Glossary

Adverse credit mortgage

This is a type of mortgage product available to people who have a poor credit history.

APR

APR stands for Annual Percentage Rate. It refers to the cost of a mortgage, overall, inclusive of interest and fees.

Arrangement fee

An arrangement fee is a fee associated with setting up your mortgage. It is charged by some lenders against some products and you can choose to pay this upfront as a one‑off cost or have it added to the value of the loan you’re taking out.

Arrears

Falling into arrears means you’re behind on your mortgage repayments. You’ll go into arrears as soon as you miss one repayment.

- Being in arrears on your mortgage is very serious. It can put your home at risk and negatively impact your credit score, making it difficult to secure finance or a mortgage in future. If you are struggling to meet your monthly mortgage repayments you must speak to your lender as soon as possible to try and find a resolution.

Base rate

The base rate is a rate of interest set by the Bank of England. This rate can move up and down in response to different events in the country and around the world. When the base rate changes, mortgage rates generally follow. This is the reason we see rates of borrowing fluctuate. It’s also the reason many people choose to lock in or ‘fix’ a mortgage rate for a set period of time.

Booking fee

Another type of mortgage set‑up fee, similar to an arrangement fee

Buildings insurance

Buildings insurance is a type of insurance that protects the structure of your home. A mortgage lender will require you to have Buildings Insurance in place on the property you’re purchasing at the point at which you exchange contracts.

Buy to let mortgage

You need to take out a buy to let mortgage if you don’t intend on living in the home you’re buying but want to rent it out to a third party instead (known as a tenant). Buy to let mortgages, therefore, are essentially a product for landlords. If you intend on living in your home, buy to let mortgages won’t apply to you.

- Because letting out your home instead of personally occupying it is deemed by a lender to present a higher risk on their investment, buy to let mortgages are usually more expensive than a residential mortgage and also often require a bigger deposit. Most buy to let mortgages aren’t FCA (Financial Conduct Authority) regulated either.

Capital

Capital is the amount of money you need to borrow in order to purchase a property.

Capped rate

Having a capped rate of interest on your mortgage means the interest rate charged by your mortgage lender will never exceed a fixed amount, regardless of whether the Bank of England Base Rate increases.

Cashback mortgage

Taking out a cashback mortgage means that your lender has agreed to give you a lump sum cash payment on completion of your property purchase.

CCJ

CCJ stands for County Court Judgement. You’ll have a CCJ against you if you’ve defaulted on a debt that you owe. Having a CCJ can make it more difficult to get approved for a mortgage.

Collar

Having a collar on your mortgage means that your interest rate will not drop beneath a certain threshold. This means that if interest rates fall, you may not benefit from the savings.

Conveyancing

Conveyancing is the name given to the legal process involved in buying a property. This process is conducted by a qualified conveyancing solicitor who you will need to appoint when you have an offer accepted on a property.

- Your broker as well as your estate agent will ask you for your conveyancer’s details as soon as you’ve had an offer accepted. In some cases, an estate agent will not remove a property from sale until you’ve instructed your conveyancer.

Current account mortgage (CAM)

In a current account mortgage, your mortgage, credit cards, and any other loan debts, are combined together. Your credit balances are then used to offset your debt, so you only ever pay interest on the difference.

Deposit

Deposit refers to the sum of your own money you intend to put into purchasing a property, or ‑ to put it another way ‑ the amount you’ve managed to accrue in savings to put towards your new home.

You’ll be asked what your deposit is early on in the mortgage application process, most certainly by your broker who’ll need it to calculate how much you can offer towards a property, but potentially also by estate agents who may ask for your deposit amount when you call up to enquire about viewing a property.

Many lenders will insist on a deposit of at least 10% of the property’s value (or the price you’ve agreed to pay for it) although you can find some 5% deposit products. Conversely, if you’re in a position to put down a deposit of at least 40% or higher you may be able to unlock a lender’s lowest rates of interest.

Discounted rate mortgage

In a discounted rate mortgage you’ll be charged a discount on the standard variable rate (SVR) that your lender offers. For instance, if your lender’s SVR is 5% but you have a discounted rate mortgage with a 1% discount applied, you’ll only pay 4%.

Early repayment charges (ERCs)

An early repayment charge is essentially a penalty fee payable to your lender if you want to exit your mortgage early, for example, before the fixed term you’ve locked into comes to an end. Early repayment charges vary by lender but are usually a fixed percentage of the total amount remaining on the mortgage.

