage. They are typically a one-off charge and can include costs such as application, arrangement or product fees. These fees can be paid upfront or added the overall cost of the loan and should be included in the APR (Annual Percentage Rate) and detailed to the borrower.
APRC (Annual Percentage Rate of Change)
APRC stands for Annual Percentage Rate of Charge. A lender is always required to quote the APRC when advertising a loan or borrowing rate. It is a standard interest rate calculation designed to reflect the total amount of interest that will be paid over the entire period of the loan.
Automatic Valuation Model (AVM) – also known as Desktop Valuation/Drive By
An Automatic Valuation Model (AVM) is a tool that uses data analysis to estimate the value of a property. AVMs can be used by mortgage lenders to quickly and accurately determine a property’s value without the need for a physical inspection of the property.
Additional borrowing on a mortgage refers to the process of taking out additional funds on top of the original mortgage loan. This additional borrowing can be used for various purposes such as home improvement, consolidating debt, or other large expenses.
To get additional borrowing on a mortgage, the borrower must apply to their lender for an “additional advance” or “further advance” on their existing mortgage. The lender will then assess the borrower’s creditworthiness and the value of the property to determine if they are eligible for the additional borrowing and at what terms.
It’s important to note that taking out additional borrowing on a mortgage will increase the total amount borrowed and the overall cost of the mortgage. It also might increase the length of the mortgage term.
Additionally, interest rates for additional borrowing may be higher than the original mortgage loan. Borrowers should consider all the costs and risks involved before taking out additional borrowing on their mortgage.
This is so important even this feature on our website must have a very clear risk warning, which is as follows.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE
In relation to mortgages, “arrears” refers to a situation where a borrower falls behind on their mortgage payments. This occurs when the borrower fails to make their monthly mortgage payments on time.
When a borrower falls into arrears, their lender may take steps to collect the missed payments. This can include sending letters, making phone calls, and/or taking legal action. The lender may also charge late fees or penalties for missed payments.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE
Buy to Let
A buy to let mortgage is a type of loan that is used to purchase a property specifically for the purpose of renting it out to tenants. These mortgages typically have different terms and conditions than a traditional mortgage, such as higher deposit requirements and higher interest rates. They are also typically offered by specialist lenders, as opposed to traditional banks and building societies. The income generated from the rental property is used to cover the mortgage payments and generate a profit for the landlord.
Some Buy to Let Mortgages are not regulated by the Financial Conduct Authority.
The Base Rate, also known as the “bank rate” or “benchmark interest rate”, is the interest rate that banks use as a benchmark for setting the interest rates they charge on loans and mortgages. It is set by a country’s central bank, which is the Bank of England here in the United Kingdom.
The Base Rate is used as a benchmark for setting the interest rates on a wide range of financial products, including mortgages, personal loans, and business loans. When the Base Rate increases, the cost of borrowing for consumers and businesses also increases, and when it decreases, the cost of borrowing decreases.
A property completion date is the date on which the legal transfer of ownership of a property takes place and all the necessary paperwork and payments have been completed. This is the date when the buyer becomes the legal owner of the property and can take possession of it.
Capital & Interest
In the context of mortgages, capital refers to the total amount borrowed to purchase a property and interest is the cost of borrowing that money.
When a borrower takes out a mortgage, they are required to make regular payments to the lender. These payments typically consist of both capital repayment and interest. The capital repayment is used to pay off the outstanding balance of the mortgage loan, while the interest is the cost of borrowing the money.
If you wish to release money via a mortgage using the equity within a property, this is called capital raising.
The amount of capital raised will depend on the value of the property, the borrower’s creditworthiness, and the lender’s lending criteria.
You can capital raise for reasons such as home improvements, consolidating debt, or other large expenses.
It’s important to note that capital raising for a mortgage is a significant financial commitment and should be carefully considered. Borrowers should be aware of the total cost of the mortgage, including interest and any other fees, and should budget accordingly.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE
Cashback on a mortgage refers to a type of incentive offered by some mortgage lenders where a borrower is given a cash reward for taking out a mortgage with them. This cashback can be used for various expenses such as home improvements, closing costs, or towards the payment of fees.
Conveyancing is the legal process of transferring the ownership of a property from one person to another. It involves a number of different tasks such as researching the property’s title, drafting and reviewing legal documents, and coordinating with other professionals such as surveyors, local authorities and mortgage lenders.
The conveyancing process can be done by a solicitor, licensed conveyancer or a conveyancer, and it is a legal requirement that all conveyancing work is carried out by a professional. It’s important for both buyers and sellers to have a good understanding of the conveyancing process and the legal requirements involved, in order to avoid any delays or complications.
