There is lots of useful information in our article and case study sections. Built up over many years we share new developments in lending attitude and also client case studies for the more difficult holiday lets!
Annual Percentage Rate Charge. Calculated by the lender and shown on your mortgage illustration and mortgage offer, this is intended to enable a borrower to compare the overall cost of a loan.
Agreement in Principle
This term means different things, depending on where you get one from! Most lenders simply carry out a credit search, possibly credit score and then issue a letter stating that they would be prepared to lend an amount subject to security and documentary proof of income etc. They are mainly issued for residential mortgage applicants, very few Buy to Let or Holiday Let lenders issue them.
This is a term used by lenders to describe an applicant for a mortgage or loan that has some degree of poor credit history. It could be anything from a missed or late credit card payment, to a bankruptcy. Different lenders take different views on adverse credit. Some will refuse to lend to anyone who has missed any sort of payment, whilst others may be more lenient in their view.
Lenders quite often charge a fee to set up the mortgage account for borrowers. Most charge this fee when the loan completes but it will be shown on both your mortgage illustration and the offer. The majority of lenders allow the fee to be added to the loan, but you can pay it as a single payment direct to the lender. By adding the fee to the loan, you will be increasing your debt to the lender thus increasing your loan to value (LTV). See below for ltv
If someone is in “mortgage arrears” this means that they have failed to meet their contractual obligations in relation to their loan; in simple terms they have not made their monthly mortgage payment for 1 month or more. The lender has specific procedures to follow when dealing with borrowers who fall into arrears. Ultimately, falling into arrears may cost you your home if you do not take action to make them up. You should contact your lender immediately if you have trouble paying your mortgage.
This is the fee that most Mortgage Brokers will charge for sourcing the most appropriate mortgage for you and then processing your application with all that entails. Your Broker will tell you how much they will charge you at your initial meeting.
Buy to let Mortgage:
A Buy to Let Mortgage loan is one used to purchase residential property for the purpose of investment, rather than occupation, i.e a property you intend to let out for others to live in rather than live in it yourself. Usually it is a condition of the mortgage that the property is let on an assured shorthold tenancy (AST), which makes it unsuitable for a holiday let property. Many lenders who lend on holiday let properties use a variant of their Buy to Let mortgage for that purpose but this does not mean that every Buy to Let lender will lend on a Holiday Let property – in fact the majority will not.
The Bank of England Base Rate (BBR) is set by the Bank of England (BOE) Monetary Policy Committee and is reviewed every month. The rate is used to control money flow in the economy and can move up or down. Currently the BBR is at an historic low and will increase at some point in the future. It is likely that a tracker product rate will be linked to BBR. This means that the interest rate charged on your mortgage will increase or decrease in line with changes in BBR. A discount rate is not usually linked to BBR but is likely to change if the lender decides to change their Standard Reversion Rate following a change in BBR. A fixed rate is not affected by changes in BBR during the fixed period.
A very extensive and expensive survey carried out by a Chartered surveyor, a RICS member, looking at the physical structure of the property. It goes far in excess of the usual requirements of the lender and will include assessments of any faults in the property and what needs to be done to put them right. It does not include a valuation.
Capital and Interest Mortgage:
This is also known as a Repayment Mortgage. The monthly payments on this type of mortgage will consist of part capital and part interest. Most of the payment will be interest in the early years, with the position being reversed in the later years. Providing all contractual payments are made, the loan will be repaid by the end of its term. Most residential mortgage lenders will insist on lending to you on a repayment basis, unless you can show a very strong case why they should not.
Capped Rate Mortgage:
This is a variable mortgage product, either a tracker or discount rate, which has a maximum ceiling interest rate. The maximum rate chargeable will be shown on your mortgage offer. These are not very common in the current market. You are, however, likely to see what are known as collared rate mortgages, particularly if you have a tracker type product. Your documents will state that the interest rate you pay will never be lower than a specific minimum rate, no matter how low the BBR goes.
A County Court Judgement is a ruling of bad debt issued by a Court and registered on a debtor credit file. Anyone to whom you owe money can apply to have a CCJ registered against you, usually where no attempt to repay the debt has been made. It will be visible to the lender when they do their credit searches. A mortgage applicant with a CCJ registered against them would be classed as “adverse” and their options for borrowing may be limited.
Some lenders offer a cash sum which is paid on completion. These days such sums are usually quite small, around £250.
This is the expression used to describe the final stage of purchasing a property or of remortgaging a loan on a property, when the monies are paid in full and, in the case of purchase, ownership is transferred to the purchaser.