Equity

Equity refers to the amount of money or capital you have in your property. Equity is calculated by subtracting the amount of money left to be paid on your mortgage by your property’s current value. If the amount you have to pay is higher than the value of your property (as may be the case if house prices have fallen since you bought your property) this is when you enter what is known as negative equity.

Equity release scheme

Equity release schemes allow you to access the equity accrued in your home as a tax free lump sum, without having to sell your home to release the cash. You may continue living in your home but there are certain conditions attached.

- At Threshold our equity release partner is Key Partnerships.

You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.

Fixed rate mortgage

If you take out a fixed rate mortgage, you’re essentially fixing or locking in at a rate of interest that won’t fluctuate (for a fixed period of time). This kind of deal is common with lenders, and you can typically find products that allow you to tie in for two, three, five, or even ten years. This means that your mortgage payments will stay the same throughout your fixed in term, irrespective of what happens to the base rate, inflation, or interest rates.

Once that fixed rate period comes to an end, you’ll automatically be moved onto your lender’s SVR (standard variable rate) which may be higher or lower than your fixed rate and would cause your monthly repayments to either go up or down respectively. You can, however, elect to lock in at another fixed rate once your existing one expires, either with the same lender or a different one. You may do this up to six months before your current fixed rate mortgage ends. Your broker will contact you around this time to discuss your options and what you’d like to do.

If you’re in a fixed rate mortgage and you wish to sell your home during that period, you may have to pay early repayment charges to your lender as a penalty for paying back the loan early.

Flexible mortgage

Typically more expensive than a conventional mortgage, a flexible mortgage allows you to make overpayments, underpayments, or even take a ‘payment holiday’ from your mortgage, without incurring any fees or charges.

Having this type of mortgage can give you the flexibility to pay off your mortgage early, say if you come into a large inheritance or other sum of money, without having to pay an early repayment charge to your lender. The rate of interest you pay on a flexible mortgage, however, will more often than not be higher than locking into a fixed rate deal for a set time.

Freehold

When you’re purchasing a freehold property, you’re not only buying the property itself but also the land it occupies. Freeholds are common with houses in the UK, while most flats tend to be leasehold (meaning you lease the land the property is built on from the freeholder).

Guarantor

A guarantor is someone, usually a parent or guardian, who agrees to step in and pay your mortgage if you can no longer afford the monthly repayments.

Higher lending charge (HLC)

A higher lending charge is sometimes charged by a mortgage lender if the amount you want to borrow is more than 75% of the property you’re buying’s value. It offers the lender some protection in case you are unable to pay your mortgage.

Interest only mortgage

If you take out (or switch to) an Interest Only Mortgage you’ll only be paying off the interest owed against your mortgage loan each month, and not making repayments that will bring down the length of your mortgage term or lower the amount of money you owe.

Land Registry

The Land Registry holds all records of property ownership in England. When you purchase a home, either as a cash buyer or using a mortgage, a new record will be created that shows you are now the legal property owner.

Leasehold

If a property is listed as leasehold it means you don’t own the land it’s built on, so you have to lease the land from the landowner (also known as the freeholder). Leasehold ownership is typical of flats and apartment blocks in the UK, although some new build houses are also leasehold.

Leasehold properties usually require you to pay an annual ‘ground rent’ to the land owner, which can be anything from £1 to a few hundred pounds a year.

Leases stay with the property and continue to run down each year, so if you buy a leasehold home you will inherit however many years are left on the lease. While this won’t affect you if you’re a cash buyer, lenders typically require at least 70 years+ on a lease to grant you a loan. Similarly, how much the ground rent is per year can also affect your ability to get a mortgage.

Lifetime mortgages

A lifetime mortgage, also known as equity release, is a loan against your home that gets settled when you pass away or if/when you move into an assisted living facility or care home. This allows you to release some of the money tied up in your home for you to live on in retirement, but still continue to live in your home for as long as you need to.

Loan to value (LTV)

Loan to value is the size of your mortgage in relation to the value of the property you’re purchasing. It is calculated as a percentage figure. For example, if you’re taking out a mortgage for half of the property’s value your LTV would be 50%.

Monthly repayment

This is the official term given to the monthly amount you pay your lender towards helping to clear your mortgage loan.

