The Annual Percentage Rate of Charge, often referred to as APRC is the total cost of the credit to a consumer, expressed as an annual percentage of the total amount of credit.
AVM stands for Automated Valuation Model. It is a search used by some lenders to establish the value of your property based on recent local sales and value trends. This is instant and means that they do not have to send a surveyor to your property.
The UK’s core interest rate, set by the Bank of England. The lender’s Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.
An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.
Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.
Business Buy to Let
The practice of buying a house or flat for investment purposes. Income is provided by the tenants’ rent, and capital growth (if any) by the property’s increasing resale value.
Capital and interest
In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.
A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.
A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a mortgage contract with the mortgage lender.
The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property’s agreed sale price (less any deposit already paid) safely reaches the seller’s bank account.
This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance – which needn’t necessarily be the most cost effective on the market.
Consumer Buy to let:
Buy-to-let mortgages that are driven by certain circumstances where the potential borrower (a) did not set out to borrow for business or investment purposes, (b) does not have any other buy-to-let properties and (c) is only looking for a remortgage. For this reason these mortgages are regulated giving you greater protection than with a business buy to let mortgage.
Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.
Normally carried out by a solicitor or licensed conveyancer on the buyer’s behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property’s value.
A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.
County Court Judgement (CCJ)
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.
Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.
A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.
The formal written document which lists exactly who owns a property and enables transfer of a property’s ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property’s total purchase price. Commonly set at around 5% to 10%.
A method of saving which pays regular, usually variable interest based on the amount invested (instead of relying, for example, on the unpredictable returns from stock market investment).
A mortgage which has an interest rate below the lender’s standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.
Distance mortgage mediation contract
Mortgages completed at distance – namely not face-to-face – are classed as a distance contract.
The principle that wise investors should spread their risk among many different types of investment. A properly balanced portfolio will contain elements of share, deposit-based and property investments. Fund performance and objective achievement are not guaranteed.
A document which meets the following criteria is said to be in a durable medium:
- Capable of being used by the recipient.
- Enables the recipient to store the information in a way accessible for future reference for a period of time adequate for the purposes of the information.
- Allows the unchanged reproduction of the information.
Early Repayment Charges (ERC’s)
A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan. The John Charcol web site shows you the size of any early repayment charge and how it changes over time.
A term used by lenders to describe potential borrowers’ working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status, and the John Charcol website has a wide variety of these in its database.
A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.
Exchange of Contracts
The terms of a property’s purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.
A service which offers no advice, but merely carries out the customer’s orders.
A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.
Fixed rate mortgage
A fixed rate mortgage charges a set interest rate over an agreed period of time, which could be anything from 1 year, 3 years, 5 years, or occasionally even longer. At the end of the fixed rate, the mortgage will normally revert to the lender’s standard variable rate.
Usually you will find that a fixed rate mortgage offers very favourable terms, but early repayment charges will limit any flexibility to switch away from it.
The good thing about a fixed rate mortgage is that you know how much you’ll be repaying each month for the length of the fixed period, which can make budgeting much easier. Where fixed rate mortgages don’t necessarily work is if the standard rates begin to fall – and you end up fixed on a higher rate with prohibitive early repayment charges.
A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.
Some lenders offer specialist graduate mortgage products. These tend to require no deposit and in some cases can lend up to 100% of the value of the property.
If you would like to find a competitively priced graduate mortgage and get out of the renting game, take a look at the options today.
Before tax or deductions.
A growth strategy is one which seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income may be reinvested.
Higher Lending Charge
This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn’t cover their costs they may seek further money from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.
Home and Contents Insurance
A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.
In the context of mortgages, a lender’s estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.
Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders’ standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.
An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).
Independent Mortgage Advice
Independence in regard to mortgage advisers is defined by the FSA as advice given in respect of the whole of the market, and offers the client a fee-only option, in other words is able to accept no other payments apart from those levied on the client, thereby eliminating any conflict of interest that could arise.
