The language of the property industry is filled with acronyms and terms that both seasoned property owners and first time buyers may not be familiar with. With new government schemes and lender promotions the vernacular often changes, with this guide we focus on mortgage jargon and aim to keep our clients up to date with the current terminology.
Arrangement Fee
A set-up fee. Most
lenders will allow customers to add this fee to the loan, but the customer will
pay interest on it for the whole term.
Arrears
This means a borrower has
‘defaulted’ at least once on their mortgage repayments, ie you have missed a
month’s payment.
Capped rate
If a mortgage deal has a
capped rate, the interest rate charged will never exceed the upper ‘capped’
limit, regardless of increases to the Bank of England base rate.
Cashback mortgage
The lender gives the
borrower an amount of cash on completion. The cashback should be factored this
into the total cost of your mortgage over the contract term to decide whether
it’s a good deal.
County Court Judgement (CCJ)
These are made against a
person for non-payment of debt, and could make it harder to get a mortgage.
Collar
If a mortgage deal has a
collar, the interest rate will not fall any lower than the specified amount.
e.g. if rates drop to 3% and your deal is collared at 4%, you’ll miss out.
Current account mortgage
A mortgage, credit card
and loan debts and your current and savings account balances are combined into
one. The credit balances offset the debts, so you interest is paid on the
difference.
Discounted-rate mortgage
The interest rate charged
is a set amount less than the mortgage lender’s standard variable rate (SVR).
e.g., if the lender has an SVR of 5.5% and the discount is 1%, you will pay
4.5%.
Equity release scheme
Allows older homeowners
to release cash tied up in their property. There are two types: lifetime
mortgages & home-reversion. They should only be taken out after getting independent
advice.
Fixed-rate mortgage
The mortgage interest
rate stays the same for the initial period of the deal, can be from 1 to 10
years. Customers will know exactly what they will be paying out every month, the
rate won’t change with the Bank of England base rate.
Flexible mortgage
Allows the customer to
overpay, underpay or even take a payment holiday from your mortgage. This can
help pay off your mortgage early and save money on interest, but flexible
mortgages are usually more expensive than conventional ones.
Freehold (v Leasehold)
Freehold
means a person owns the building and the land it stands on. Leasehold
means a person owns the building or part of the building (flat) but not the
land it stands on for a certain period of time.
Guarantor Mortgage
A home loan where a
family member takes on some of the risk by acting as a guarantor. This may
involve offering their home or savings as security against the loan, and
agreeing to cover the mortgage payments if the homeowner defaults.
Help to buy Isa
A tax-free savings
account, the government pays first time buyers a cash bonus towards the
purchase of a property. For every £200 saved, the government will deposit an
additional £50, up to a maximum of £3000.
Interest-only mortgage
Customers only pay the
interest on your mortgage each month, without repaying any of the capital loan.
The idea is that you build up enough money to be able to pay off the mortgage
at the end of the term in other ways.
Joint mortgage
A mortgage taken out by
two or more people. This might be used if you buy a house with a partner or friend,
and can also be used by parents who want to help their children buy a property.
Land Registry
The
official body responsible for maintaining details of property ownership.
Leasehold (v Freehold)
Leasehold
means a person owns the building or part of the building (flat) but not the
land it stands on for a certain period of time. Freehold means a person owns the building and the land it
stands on.
Mortgage term
The
amount of time someone takes out the mortgage out for e.g. 25 years.
Negative equity
When the value of a property falls to a level that is below the amount remaining on the
mortgage.
Offset mortgage
An offset mortgage links the
mortgage with savings and, sometimes, a current account. The credit balances
are offset against the mortgage debt so interest is only paid on the
difference, while also paying off the capital.
Peppercorn rent
A nominal amount of rent e.g. a peppercorn. In
order to enforce the terms of a lease a ground rent must be set, but in the
past many leases had tiny ground rents so in some cases freeholders stipulated
that the rent should be a peppercorn to save them the trouble of collecting the
money.
Rebuild cost
For insurance purposes this is the cost
of rebuilding a property if it is destroyed.
Borrowers will be required by a lender to
have buildings insurance.
Repayment vehicle
Required by lenders with an interest-only mortgage, the means by which the borrower intends to pay
off the mortgage debt at the end of the term – e.g. another property, or stocks & shares portfolio.
Right to Buy scheme
Originally intended to
enable tenants of council houses to buy the homes they lived in, this is now
being opened up to housing association tenants too.
Service charge
The fee paid to a managing agent for the ongoing maintenance of a leasehold property.
Shared ownership
The buyer purchases a share
of a property (usually between 25% and 75%) and pays rent on the remaining
share, which is owned by the local housing association.
Stamp duty
Stamp duty land tax is
payable when purchasing a property
for more than £125,000 (or £40,000 if it’s a buy-to-let property or second
home). You can calculate stamp duty by following this link
https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax//intro
Standard variable rate (SVR)
The default mortgage interest rate that a lender will charge after the initial mortgage
deal period ends. This could be higher or lower than the original rate.
Tie-in period
This is the period during
which a borrower is ‘locked in’ to a mortgage deal. To leave the mortgage
during this period the borrower will have to pay an early repayment charge.
Tracker mortgage
The interest rate on a mortgage
tracks the Bank of England base rate at a
set margin above or below it.
Valuation survey
Lenders carry out a
valuation survey to check whether the property is worth roughly the amount being
paid. Buyers should have an additional survey done too, to check for structural
problems.
Variable rate mortgage
The interest rate on a variable rate mortgage can go up or down according
to your lender’s standard variable rate
We have attempted to be as comprehensive as
possible with this guide, however if you couldn’t find a mortgage term
definition please do get in touch and we will help. Limetreefs.co.uk/contact or
email admin@limetreefs.co.uk