Conveyancing services are not regulated by the Financial Conduct Authority.
A County Court Judgment (CCJ) is a legal order made by a county court in the United Kingdom, which states that an individual or business must pay back a debt they owe to a creditor. A CCJ is typically issued when a borrower fails to repay a debt according to the terms of the loan agreement.
Contract Workers are classed as an employment type who are normally on Fixed Contracts or Sub Contracts, for example, Doctors, Builders etc. It could be that they are on a 12 month contract, or even shorter or longer. Some Mortgage Lenders are happy to lend to customers on these types of contracts but some will not.
Construction Industry Scheme (CIS)
This is similar to Contract Workers as mentioned above, however, these are more for people within the construction sector who are on fixed term contracts. Some contractors class themselves as ‘Self Employed’ but CIS are normally classed as ‘Employed’ as the employer will normally pay the Tax and National Insurance to HMRC on behalf of the contractor.
A credit score is a numerical rating that represents an individual’s creditworthiness from their credit report. It is a measure of how likely a person is to repay a loan or credit card debt. Credit scores are used by lenders, landlords, and insurance companies to evaluate a person’s credit history and to assess their risk as a borrower. Scores can go up and down depending on how much credit a person takes out, how well they repay it, and how finally how many credit applications they make over a period of time.
As part of a credit check, companies may look at whether you’ve paid back your credit on time, how much credit you currently have and how you’re managing it. They may also look at any financial associations you may have (such as someone you share a bank account or mortgage with) and what their credit history is.
It’s important to note that credit checks can have an impact on a person’s credit score, as multiple credit checks in a short period of time can indicate to the lender that the borrower is seeking credit from multiple sources and this can lower the credit score. You should check your credit report and credit score regularly to ensure that the information is accurate and to identify and resolve any errors.
Decision In Principle
A decision in principle (also known as a “mortgage in principle” or “agreement in principle”) is a document issued by a lender stating that, based on the information provided by the borrower, the lender is willing to consider giving them a mortgage of a certain amount. This type of document is not a formal mortgage offer, but it can be useful for potential home buyers as it can give them an idea of how much they may be able to borrow and help them find a property that they can afford.
In relation to a mortgage, deeds are legal documents that are used to transfer ownership of a property from the seller to the buyer. Deeds are typically used in the conveyancing process and are prepared by the seller’s solicitor or conveyancer.
In mortgage terms deposit is a sum of money used along side the mortgage to secure the purchase of a property.
The deposit can be anything from as little as 5% of the purchase price.
The source of the deposit needs to be acceptable to the lender for the mortgage to be accepted. Evidence of the deposit and its source will be collected at the early stages of the transaction.
A discounted rate is a type of interest rate offered by a lender, which is lower than the standard rate that the lender normally charges. This type of rate is typically offered for a certain period of time i.e 2, 3 or 5 years.
A mortgage lender might offer a discounted rate for the first 2 years of a mortgage, after which the rate will revert to the lender’s standard variable rate.
Dependents are individuals who rely on another person for financial support. This can include children, spouses, or other relatives who live with and are financially supported by another member of the household.
Debt consolidation is a strategy for managing multiple debts by combining them into a single loan or adding them to an existing mortgage. This can make it easier to manage and reduce payments. Common methods of debt consolidation include taking out a personal loan.
It’s important to note that taking out additional borrowing on a mortgage to repay existing unsecured debt will increase the total amount borrowed and the overall cost of the mortgage. It also might increase the length of the mortgage term.
Additionally, interest rates for additional borrowing may be higher than the original mortgage loan. Borrowers should consider all the costs and risks involved before taking out additional borrowing on their mortgage especially for debt consolidation purposes.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE
A default on a payment refers to a failure to meet the terms of a credit agreement, such as a loan or credit card agreement. This typically occurs when a borrower fails to make the required payments on time and in full. When a borrower defaults on a loan or credit card, it can result in negative consequences such as damage to the borrower’s credit score, legal action, chances of obtaining a mortgage.
Sometimes the mortgage lender will insist on the applicant using a solicitor who acts for both them and the borrower. A customer can still choose to use their own independent solicitor along side the lenders solicitor, this is what is called dual representation.
Early Repayment Charge
An early repayment charge (ERC) is a fee that some mortgage lenders charge borrowers if they pay off their mortgage before the end of the agreed term. The ERC is typically a percentage of the outstanding mortgage balance and is designed to compensate the lender for the loss of interest they would have earned if the borrower had continued to make payments over the full term of the mortgage.
Employment status is one of the factors that lenders consider when assessing an individual’s eligibility for a mortgage. Lenders typically classify borrowers into different categories based on their employment status, such as:
Employed, Self-Employed, Retired and Unemployed.
