Mortgage Terminology - in English
We've done our best to make the terminology jargon-free, but if it still doesn't make sense give us a call on 0345 4594490 and we will be happy to explain it further.
Loan to Value or LTV
Loan to value is the percentage of the property valuation that you will be borrowing.
For example, if the valuation of the property is £100,000 and you are borrowing £80,000 you have an LTV of 80%.
It's Important to remember that LTV is not always based on your agreed price for the property.
If you agree a price of £120,000 but the Lenders Valuation is for £100,000 there would be a shortfall in your deposit and your LTV will be based on the lender's valuation.
LTV Affects your rate - The bigger the deposit the less the risk for the lenders and the lower the rate in general.
Lenders usually have LTV's available in steps such as 90% 85% & 75% with progressively lower rates for the same product.
The legal work or conveyancing
This is the term given to the legal work involved in a house purchase such as establishing title (ownership of a property) and the exchanging of contracts between the purchaser and vendor.
Income status & self-certification
- Full Status
Proof of income provided.
This will usually be in the form of 3-months payslip's or accounts, bank statements and P60's or tax returns.
No proof or limited proof of income required.
Designed for those who may find difficulty proving income for example owners of a seasonal business or someone whose income is made up mainly of commission or bonuses.
Lenders generally withhold the right to request bank statements or tax returns if necessary.
Self-certification is almost entirely a thing of the past now and is usually not available.
Repayment Methods & interest only
- Capital & Interest
Where the Mortgage Interest and the Mortgage Balance are paid by instalment.
The sum borrowed is guaranteed to be repaid by the end of the loan subject to any arrears.
- Interest Only
You only pay the interest that is owed on the amount borrowed.
At the end of the loan, the total amount borrowed will still be outstanding and it is your responsibility to arrange a "repayment vehicle" usually an investment product to repay the balance.
Main Mortgage Types
The main difference between most types of mortgage products is the way interest is added to the loan.
If it is fixed your payments will remain the same regardless of changes in the bank base rate or other rate changes.
Variable-rate products will move in line with different things as described below but when the rate changes your monthly payment will also change.
- Fixed Rate
The interest rate is set for the initial period of the loan i.e. 1, 2, 3 or 5 years then reverts to the lender's standard variable rate. Early repayment charges will often apply.
This will follow the Bank Base Rate usually with a percentage added or deducted. Early repayment charges will often apply.
Follows the bank base rate like a tracker mortgage but has an upper limit to the rate. Early repayment charges will often apply.
There are very few capped rates available currently
- LIBOR Linked
Follows the London interbank offered rate (the rate banks lend to each other at) with a percentage added or deducted.
Early repayment charges will often apply. There are very few Libor Linked rates available currently
- Standard Variable
Follow the banks SVR but are not guaranteed to change when the Bank of England Base Rate or LIBOR rate changes. Often available without early repayment charges.
- Discount rate
Follow's the bank's SVR minus a certain percentage.
- Flexible Mortgages
These products may offer features such as additional borrowing facility, over and underpayments, payment holidays and current accounts.
They vary from lender to lender but should usually have a daily interest calculation.
With an offset mortgage, you hold a savings account with the lender and pay no interest on the part of the mortgage that is offset by your savings.
So, if you borrow £100,000 and have £20,000 in savings you will only pay interest on £80,000 of the mortgage which is tax-efficient and they may be available with a fixed or variable rate of interest.
- Low Start
Low start mortgages either offer a greatly reduced rate in the initial years or switch from an interest-only basis to capital and repayment.
Higher Lending Charges
This is a fee that may be charged when your loan to value is above a certain level (for example 75% or 85%) and will usually apply to the sum borrowed above that percentage. They can often be added to the loan.