Legal process of buying, selling or transferring a property. Free conveyancing may be offered as part of a residential remortgage product; it is seldom offered on a Buy to Let mortgage or on any purchase. You will need to ‘instruct’ solicitors to ‘act for you’, that is ask a firm of solicitors if they will do your conveyancing. They will liaise with your broker and the lender and ultimately are responsible for making sure that the mortgage completes.
This is a search of your credit file carried out by a lender to establish suitability for credit. Credit files are held by Licensed Credit Reference Agencies and information must be held in accordance with the Data protection Act. When the lender does a credit search they are able to see not only what credit agreements you have but also whether you have made each payment and on time. It is the credit search that will reveal any CCJs registered against you. Not to be confused with credit score; see below.
Lenders use a scoring method based on points attributed to various pieces of information provided by an applicant and credit reference agencies. Each lender has its own score that has to be satisfied in order to qualify for the loan. Do not assume that because a Credit Reference agency says you have an excellent score, that a lender will share that opinion. The reverse is also true.
Debt Consolidation Mortgage:
This is a mortgage that is used to consolidate many loans into one. Usually used for adding credit card and personal loan debt to your mortgage and then repaying the credit card/loan from the additional mortgage funds. Whilst this will reduce your monthly outgoings, given the longer term of the mortgage, it is likely that the overall cost of borrowing will be more than if you had retained the debt on the card and repaid it that way. Some Holiday Let lenders will not allow debt consolidation as a reason for borrowing.
This is a type of secondary security sometimes used when Limited Companies borrow money.
A Debenture places a charge on assets owned by the company as additional security for a Mortgage loan. It would only be used if necessary if the company was trading (rather than an SPV).
Decision in Principle:
See AIP above.
Discounted Rate Mortgage:
A form of variable rate. The lender guarantees the rate you pay will be a specific percentage below the rate they would normally charge as standard for a period of time. Usually it is a discount from the lender’s Standard Variable Rate (SVR). The rate you pay will change in line with changes in the standard rate. See below for SVR
This term is applied to credit agreements where the borrower fails to keep to the contractual payment arrangement. It is registered on a borrower’s credit file and would be classed as adverse credit. It is not a late payment, it is a failure to pay and will show up in a credit search.
An Early Repayment Charge is a charge you have to pay the lender, if you repay the whole or part of your mortgage within a stated period. If you take out a 5 year fixed rate mortgage with a lender, they will expect to make a profit on that money and will use the 5 year period to calculate their expected profit. If you repay your money early, they will not make the return they had expected and so will apply an early repayment charge to make up the difference. You will find details of the early repayment charges in both percentage and monetary terms on your mortgage offer.
Is the amount of value left in a property, after any secured liabilities, e.g. mortgages, further advances and 2nd charge loans, are redeemed (paid off).
Mortgages are secured by way of a legal charge on a property and a first charge ranks ahead of subsequent Mortgagees charges in terms of priority. In practice it means that your main mortgage lender has first call on any money raised from the sale of the property. Everybody else, including you, ranks behind them.
Fixed Rate Mortgage:
A mortgage product where the interest rate charged is set when you take out the loan and is guaranteed not to change for a specified period.
Furnished Holiday Let
The highest form of ownership in the UK (in theory the Crown owns all of the land). The freeholder owns both the property and the land that it stands on. In England, houses are usually freehold with flats being mostly leasehold. Lenders are not usually keen on lending on English freehold flats, unless it is a leasehold flat with share of freehold. In Scotland most flats are freehold
House in Multiple Occupation. In theory there is a definition of what constitutes an HMO, however Local Authorities can decide what is and what is not an HMO. Letting to at least three tenants who form more than one household and share facilities is one definition. You are likely to need a licence issued by the local authority if you let a property as a HMO. They will inspect the property and supply you with a list of criteria that need to be met before a licence will be granted. The criteria can vary between local authorities and you will be charged for the licence.
Interest Only Mortgage:
This type of mortgage set up allows payment of interest only on the loan, meaning that the capital sum, the amount you borrowed at the start of the loan, is not being repaid and will have to be repaid at the end of the term as a lump sum. Most lenders have very strict requirements for interest only lending on residential mortgages, preferring to lend on a repayment basis.
Also known as a Term of years Absolute. Flats are usually leasehold in England. The leaseholder owns the property for a term of years, but not the land. Once the lease has expired, ownership reverts to the freeholder. Lenders will want to know how many years remain on the lease of a leasehold property before lending and if they decide there are not enough will decline to lend. Usually they will want to see at least 50 years remaining on a lease. It is possible to extend a lease but there is a cost involved and this will increase as the years left on the lease decrease.