Exchange of Contracts
Exchange of contracts is the formal process of legally committing to the purchase or sale of a property. It marks the point at which the buyer and seller are legally bound to the sale and purchase of the property.
During the exchange of contracts, the buyer and seller each sign a copy of the contract, and then one copy is exchanged between the parties, usually through their solicitors. Once the contracts have been exchanged, the completion date, also known as the settlement date, is set.
Execution only is a term used in the mortgage industry to describe a type of service where a lender or broker provides a mortgage loan to a borrower without providing any advice or guidance on the suitability of the product
In an execution only mortgage, the borrower takes full responsibility for choosing the product that is right for them and for ensuring that they can afford the repayments. This type of service is generally used by borrowers who have a good understanding of the mortgage market and feel confident in their ability to make an informed decision without the need for advice.
Patrick James Solutions do not offer Execution Only mortgage advice.
An expat mortgage is a type of mortgage loan that is specifically designed for individuals who are living and working abroad, also known as expatriates. These mortgages are typically offered by international banks or specialist lenders and are tailored to meet the unique needs of expats.
Expat mortgages typically require higher credit scores and larger down payments than traditional mortgages, as the lender may consider the borrower to be a higher risk. Lenders may also require proof of income, such as a work contract or pay stubs, as well as proof of a stable job and a steady income.
In the case of a property, equity is the difference between the property’s market value and the outstanding balance of any mortgages or loans secured against the property.
For example, if a property is worth £500,000 and the outstanding balance on the mortgage is £300,000, the equity in the property is £200,000 (£500,000 – £300,000)
Equity can be used towards a deposit for a property purchase, or used to reduce the Loan to Value (LTV) if you are looking to re-mortgage.
Equity release refers to a range of financial products that allow homeowners to access the equity (the value of their property minus any outstanding mortgages) that they have built up in their homes, usually as a lump sum or a regular income, while still living in their home.
There are two main types of equity release: Lifetime Mortgage or Home Reversion.
Equity release is typically used by homeowners who are over 55 years old, have a low or no outstanding mortgage, and are looking for a way to supplement their income in retirement. It’s important to note that equity release can have significant financial implications, and it should be considered carefully before making a decision.
Equity Release/Lifetime Mortgages/Home Reversion will reduce the value of your estate and can affect your eligibility for means tested benefits.
Any requests for Equity Release/Lifetime Mortgages/Home Reversion will be on a referral only basis.
EPC (Energy Performance Certificate)
An Energy Performance Certificate (EPC) is a document that shows the energy efficiency of a building, typically a home or a commercial property. It provides information about the building’s energy consumption and carbon emissions and includes recommendations for improving the building’s energy efficiency.
The EPC is an important document for both buyers and sellers of a property, as it can provide valuable information about the property’s energy efficiency, and can help identify potential cost savings on energy bills. It also helps buyers to make an informed decision about the property they are considering to purchase.
Forces Help to Buy
The Forces Help to Buy (FHTB) scheme is a UK government initiative that aims to assist members of the British Armed Forces to purchase their own homes. The scheme provides interest-free loans of up 50% of their salary but capped to a maximum of £25,000 to service personnel who have served a minimum of twelve months. The loan is repaid over a period of up to ten years interest free direct from the salary of the person. It needs to be authorised by the person’s superior officer within their assigned Barracks, and can only be used by applicants who have never had a property (or previously had one but have since sold)
A fixed-rate mortgage is a type of mortgage loan where the interest rate on the loan remains fixed for a set period of time. The most common types of fixed rate mortgages are 2, 3, 5 and 10 years. This means the monthly payments will not change during the ‘fixed term’, no matter whether interest rates increase or decrease. The main advantage of a fixed-rate mortgage is that it provides the borrower with the stability of knowing exactly what their monthly mortgage payments will be for the entire term of the loan. This can be helpful for budgeting and planning for the future. The rat will then change to the Standard Variable Rate (SVR) after the fixed rate term comes to an end.
A flexible mortgage is a type of mortgage loan that offers the borrower more flexibility in terms of making payments and managing the loan. These types of mortgages typically offer features such as the ability to make overpayments, underpayments, or take payment holidays without incurring penalties.
Flexible mortgages can be beneficial for borrowers who need more flexibility in managing their mortgage and their finances. However, these types of mortgages can also come with higher interest rates and fees, so it’s important to carefully consider the overall cost and the features that are most important to you before choosing a flexible mortgage.
First Time Buyer
A first-time home buyer is someone who has not owned a home before. Some lenders class people as First Time Buyers if they have not owned a property within the last 3 years.