Mortgage agreement in principle (AIP)

An AIP is the first step in securing a mortgage. Although it is not a binding agreement, it gives you a sense of how much you could lend on a mortgage, and therefore helps you to know what properties are within your budget. Many estate agents will want to see evidence of an AIP before they put forward an offer to their clients. Once you’ve had an offer on a property accepted you will have to formally apply for a full mortgage offer from the lender.

Mortgage payment protection insurance (MPPI)

This is a type of insurance that pays out if you can’t meet your monthly mortgage repayments in specific circumstances, for example, if you are unwell and cannot work, or have been injured as a result of an accident.

Terms and conditions apply.

Mortgage term

Your mortgage term is length of time in years that your mortgage will last for, in other words, how long it will take you to pay back the loan. Your mortgage term will depend on factors such as how low you need the monthly repayments to be, and how many years you have left until you reach retirement age.

Mortgage deed

A mortgage deed is a contract between you and your mortgage lender that outlines all of the conditions you agree to when taking out the loan, including what will happen if you fail to make your repayments (known as defaulting on your mortgage).

Negative equity

If you find yourself in negative equity it means that the value of your home has fallen to less than the amount you have left to pay on your mortgage.

Offset mortgage

An offset mortgage is when you link your mortgage with your savings and, in some instances, your bank account. Any in-credit balances are then offset against your mortgage debt, meaning you only pay interest on the difference.

Offset mortgages are usually more expensive than other types of mortgage and should be considered carefully. Your broker can assess your circumstances and advise you as to whether an offset mortgage would be beneficial.

Portability

If your mortgage is portable, it means that you can transfer it, usually without incurring any fees, if you decide to buy another property, even if you’re still within your fixed rate term.

Rebuild cost

The term ‘rebuild cost’ is an insurance term that refers to the total amount it would cost to rebuild your home from scratch if it was destroyed, for instance as a result of house fire.

Repayment mortgage

In a repayment mortgage you are responsible for paying off the interest applied to your mortgage in addition to paying back a percentage of the outstanding balance on your mortgage each month.

This is the only type of mortgage product that guarantees that the loan you took out will be paid off in full by the end of your agreed mortgage term (the length of time you have left on your mortgage).

Repayment vehicle

A repayment vehicle is an investment or bank account that you pay into each month in an attempt to reach the total amount of money you need to pay off your mortgage in full at the end of your mortgage term. This is often what is required when you have an Interest Only mortgage.

Shared ownership

Shared Ownership is aimed at buyers with a low deposit and/or a low income. The scheme is designed to help those struggling to afford a property on the open market to get onto the property ladder by buying a stake ‑ or percentage share ‑ in a home.

The minimum share you can usually own in a shared ownership property is 25% and the maximum is 75%, although some schemes do allow you to purchase up to 100% of your home over time (a process known as staircasing).

With shared ownership, you pay rent on the proportion on the property you don’t own and mortgage on the share you do. If the property is leasehold (as is common with a flat) you may also have to pay service charges and ground rent too.

Stamp duty

Stamp duty is a type of property tax that applies to some purchases in England and Northern Ireland. Your conveyancer will be able to tell you if stamp duty applies to your property purchase and, if so, how much. You can also check this using the stamp duty calculator on our website.

Standard variable rate (SVR)

This is the rate of interest that you will automatically default to once any initial fixed rate deal you locked into with your mortgage lender ends. Unlike a fixed rate, an SVR rate of interest is subject to go up and down and may be higher than the rate you were paying.

Subprime/nonconforming

Subprime mortgages (also known as nonconforming mortgages) are aimed at people with a poor credit score or credit issues. These types of mortgage tend to be offered by specialist lenders.

Tie‑in period

Being in a tie‑in period means that you are locked in to your mortgage for a set length of time, and would be charged an early repayment fee by your lender if you were to move the loan elsewhere or pay it back in full.

Tracker mortgage

Having a tracker mortgage means that the rate of interest you pay on your loan can go up and down, typically in line with the Bank of England base rate.

Valuation

A valuation determines how much your home, or a property you are looking to purchase, is worth in its current condition. If you’re applying for a mortgage the lender will undertake an independent valuation before offering you the funds to ensure that their investment is secure and the property is worth what you have agreed to pay for it.

Variable rate mortgage

A variable rate mortgage means that the interest rate applied to your loan can go up or down, in accordance with your lender’s standard variable rate.