Loan to Value is the loan size calculated as a percentage of the property value. Most lenders use this percentage as part of their product pricing, charging a higher rate of interest as the loan to value increases. For example, you may initially apply for a product that will lend up to a loan to value of 75% and find that your property is not worth what you thought and that your loan to value has increased to 77%. This will mean either changing product (potentially paying a higher rate of interest) or reducing the loan so that it falls back to 75% (in the case of purchase this will mean you pay more deposit).
The London InterBank Offered Rate is the interest rate at which Banks borrow and lend money to each other. This rate is sometimes used for tracker mortgage products.
Multi-Unit Freehold Block
A multi-unit freehold block, is a situation where there are multiple, self- contained units, on a single freehold title. An example would be a house, converted into flats, with no individual leases.
Multi-Unit Freehold Complex
This term is often used in relation to holiday complexes, where there are several buildings on one legal freehold title. An example would be a barn conversion complex, often restricted to holiday let use only.
Mundic can be found in some properties in Cornwall and Devon. It was used in the making of concrete and can cause serious structural problems for properties. A valuer will always report to the lender if he believes a property is constructed using Mundic and it is likely the lender will ask you to obtain a specialist report assessing the construction and condition of the concrete. Some lenders will not lend on this type of property.
This occurs when the value of the property is less than the outstanding value of any mortgages secured on it.
A Personal Guarantee (PG) is an undertaking by an individual, usually a director or shareholder of a company, to accept liability for a debt should the company become unable to keep up repayments. The person issuing the PG then becomes responsible for making the payments until the debt is repaid. Most buy to let lenders insist upon personal guarantees from the directors when lending to corporate vehicles (SPVs, trading limited companies, LLPs, etc.)
The lender will allow the borrower to transfer an existing mortgage product to a new property, subject to both borrower and property meeting its lending criteria at the time of the request. It is a way of holding on to a good product or avoiding ERCs. It is however a new mortgage and is fully underwritten.
See Capital and Interest Mortgage
Replacing one loan with another from a different lender. It can be for the same amount or an increased amount. Raising money on an unencumbered property is also a re-mortgage. The most common use for a re-mortgage is to take advantage of a lower interest rate.
This is the interest rate that you will pay on your mortgage once any special product rate period has expired.
The lender will offer the amount you have asked to borrow but will hold back all or part of the loan until you have met certain specific conditions that will be clearly stated in your offer. Your solicitor will have to confirm these have been met before the lender will release the funds offered in full. Usually this occurs where a property is in need of substantial repairs and the lender wants to ensure that they are carried out.
Used by a secured lender to enforce its right to take the property sell or rent it out to cover its costs if the borrowers fails to make repayments or breaches the mortgage agreement in some way. The lender will follow its internal procedure for dealing with the breach and if this does not bring a satisfactory result can apply to the court for a Possession Order – repossession. It is an act of last resort and does not discharge you from your responsibility for the debt. If the sales proceeds do not cover the balance outstanding on your mortgage with the lender, they can pursue you for the difference.
Section 106 agreement:
A Local Authority will often use a Section 106 planning restriction when they want to control how and possibly when a property can be used.
These are carried out by a solicitor when purchasing or re- mortgaging a property. The searches are to protect you and the lender from matters that may materially affect the security e.g. planning applications at the Local Authority.
Often used as a vehicle to purchase BTL property, a Special Purpose Vehicle is a non-trading company that exists with a sole purpose. In the case of use for buy to let property ownership, the SIC code must reflect the intended use.
Stamp Duty Land Tax (SDLT) is a tax paid when a property is purchased or transferred for monetary consideration.
See adverse above
Lenders set their own Standard Variable Rate and the rate that they charge depends on many factors, not least how much business they want to attract.
Tracker Mortgage Product:
This is a mortgage that tracks a rate such as the Bank of England Base Rate or LIBOR at a percentage over or under for a specified term. The rate will change in line with changes in the BBR, usually in the month following the change to the rate it tracks.
The majority of Land these days is registered at the Land Registry, so you are unlikely to ever receive paper bundles of ‘Title Deeds’ as was formerly the case. At its most basic The Title Deed confirms the property itself exists, ownership of the property and anyone who has lent money against the property, such as the mortgage lender. You can obtain copies from the Land Registry for a small fee.
A property is said to be unencumbered if there are no loans secured against it.
Any interest rate that is not fixed is variable.
This is generally instructed by the lender for the lender. As the name implies it provides the lender with an estimate as to the market value of a property at that particular moment in time and brief details of the property being mortgaged. It will also draw the lenders attention to any issues that may adversely affect that value. The lender is then likely to ask the purchaser for further information, usually reports from specialist contractors, before deciding whether they will lend on the property.
It gives the applicant no protection at all and should not be viewed as a comprehensive report on the structure.
This list is intended as a guide only and is not an exhaustive list of all the aspects of a mortgage.
Please contact us if you have a question which is not listed here.