FCA (Financial Conduct Authority)
The Financial Conduct Authority (FCA) is a regulatory body that oversees financial firms and markets in the United Kingdom. The FCA’s primary goal is to protect consumers and ensure that the financial markets function in a fair and transparent way. The FCA is responsible for regulating firms that provide financial services, such as banks, insurance companies, and investment firms, as well as the products and services they offer.
A gifted deposit is a form of deposit that someone gifts the person who is wanting to buy a property. Normally, it is a close family member who gifts money towards a deposit, but some lenders are more flexible on who they will accept gifted deposits from, which can include Aunt’s, Uncle’s and even friends in certain circumstances. They are normally non-repayable.
Gross profit, also known as gross margin, is a measure of a company’s profitability that compares the revenue that a company generates with the costs of producing and selling its products or services. It is calculated by subtracting the cost of goods sold (COGS) from the company’s revenue.
It’s important to note that Gross profit should not be confused with Operating profit or Net profit, which are different measures of profitability.
A guarantor mortgage is a type of mortgage where a third party, known as a guarantor, co-signs the mortgage with the borrower. The guarantor is typically a family member or close friend of the borrower, and is responsible for making the mortgage payments if the borrower is unable to do so.
Guarantor mortgages are typically used by first-time home buyers or individuals with poor credit or low income, as they can help to overcome the challenges that these borrowers may face in obtaining a traditional mortgage.
It’s important for borrowers and guarantors to carefully consider the terms and conditions of the mortgage, and to ensure that the mortgage meets their needs and that they are aware of the risks and responsibilities involved.
Ground rent is a fee that is paid by a leaseholder to the landlord or freeholder of a property. It is usually a fixed annual fee, and is typically based on the value of the property or the length of the lease.
It is most commonly associated with leasehold properties, which are properties that are owned on a leasehold basis, rather than freehold. In a leasehold property, the leaseholder owns the property for a fixed period of time, typically between 99 and 125 years, after which the property reverts back to the landlord or freeholder. During this time, the leaseholder is responsible for paying ground rent to the landlord or freeholder, as well as any other fees associated with the property, such as service charges.
General insurance is a type of insurance that provides financial protection against a wide range of risks and losses, such as property damage, personal injury, and liability. It includes insurance products such as home, auto, business and health insurance. General insurance policies are typically purchased by individuals and organizations to protect against losses that may occur as a result of unexpected events.
Each type of general insurance has different types of coverage, deductibles and limits, also, it’s important for consumers to carefully review the terms and conditions of a policy to ensure that it meets their needs and provides the right level of protection.
It’s important to note that general insurance is different from life insurance, which provides financial protection in case of death.
Help to Buy
Help to Buy was a UK government scheme designed to help first-time buyers and existing homeowners to purchase a new-build home with a smaller deposit. Normally, you would just need 5% deposit and the UK government would then contribute 20% (or 40% if in London) towards the deposit, which you did not need to pay back within the first 5 years.
The Help to Buy scheme was intended to help more people to get on the property ladder by reducing the size of deposit required and making it easier for buyers to obtain a mortgage. The scheme was only available for new-build properties and is subject to certain price limits, which varied depending on the location of the property
As of October 2022, the UK government ceased accepting new applications for the Help to Buy scheme and there are currently no plans to re-introduce this.
Higher Lending Charge
A Higher Lending Charge (HLC) is a fee that is sometimes added to a mortgage when the loan-to-value (LTV) ratio is greater than a certain level. The LTV ratio is the amount of the mortgage compared to the value of the property.
The HLC is added to protect the lender in case the borrower defaults on the loan and the lender is unable to recover the full amount of the loan through the sale of the property.
It’s important for borrowers to carefully review the terms and conditions of a mortgage, including the HLC, before taking out the loan, to ensure that it meets their needs and that they understand the additional costs associated with the loan.
Interest Only Mortgage
An interest-only mortgage is a type of home loan in which the borrower only pays the interest on the loan over the term of the mortgage. The borrower does not pay towards the ‘capital’ of the mortgage amount, so at the end of the term, the full amount that was borrowed is then due for repayment in full.
Interest-only mortgages are more common on Buy to Let Mortgages as the criteria is extremely strict on residential mortgages, where you have to meet certain criteria.
It’s important for borrowers to carefully consider the risks and benefits of an interest-only mortgage before taking one out, and to have a plan in place for how they will pay off the remaining principal balance at the end of the interest-only period.
Illustration (Key Facts Illustration/ESIS)
An illustration, also known as a Key Facts Illustration (KFI) or European Standardized Information Sheet (ESIS), is a document that provides a summary of the key features, costs, and risks of a financial product, such as a mortgage or an insurance policy.
