Glossary

Affordability

How much can you afford to borrow on a mortgage? A key question for all mortgage lenders and one they answer by reviewing your income, regular (monthly) outgoings and debts.

Mortgage lenders are required by the Financial Conduct Authority (FCA) to take all the necessary steps to ensure the mortgage they provide for you is affordable.

Affordability check

An affordability check is an assessment that a mortgage lender carries out to determine how much they’re willing to let you borrow for a mortgage.

The assessments will vary from lender to lender, but as a rule of thumb, most lenders will use a multiple of your income (generally between 4 and 4.5 times your annual salary) when deciding how much you can borrow.

Arrears

When you’re in ‘arrears’ on an account, it means you currently owe money that should already have been paid.

Remaining in arrears, and falling further behind with your payments could eventually lead to the credit account being closed and registered on your Credit Report as a default.

Bankruptcy

Bankruptcy is a legal process for anyone with debts over £5,000 who can no longer repay the money they owe. You can apply to become bankrupt yourself, or a creditor can do it if you can’t pay back your debts to them.

County Court Judgment (CCJ)

A CCJ is when you owe money to someone and they take court action against you to have the debt repaid. You get a CCJ when the court confirms that you owe money. Once received you must then repay the debt either as one lump sum or in instalments.

Credit check

A credit check allows you to see what information is being held about your financial history over the last six years. A mortgage lender will conduct a credit check before offering you a mortgage.

Credit file / report

Your Credit Report is a statement listing your credit activity compiled from different sources such as Banks, Building Societies and Utility Companies. It contains the information that determines your credit score and is a record of your credit history over the last six years.

Credit history

Your credit history is a record of all your credit activity. It will contain any credit cards, bank loans, mortgages and any other forms of credit you’ve had.

Credit score / rating

Your credit score is a three-digit number compiled by Credit Reference Agencies (CRAs) and used by lenders when reviewing credit applications. The higher it is, the better your credit rating and chances of securing the lending you need. 

Creditor

A creditor is a person or company to whom you owe money. Your current mortgage lender and the mobile phone company with which you have a contract are creditors.

Debt Management plan (DMP)

DMPs are informal agreements between creditors and someone who owes them money. They're designed to allow for the repayment of outstanding debts in a more manageable way.

Decision-in-principle (DIP)

A DIP is an indication of how much a mortgage lender could be willing to let you borrow for a mortgage; you can get one before a lender reviews your application more thoroughly and conducts a hard credit search.

It’s a lender saying they’re happy to give you a mortgage if all the information they have about you is true. You often need a DIP to put an offer on a property.

Default (also: defaulted bill, defaulted payment)

Your account will go into ‘default’ if you don’t pay a bill. This can happen with any kind of account where you agree to pay a certain amount of money for something, for example, a utility bill, and then for some reason don’t.

Electoral roll (or: electoral register)

The electoral roll or register is a record of the names and addresses of everyone in the UK who’s registered to vote. You must be on the register to get a mortgage in the UK. 

If you’re not on the register, or need to update your details, go to the register to vote on the GOV.UK website. If you’re not sure whether or not you’re registered, get in touch with your local Electoral Registration Office if you live in England, Scotland or Wales, or the Electoral Office for Northern Ireland (EONI) if you live in Northern Ireland.

Equity

Equity is the difference between what you owe on your mortgage and what your home is currently worth. 

If you owe £200,000 on your mortgage loan and your home is worth £300,000, you have £100,000 equity in your home.

Insolvency

Insolvency means you declare you can’t pay your debts or bills. It’s a term that can be used by an individual or by a business.

Insolvency practitioner

An insolvency practitioner is an authorised company that handles insolvency cases. It is appointed to handle the procedures that happen when a person or business becomes insolvent.

Interest rate

Your interest rate is a percentage of the total amount you borrow. It’s the amount you pay to borrow the money. 

When it comes to mortgages, your interest rate is a percentage of the loan balance you pay your lender in exchange for borrowing the money to purchase a property. It's not the same as annual percentage rate (APR) which can include other costs.

Intermediary

An intermediary is a person or company who acts as a link between people to try and bring about an agreement: a mediator. In the mortgage world, an intermediary could be a brokerage like Haysto that connects you to your mortgage lender. Or it could be a platform that introduces you to a specialist broker.

IVA (Individual Voluntary Arrangement)

An IVA is an agreement between you and someone you owe money to, where you agree on terms and a timeline to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will then pay your creditors.

Lending criteria

Lending criteria means the terms and conditions a lender has in place to help them decide whether or not to let you borrow money from them. Lending criteria will vary from lender to lender. 

Loan-to-value (LTV)

LTV is a ratio that shows the size of the mortgage a lender will offer you in relation to the value of the property you want to buy or remortgage. 

For example, if you want to buy a property worth £250,000 and a lender offers a mortgage deal with a maximum LTV of 90%, they will lend you up to £225,000, which is equal to 90% of the property value.

Missed payment (or late payment)

A missed payment is when you have a credit agreement with someone and miss a payment that remains unpaid for more than 30 days.

Once you miss a payment, your credit account will fall into arrears for that amount until it's repaid. A series of missed payments could result in your account being closed and registered as a default on your Credit Report.

Mortgage rate

The mortgage rate is the rate of interest charged on a mortgage. The lender will decide the rate. It can either be fixed, which means it stays the same for the duration of the mortgage, or variable, which means it fluctuates with a benchmark interest rate.

Payday loan

Payday loans are small, short-term loans designed to provide people with money until they are paid.

Remortgage

A remortgage is when you move your existing mortgage to a new lender, usually because they're offering better interest-rate terms or because you want to release equity as a lump sum and add this to your existing home loan.

Repossession

A repossession can happen when you default on your mortgage repayments, leaving your lender with no choice but to legally reclaim the property back from you. Once completed, the mortgage lender can sell the property to recoup their losses.

Retained profit

Retained profit is a business's net income that is kept within its accounts and not paid to the shareholders as dividends. 

Underwriting

Mortgage underwriting is the process a mortgage lender uses to assess the risk of lending money to a borrower before deciding whether to approve an application.