Mortgage industry jargon can be challenging at the best of times, especially for newbies to the mortgage world or those who have been out of the loop for some time.
To ensure that you understand what you’re getting yourself into and what sellers, lenders, and mortgage advisors are talking about, familiarising yourself with the jargon and terminology relating to UK mortgages is a good idea.
UK Mortgage Terminology and Jargon Every Borrower Should Know
We’ve compiled a helpful list below to help you cut through the noise and confusion of your upcoming mortgage.
Different Types of Mortgage Deals and Products
This does not refer to the mortgage itself but the features of the mortgage.
In short, these features will determine what terms and conditions a borrower is subject to.
You can link your savings account to your mortgage account if you have high savings. This reduces the interest rate you’ll be expected to pay.
Family Assist Mortgages
This is where a family member signs surety for another family member. This is very similar to a guarantor mortgage.
If you’re struggling to get onto the property ladder because you have a less-than-ideal credit score or your earnings aren’t enough, you can ask someone in good financial standing to sign as a guarantor for you on your mortgage.
This means that if you default on your mortgage payments, the guarantor will be responsible for ensuring the instalment is paid.
Shared Ownership Schemes/The Right to Buy Scheme
If you don’t have a guarantor, the government offers these schemes to assist you in getting onto the property ladder.
If you want to build your own home on the property, you can apply for a mortgage to cover the building costs.
This is Sharia-compliant financing that enables Muslims to buy homes with the laws and regulations of their religion in consideration.
Different Types of Mortgages
This is the type of mortgage you apply for if you intend to buy the property for your own use, and take personal residence of the space.
You can apply for this type of mortgage if you intend to use the property as income.
This means you will be the landlord but won’t live on the property yourself.
If you intend to use a property for business or to rent to a business to make an income, you will apply for a commercial mortgage.
This is a form of refinancing or switching your existing mortgage product to another deal.
Equity Release Mortgages
These mortgages are only open to individuals who are 55 to 65+. These mortgages are intended to raise funds using the residential home as security against the funds.
Types of Repayments
Every type of mortgage will have a repayment type attached. This is the type of instalment you will make each month. Here are the terms you need to understand.
If you opt for this repayment type, you will only pay the interest amount for the full loan term.
When you get to the end of the loan term, you will need to pay the entire loan amount as a lump sum.
This is a popular payment type for buy-to-let and commercial mortgages. It’s unusual for this to be applied to residential mortgages in the UK.
Capital Repayment Mortgages
This is a combination loan where you pay a portion of the capital loan amount and a portion of the interest each month.
You will have settled the entire amount by the end of the UK mortgage term.
Part and Part Mortgages
This type of UK mortgage payment type mixes two repayment types together. For instance, you will pay part capital and part interest-only payment types on one contract.
Terms Referring to Interest Rates on UK Mortgages
Fixed Rate Mortgages
This means that you’ll pay the same amount of interest for your loan term.
Sometimes, this is not the entire term as fixed-rate UK mortgages are available in two, three, five, and ten-year options.
You can sometimes fix a mortgage for 25+ years, but certain disadvantages come with this.
Variable Rate Mortgages
This type of interest rate isn’t fixed, which means it can fluctuate for the duration of your loan.
You will find three types of variable interest rate mortgages:
- Tracker rate variable mortgages in the UK
This interest rate is influenced by the Bank of England base rate, so your interest rate may rise and fall according to that base rate.
- Discount rate variable mortgages in the UK
This interest rate is set below the standard variable rate (SVR). This can be set over two or five years. Your interest rate will vary and fluctuate but will be less than the SVR.
- Standard variable rate mortgages in the UK
Lenders all have an SVR, which is their default interest rate. The lender controls this interest rate, and it is not a fixed product.
You can switch from this type of interest rate at any time. In most instances, it is the most expensive type of variable interest.
Additional Terms Borrowers Should Be Aware of!
This is the upfront amount you must pay to get a mortgage. This ranges from 5% to 40% of the overall property value.
Agreement in Principle
This is sometimes called a mortgage in principle.
This is an offer from the mortgage lender stating how much they will lend you if your application is accepted.
It’s a good idea to get an agreement in principle before applying for a full mortgage loan, as it will help you understand what price range to look in when shopping for a property.
This process is carried out by a solicitor who handles the transfer of deeds and funds between the buyer and the seller.
Loan to Value (LTV)
This refers to the amount you can loan vs the actual property cost.
This is a record of your financial behaviour held by the various credit bureaus.
Your score will impact how much a mortgage lender is willing to give to you.
If you have a high credit score, you will get a lower interest rate and be offered higher mortgage amounts than if you have a poor credit score.
Porting a Mortgage
This is when a borrower takes their mortgage with them when they move to another house.
This isn’t something that all lenders allow, but some modern mortgage lends do allow it.
Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.