Illustrations are required by law to be provided to consumers by financial institutions, such as banks and insurance companies, before a product is sold to them. They are designed to help consumers understand the product they are considering and to compare it with other products on the market.
It’s important for consumers to carefully review the illustration and understand the terms and conditions of the product before making a decision to purchase.
Impaired credit or adverse credit refers to a credit history that is less than perfect, characterized by a history of late or missed payments, defaults, foreclosures, or bankruptcy.
When a person has impaired credit, it can make it more difficult and more expensive for them to obtain loans, credit cards, or other financial products. Lenders and credit providers may view them as a higher risk and may charge higher interest rates or fees, or may even decline their application altogether.
Income refers to money that is earned from various sources, such as wages, salaries, bonuses, investments, rental properties, and government benefits. Income is often used to measure a person’s financial well-being and can be used to qualify for loans, credit cards, and other financial products.
It’s important for individuals to accurately report their income when applying for loans, credit cards, and other financial products, as lenders use this information to determine a person’s ability to repay the loan.
An IVA (Individual Voluntary Arrangement) is a legal agreement between an individual and their creditors. It is a formal debt solution designed for people who are unable to repay their debts and want to avoid bankruptcy.
An IVA allows an individual to repay their debts over a period of time (usually 5 years) at an affordable rate. The individual makes a single monthly payment to the IVA supervisor, who then distributes the money to the creditors.
It is important to note that an IVA will have a negative impact on an individual’s credit score and will be recorded on their credit report for a period of 6 years.
It’s important for individuals to seek professional advice from a debt advisor or a licensed Insolvency Practitioner before entering into an IVA. They will help the individual to explore the other options available to them and help them to determine if an IVA is the right solution for their financial situation.
Independent Mortgage Advice
Independent mortgage advice is a type of mortgage advice that is not tied to any specific lender or bank. Independent mortgage advisers are not employed by any lender, and are not restricted to promoting the products of any particular lender. They have access representative of the whole of market for mortgages and can therefore provide unbiased advice to customers on the most suitable mortgage products for their individual circumstances.
It’s important for customers to seek professional independent mortgage advice when considering a mortgage, as they will provide unbiased and comprehensive advice that will help the customer to make an informed decision that’s right for them.
Interest is the cost of borrowing money from a lender to purchase a property. It is the fee charged by the lender for the use of their money and is typically expressed as a percentage of the loan amount. The interest rate on a mortgage can be fixed or adjustable, and is a key factor in determining the monthly mortgage payment and the overall cost of the loan. The interest rate is the main factor that determines how much the borrower will pay each month and overall the total cost of the loan.
Joint Borrower – Sole Proprietor
A Joint Borrower Sole Proprietor (JBSP) mortgage is a type of mortgage in which two or more individuals apply for a mortgage loan together, but only one of the individuals is responsible for repaying the loan. This individual is known as the sole proprietor, while the others are referred to as joint borrowers. It can be seen as similar to a Guarantor Mortgage.
It’s important to note that JBSP mortgages can have implications for the joint borrowers in terms of their credit score, as their name will appear on the mortgage agreement. It’s also important to have a clear understanding of the responsibilities and obligations of each party before entering into a JBSP mortgage agreement.
Key Features Illustration
A key features illustration is a document outlining essential details of a home loan, including interest rates, loan term, repayment structure, and associated fees. It provides borrowers with a comprehensive overview, aiding in informed decision-making by highlighting key features and terms associated with the mortgage agreement.
Loan to Value
Loan to Value (LTV) is a ratio that represents the amount of a mortgage loan compared to the value of the property that is being purchased or refinanced. The LTV ratio is expressed as a percentage, and is calculated by dividing the mortgage loan amount by the value of the property. The higher the LTV, the higher the interest rate is on the mortgage.
Leasehold is a type of ownership in which a person holds the right to occupy and use a property for a specified period of time, as outlined in a lease agreement with the property’s owner or landlord. The leaseholder is responsible for paying rent or a ground rent to the landlord, and may also be responsible for maintaining the property and paying for any necessary repairs. Leasehold is mostly associated with Flats/Apartments however some houses are also classed as Leasehold too.
A letting agent, also known as a rental agent, is a professional who acts as an intermediary between landlords and tenants. The primary role of a letting agent is to help landlords rent out their properties, and to assist tenants in finding and securing a rental property that meets their needs. They can be as part of an Estate Agent or sometimes as a separate company.
Letting agents provide a range of services, including advertising rental properties, conducting viewings, negotiating rental agreements, and collecting rent on behalf of the landlord. They may also assist with property maintenance, handle tenant inquiries and complaints, and resolve disputes between landlords and tenants.
