Common Terms Used in the UK Mortgage, Equity Release and Bridging Loan Industry
A
Agreement in Principle (AIP): A document from a lender confirming that they would lend you a specified amount, subject to final checks. This is often used to show estate agents that you’re a serious buyer.
Annual Percentage Rate (APR): The total cost of a mortgage, including the interest rate and fees, expressed as a yearly percentage. This gives a clearer picture of the overall cost of borrowing.
Arrangement Fee: A one-time fee charged by a lender for setting up a mortgage. This fee covers the administrative costs of processing the mortgage application and securing the loan. Arrangement fees can vary depending on the lender and the mortgage product, and they may either be paid upfront or added to the total loan amount. If added to the loan, interest will be charged on the fee over the mortgage term.
Arrears: Payments that are overdue on your mortgage or loan. Falling into arrears can impact your credit rating and result in repossession if not managed.
B
Base Rate: The interest rate set by the Bank of England, which influences the rates lenders charge on loans and mortgages.
Bridging Loan: A short-term loan designed to ‘bridge the gap’ between buying a new property and selling an existing one. Bridging loans are also used for property renovations or investment opportunities.
Broker: A professional who advises clients on the best mortgage, equity release, or loan products. They have access to a range of lenders and can often find better deals than going directly to a lender.
Buy-to-Let Mortgage: A mortgage designed for individuals looking to purchase property to rent it out. The mortgage is often based on the projected rental income rather than the borrower’s personal income.
C
Capital and Interest Mortgage: Also known as a repayment mortgage, this involves paying off both the capital (the amount borrowed) and the interest each month. By the end of the term, the entire mortgage is paid off.
Commercial Mortgage: A mortgage for purchasing, refinancing, or developing a property for commercial use. This includes office buildings, shops, warehouses, or mixed-use properties.
Completion: The final stage in the property-buying process, where the legal transfer of ownership happens and the funds are released to the seller.
Credit Score: A numerical representation of an individual’s creditworthiness, based on their financial history. Lenders use credit scores to assess the risk of lending money. In the UK, credit scores are compiled by credit reference agencies like Experian, Equifax, and TransUnion. Scores are influenced by factors such as payment history, outstanding debts, length of credit history, and types of credit used. A higher credit score generally improves the chances of being approved for a mortgage and securing a more favourable interest rate.
D
Deposit: The upfront amount a buyer pays towards the purchase of a property. Lenders usually require a minimum deposit of 5-25% of the property’s value.
Discounted Rate Mortgage: A mortgage that offers a discount on the lender’s standard variable rate (SVR) for an initial period, after which it reverts to the SVR.
E
Early Repayment Charge (ERC): A fee charged by a lender if you pay off your mortgage early, typically during a fixed or discounted rate period.
Equity: The portion of your property that you own outright, calculated as the market value of your property minus the outstanding mortgage.
Equity Release: A financial product that allows homeowners aged 55 and over to access the equity tied up in their home, either as a lump sum or in instalments, without having to sell the property. Common equity release products include lifetime mortgages and home reversion plans.
F
Fixed-Rate Mortgage: A mortgage where the interest rate is fixed for a set period, usually between 2 and 10 years. After the fixed period, the rate typically reverts to the lender’s standard variable rate (SVR).
Freehold: Ownership of a property and the land it stands on. The freeholder has full control over the property, unlike a leasehold property where the land is owned by someone else.
G
Guarantor: A person who agrees to cover the mortgage payments if the borrower defaults. Guarantor mortgages are often used by first-time buyers or those with poor credit histories.
H
Help to Buy Scheme: A government-backed scheme designed to help first-time buyers and home movers purchase a property with a deposit as low as 5%.
Home Reversion Plan: A type of equity release where you sell part or all of your home to a provider in exchange for a lump sum or regular payments. You retain the right to live in the property rent-free until you pass away or move into long-term care.
I
Interest-Only Mortgage: A mortgage where you only pay the interest each month, meaning the capital (the amount borrowed) is not paid off until the end of the term. You will need a separate repayment plan to pay off the capital.
L
Loan-to-Value (LTV): The percentage ratio between the amount of your mortgage and the value of the property. For example, a £150,000 mortgage on a £200,000 property would have a 75% LTV.
Lifetime Mortgage: The most common form of equity release. It allows homeowners to borrow against the value of their home while still retaining ownership. Interest is added to the loan, which is repaid when the property is sold (usually upon death or moving into long-term care).
M
Mortgage Adviser: A qualified professional who provides advice to individuals or businesses seeking to arrange a mortgage. They assess the borrower’s financial situation, needs, and goals to recommend suitable mortgage products. Mortgage advisers can be tied to a specific lender, offering only that lender’s products, or they can be independent, giving access to a broader range of mortgage options across the market.
Mortgage Advisor: (spelled with an “o” in some contexts, but interchangeable with mortgage advisers) a professional who guides clients through the mortgage selection process, offering tailored advice based on their financial circumstances. They can be tied to a particular lender or work as independent advisors. The key role of a mortgage advisor is to recommend the most appropriate mortgage product, help with the application, and ensure the borrower understands the terms and conditions.
Mortgage Broker: An intermediary who helps clients find and apply for mortgages by working with multiple lenders. Brokers have access to a wide range of mortgage products, and they compare options to find the most suitable deal for their clients. They also assist with the application process and paperwork, making the borrowing process smoother. Brokers often provide advice on complex financial situations or specialist mortgages, such as buy-to-let or self-employed mortgages.
Mortgage Consultant: An expert who provides consultation services on mortgages, often working with individuals or businesses to identify the most suitable mortgage products for their needs. Like brokers and advisers, mortgage consultants analyse the client’s financial situation and long-term plans, then help them secure a mortgage that fits their requirements. They often work in more complex scenarios, such as for commercial mortgages, equity release, or specialist financing.
Mortgage in Principle: See Agreement in Principle.
Mortgage Term: The length of time over which your mortgage is repaid. Typical terms range from 25 to 35 years for residential mortgages.
Mortgage Valuation: A basic survey carried out by a lender to assess the value of the property you’re buying, ensuring it’s worth the amount you’re borrowing.
O
Offset Mortgage: A mortgage where your savings are linked to your mortgage account, and the balance in your savings account reduces the amount of interest you pay on your mortgage.
R
Remortgage: The process of switching your existing mortgage to a new deal, either with your current lender or a new one. This is often done to secure a better interest rate or to release equity from your property.
Repayment Mortgage: A mortgage where you repay both the capital and interest over the mortgage term, meaning the full loan is paid off by the end of the term.
S
Semi-commercial mortgage: A type of mortgage used to finance properties that have both residential and commercial elements. Examples include shops with flats above them, bed and breakfasts, or properties where part is used for a business and part is occupied by the owner.
Shared Ownership: A scheme where you buy a share of a property (usually between 25% and 75%) and pay rent on the remaining portion. This can make property ownership more affordable for first-time buyers.
Standard Variable Rate (SVR): The default interest rate that a lender will move you to after your fixed or discounted rate deal ends. SVR can fluctuate based on the lender’s discretion and market conditions.
T
Tracker Mortgage: A type of variable-rate mortgage where the interest rate follows (or “tracks”) the Bank of England’s base rate, plus a set percentage. If the base rate goes up, your mortgage rate will too, and vice versa.
V
Variable Rate Mortgage: A mortgage where the interest rate can change at the lender’s discretion, meaning your payments can go up or down during the mortgage term.