The premium which a borrower must pay a lender in return for use of the lender’s money.
An interest-only mortgage or interest only remortgage is where you simply pay the lender the minimum amount to cover the interest on your loan and invest enough each month in an investment vehicle to build up a large enough fund to pay off the capital part of the mortgage, when it becomes due at the end of the agreed term.
A mortgage loan funded by contributions to an Individual Savings Account. ISAs provide tax-free growth, generated mainly by stockmarket investment. The ISA aims to repay the loan’s capital at the end of its term, but the interest element must be paid separately as you go along. It’s important to remember that past performance is not necessarily a guide to future performance.
A property agent who can help landlords locate suitable properties for purchase, and who finds tenants to occupy those properties and can manages the rental process which follows. Our guide for landlords has more information about letting your property.
Loan To Value
This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.
London Inter-Bank Offered Rate (LIBOR)
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either “1” or “3” months LIBOR is what is normally used in setting mortgage rates.
The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.
A firm/ individual with permission for advising on regulated mortgage contracts.
Mortgage refinancing typically refers to using a lower rate mortgage to consolidate other loans and reduce monthly outgoings.
The mortgage refinancing rate – as long as you choose carefully – should be a great deal less than you are paying for credit cards, unsecured loans or other finance and can therefore save you a significant amount each month. However, you may pay more over the term of the loan.
After tax or deductions have been deducted.
This is where your income is not disclosed.
Most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. This is the basic principal behind offset mortgages. With interest only paid on the balance between savings and mortgage debt you achieve the same effect as overpaying a home loan: but you retain the ability to get the money back if you need it. Check out the best offset mortgage rates with our Best Buy table.
A mortgage repayment bigger than the one needed to meet the loan’s minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money. Our mortgage overpayment calculator can give you an idea of how much you could save by overpaying your mortgage.
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.
A mortgage whose capital repayment is funded by using a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan’s capital at the end of the term.
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.
The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.
The process of switching your mortgage loan from one lender to another without moving house. Visit our guide to remortgaging your property or take a look at our best remortgaging rates.
A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less if preferred).
The means by which a mortgage loan’s capital is repaid. Examples include endowment policies, ISAs, and personal pensions.
A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property which could affect its future value or existing restrictions on the site.
If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be “secured” on the property. A second charge mortgage is a type of secured loan.
Self certification mortgage
A self certification (sometimes called self-cert) mortgage is a mortgage for self-employed people who do not have pay slips or do not necessarily have a regular income to confirm their earnings to a lender.
It used to be the case that the UK self certification mortgage rate tended to be substantially higher because lenders perceived this as a more risky sector to deal with. These days, by shopping around, it is possible to get a competitive self-cert mortgage, with just as many of the benefits regularly employed people enjoy.
With a self cert mortgage, you declare your annual earnings and in nearly all cases the lender will not require any proof of income. This can be particularly beneficial to people who are self-employed and might struggle to provide detailed accounts, or people with additional incomes that are not included in traditional income calculations.
Self build mortgage
A self build mortgage is designed to help you finance the building and ownership of a house that you are about to build. The UK self build mortgage market is a specialist area, because you are asking lenders to put forward money against an asset which does not exist at the beginning of the project.
Stamp duty, or stamp duty land tax to give it its full title, is the tax levied by the government on house purchases. The amount of stamp duty you’ll pay depends on if you are a first time buyer and whether you’re buying a main, secondary residential property or a buy to let investment. For the latest stamp duty rates use our stamp duty calculator.
A shorthand term for the borrower’s credit record and employment situation. See “Non-Status Loan”.
Standard Variable Rate (SVR)
A mortgage lender’s main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR)
The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy’s early years.
An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.
Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected. Check out the best tracker mortgage rates with our Best Buy table.
The period of time over which your mortgage will run. Typically 25 Years or to expected retirement date if that comes first.
A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.