Let to Buy
Let to Buy is a type of mortgage that allows homeowners to rent out their existing property while they purchase a new one. This strategy is often used when homeowners need to move to a new property, but do not want to sell their existing property or are unable to sell it due to market conditions.
It’s important to carefully consider the financial implications of Let to Buy, as well as the responsibilities associated with being a landlord, before making a decision.
Some Let to Buy Mortgages are not regulated by the Financial Conduct Authority.
LIBOR (London Inter-Bank Offered Rate)
LIBOR, or London Inter-Bank Offered Rate, is a benchmark interest rate used as a reference for financial products worldwide. It represents the average interest rate at which banks can lend money to each other.
Lending into Retirement
Lending into retirement refers to the practice of taking out a loan or mortgage during retirement. This can occur if a person does not have sufficient savings or pension income to cover their expenses in retirement. Lenders may require a certain level of income or assets to secure the loan and may also consider the borrower’s age and life expectancy. It is important for retirees to carefully consider the terms and conditions of any loan and the potential impact on their financial security in later life. It may also be advisable to seek financial advice before making any major financial decisions during retirement.
The Land Registry is a government agency responsible for maintaining a public register of information on all registered land and property. The registry contains information on ownership, boundaries, and any rights and restrictions affecting each property. This information is used by solicitors, conveyancers, and other professionals involved in property transactions, as well as by individuals and businesses who require evidence of ownership or other information about a property.
Loan to Income
Loan-to-income (LTI) is used by lenders in England to assess a borrower’s ability to repay a loan. It is calculated as the ratio of the loan amount to the borrower’s gross annual income. The loan-to-income ratio helps lenders determine whether a borrower has enough income to meet their loan obligations, taking into account their other living expenses.
Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme is a government-backed scheme designed to increase the availability of mortgages for borrowers with smaller deposits. The scheme works by providing mortgage lenders with a guarantee that covers a portion of the losses they may incur if a borrower defaults on their mortgage. This reduces the risk for the lender and allows them to offer mortgages to borrowers with smaller deposits who may not have met their lending criteria otherwise.
Maternity leave can have an impact on a person’s ability to get a mortgage or keep up with mortgage payments. During maternity leave, a person may experience a reduction in their income, which could make it harder to qualify for a mortgage or to make mortgage payments. Lenders may take into account a person’s expected return to work date and the amount of income they are expected to receive when assessing their mortgage application.
A mortgage adviser is a professional who provides advice and guidance on mortgage products and options. They help individuals and families find the most suitable mortgage product to meet their specific needs and circumstances. Mortgage advisers have access to a wide range of mortgage products from different lenders and can compare the features and benefits of each product to help clients make an informed decision. They also assist with the mortgage application process, including filling out forms, submitting documents, and communicating with the lender on the client’s behalf.
A monthly repayment on a mortgage is a payment made by the borrower to the lender to repay the loan. The monthly repayment consists of two parts: the interest, which is a charge for borrowing the money, and the capital, which reduces the outstanding balance of the loan. The amount of the monthly repayment depends on the amount of the loan, the interest rate, and the loan term.
New build properties in the UK are newly constructed homes that have never been lived in before. They are often built by developers or contractors and can range from small apartments to large family homes. They are typically modern, energy-efficient and come with a warranty from the builder.
Net profit is the amount of money a business earns after deducting all expenses, including the cost of goods sold, operating expenses, taxes, and interest. It represents the true profitability of a business and indicates the residual amount of income that can be used to reinvest in the business, pay dividends to shareholders, or pay down debt. Simply put, net profit is the final amount of money a business has left over after all expenses have been paid.
Negative equity occurs when the value of a property is less than the amount still owed on its mortgage. This means that if the property were to be sold, the homeowner would have to pay the difference out of pocket.
An offset mortgage is a type of home loan in which the borrower has the option to offset their savings against the mortgage debt. This reduces the interest payable on the mortgage, as interest is only charged on the net mortgage amount.
Making overpayments on a mortgage means paying more than the required monthly payment. This can help reduce the overall interest paid on the loan and shorten the loan term. There is normally a cap on the amount you can overpay each year without incurring early repayment charges (ERC’s).
Open Banking is a regulatory framework that allows customers to securely share their banking data with third-party providers, such as banks.
An offer on a property is a prospective buyer’s bid to purchase a property at a specific price and under specific terms. When a buyer makes an offer, they typically submit it to the seller or the seller’s estate agent who then present it to the sellers, in which they choose to accept, decline or ‘counter-offer’.
Mortgage porting refers to the process of transferring an existing mortgage from one property to another. This allows homebuyers to take their mortgage with them when they move, and also ‘top-up’ the mortgage if the property is more expensive which requires a higher loan amount than the current mortgage is at.
Property types refer to the classification of property based on their use, construction, and location. Some common types of properties include Residential, Commercial and Industrial.
A pension is a long-term savings plan designed to provide a steady income stream during retirement. Contributions are made over the course of a person’s working life, and the funds are invested to grow over time. Upon retirement, the pension funds can be used to purchase an annuity or taken as a lump sum. There are now more options with Pension Freedoms.
A probationary period is a set period of time at the beginning of a new job during which an employee’s performance and conduct are evaluated to determine their suitability for the role. The length of a probationary period can vary, but is typically between three and six months.
Portfolio landlords are individuals or organizations that own multiple rental properties as part of their investment portfolio. Portfolio landlords are normally classed as this when they have 4 or more Buy to Let properties.
A payment holiday is a temporary break from making mortgage or loan payments, granted by a lender to help a borrower deal with financial difficulties. A payment holiday allows the borrower to reduce or defer their mortgage payments for a specified period of time, usually up to several months, without incurring penalties or additional interest charges. However, the missed payments will typically be added to the end of the loan term, which could result in higher overall interest costs.
A procurement fee, or more commonly known as commission, is an amount a lender will pay the introducer for recommending clients to take our a mortgage with them. The fee is only paid out once a mortgage completes. The full amount is always clearly details within the Key Facts Illustration or ESIS document prior to any application being submitted.
A mortgage qualifier assesses an individual’s financial eligibility for a home loan. It considers factors such as income, credit score, and debt-to-income ratio to determine the maximum loan amount a borrower can secure. Meeting specific criteria ensures the applicant’s ability to manage mortgage payments and demonstrates creditworthiness to lenders.
Right to Buy
The Right to Buy is a UK government policy that allows eligible tenants of public sector housing, such as council and housing association properties, to purchase their homes at a discounted price.
A redemption figure is the total amount owed on a mortgage at a given time, including any outstanding interest and fees. This figure is used to calculate the balance of the mortgage that must be paid in full to redeem the mortgage and become the owner of the property outright.
A rate switch, or product transfer, is a change from one interest rate to another with the same lender. This normally takes place when the customer’s current fixed rate comes to an end. You would either switch to a new rate that the lender is offering to you, or you would go onto the variable rate which is set by the lenders and the Bank of England Base Rate.
Rental income refers to the earnings received by an individual or company from renting out a property or properties. This can include residential or commercial properties, and the income earned can be subject to taxation by the government. Rental income is typically calculated by subtracting any allowable expenses from the total amount of rent received.
A remortgage is the process of switching from one mortgage lender to another, or renegotiating the terms of an existing mortgage with the same lender. The purpose of a remortgage is usually to secure a better interest rate, lower monthly payments, or release equity from the property. Homeowners may choose to remortgage when their existing mortgage deal comes to an end or when they want to take advantage of lower interest rates. A remortgage involves taking out a new mortgage, which may involve fees and charges, and should be carefully considered before making a decision.
A repayment vehicle is a strategy or financial product used to build up funds to repay a mortgage or loan at the end of its term. The purpose of a repayment vehicle is to ensure that the borrower has sufficient funds to pay off the debt in full, typically through a lump sum payment. Common types of repayment vehicles include investments such as stocks, shares, and ISAs, as well as savings accounts and pensions. The suitability of a particular repayment vehicle will depend on factors such as the borrower’s age, financial situation, and risk appetite, and should be carefully considered with the help of a financial advisor.
Reversion Rate is a term where the interest rate charged at the end of a fixed or discounted period reverts to the lender’s standard variable rate (SVR). The SVR is the interest rate set by the lender and can fluctuate with market conditions.
Ratings refer to an evaluation of a borrower’s creditworthiness and ability to repay a mortgage. Mortgage ratings are typically assigned by credit rating agencies, which assess factors such as the borrower’s credit history, income, employment status, and existing debt. The higher your score, the better the products are available to you.
Solicitors are legal professionals who provide legal advice, draft legal documents, and represent clients in court. They are regulated by professional bodies and usually specialize in specific areas of law.
Searches refer to the process of investigating the legal status of a property before its sale or purchase. This includes searches of local authority records, such as planning permissions and environmental concerns, as well as other relevant documents, such as title deeds and leases.
A mortgage survey is a type of property survey that is typically required by a lender before approving a mortgage. The survey assesses the condition of the property and identifies any significant defects or issues that could affect its value. There are different types of mortgage surveys, ranging from basic property valuation to more detailed reports that provide a more comprehensive assessment of the property’s condition.
A secured loan is a type of loan that is secured against an asset, such as a property or a car. The asset is used as collateral to provide security to the lender in case the borrower is unable to repay the loan. If the borrower defaults on the loan, the lender may have the right to repossess and sell the asset to recover the outstanding debt. Always seek professional advice before taking out secured debt against your property.
Secured Loans/Second Charge mortgages are by referral only.
Self-build refers to the process of building a home or other building by an individual or group, rather than using a developer or construction company. It can involve managing the entire project from start to finish, including planning, design, and construction.
Shared ownership is a scheme that allows people to purchase a share of a property (usually between 10-75%) and pay rent on the remaining share owned by a housing association or other entity. The buyer can then purchase additional shares over time, a process known as “staircasing,” until they own the entire property.
Stamp Duty is a tax on property purchases. The amount paid depends on the value of the property and whether the buyer is a first-time buyer or not. The tax is paid to the government and is usually arranged by the buyer’s solicitor or conveyancer.
Subcontractors are individuals or companies that are hired by a contractor to perform a specific task or project as part of a larger construction or service project. They are responsible for their own equipment, materials, and employees, and are paid by the contractor for their work.
A second home is a property that is owned in addition to a primary residence. It can be used as a vacation home or a rental property, and may be located in a different region or country. Owning a second home may be subject to additional taxes and regulations.
Standard Variable Rate
A Standard Variable Rate (SVR) is an interest rate set by a lender that can fluctuate over time based on market conditions. Borrowers on an SVR mortgage can benefit from lower rates but are also at risk of increased interest rates, resulting in higher monthly payments.
Shortfall refers to a situation where there is not enough money to cover a particular expense or debt. It is often used in the context of a mortgage, where the amount of the mortgage is greater than the value of the property, resulting in a shortfall if the property is sold.
A tracker mortgage is a type of mortgage where the interest rate is linked to the Bank of England’s base rate, and will move up or down in line with any changes to the base rate.
A tie-in period (also known as a lock-in period) is a specific period of time during which a borrower is unable to remortgage or switch to a different mortgage deal without incurring an early repayment charge. This is normally the same length at what your ‘fixed’ term is for.
Tenure refers to the legal status that a person has in relation to their home. It determines their rights and responsibilities as a homeowner, such as the right to sell or rent the property, and may be freehold, leasehold, or other types of ownership.
A mortgage term is the length of time over which a mortgage is repaid. It is normally set between 5-40 years, depending on the type of mortgage and the borrower’s preferences. The mortgage term is agreed upon at the outset of the mortgage and may be influenced by factors such as the borrower’s age, income, and financial goals.
Universal Credit is a government benefit designed to support people who are on a low income or out of work. It is a single payment that replaced six benefits, including Jobseeker’s Allowance and Housing Benefit, and is means-tested based on an individual’s income and circumstances.
Unsecured debt refers to any type of debt that is not secured against an asset, such as a home or a car. This includes credit cards, personal loans, and overdrafts. In the event of default, the lender cannot seize any assets to recover the debt, and may take legal action to recover the amount owed.
Underpayment refers to a situation where a person or organisation has not paid the correct amount under the terms of the contract. Underpayments may be the result of errors or deliberate non-payment.
An underwriter is a person at a lender who assesses risk and makes decisions on whether to accept or reject mortgages, insurance policies, loans, or other financial products. They evaluate a range of factors such as creditworthiness, financial stability, and the likelihood of claims, and determine the terms and conditions of the product being offered.
A mortgage valuation is an assessment of the value of a property that is being bought or re-mortgaged. The valuation is typically carried out by a surveyor who is appointed by the lender, and it aims to provide an estimate of the property’s current market value.
Variable Rate Mortgage
A variable rate mortgage is a type of mortgage loan where the interest rate charged can fluctuate over the term of the loan, usually in line with the lender’s standard variable rate. The interest rate can go up or down, which means that the borrower’s monthly payments may also change.
A mortgage warranty is a legally binding assurance provided by the seller or builder to the buyer, guaranteeing the condition of the property. It pledges that specific aspects, such as structural elements or systems, meet certain standards. If issues arise within the warranty period, the seller commits to addressing or rectifying them.
X times salary
Various lenders employ distinct income multipliers, yet a general guideline for individual applicants is approximately 4 to 4.5 times their income. In the case of a joint mortgage application, lenders might apply an alternative multiplier, ranging from 3.5 to 4 times the combined income of the applicants.
Yearly Repayment Calculator
A yearly repayment calculator is a financial tool that estimates the annual repayment amount for a home loan. It factors in variables such as loan amount, interest rate, and loan term, helping borrowers anticipate and plan for their yearly mortgage payments to manage their financial commitments effectively.
Zero Hours Contract
A zero hours contract is a type of employment contract where the employer does not guarantee any set amount of hours to the employee. The employee is paid only for the hours they work and has no minimum hours or regular working pattern.