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 report (or credit file)

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 (or credit 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.

Debt-to-Income ratio

When assessing your eligibility, mortgage lenders will calculate your debt-to-income ratio by adding up your total monthly debts and dividing this figure by your gross monthly income as a percentage. A good ‘DTI’ is regarded as anything less than 40%.

So, for example, if your total monthly debts are £800 and your gross income is £2,000 your DTI ratio is 40% (800 / 2000 × 100 = 40).

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 credit agreement or utility bill, and then for some reason don’t.

Disposable income

Disposable income is the amount of income you have left over from your earnings after all your essential (and regular) outgoings have been paid. Mortgage lenders will want to know how much disposable income you have left each month in order to decide whether you can afford the mortgage repayments.

Dividends

A dividend is paid from a company’s post-tax profits to some or all of its shareholders. Dividends can either be paid in cash or as additional shares. In mortgage terms, a company director who also owns shares in their business can receive remuneration as a basic salary plus dividends. Most mortgage lenders will allow for dividends to be included for the purpose of calculating how much you can borrow.

Early Repayment Charge (ERC)

An early repayment charge (ERC) is a fee that a lender may charge if you pay off your mortgage before the agreed-upon end of your term. Lenders impose these charges to recoup the interest they would have earned on your mortgage if you’d continued to make the repayments.

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.

Fixed Rate

A fixed rate of interest will remain the same for a specific period of time. So, a 5-year fixed rate remains the same for 5 years and so on. Fixed rate deals are popular amongst those who like to know exactly what their mortgage repayments are going to be from one month to the next.

Gifted Deposits

A gifted deposit is where someone (usually a parent or close family member) gifts you an amount of money to use for a deposit on a house. Unlike a loan, gifted deposits are exactly that - a gift, and does not need to be paid back.

Hard credit search

A hard credit search will typically only happen when you submit a new application for credit with a new creditor. The creditor will always have to ask your permission first before they do a hard search. 

A hard search is visible on your credit file for two years. Too many hard searches in a short time period can affect your credit score because it implies to creditors that you might be opening multiple new credit accounts and relying too much on borrowing.

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 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-Only Mortgage

An interest-only mortgage is a repayment method where you only repay the interest part of your mortgage each month and the amount you borrowed is repaid separately in one lump sum at the end of the term. This means your mortgage repayments will be lower each month than they would be with a capital and repayment mortgage.

Your mortgage lender would need to agree with the repayment vehicle you were proposing to use for the capital amount you’ve borrowed, such as the sale of another property, cash savings, shares, savings plans or a pension lump-sum.

Interest-Only mortgages are generally used for buy-to-let properties where the repayment vehicle would be the rental property, which would be sold at the end of the mortgage term.

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.

Late payment

A late payment is exactly that: a payment you did make, just not on time. A late payment stays on your credit record for six years but must be more than 30 days overdue before it can be registered. 

Leasehold

If you buy a property as a leasehold, this means you will own the property but not the land or (in the case of a flat or apartment) the building where it is occupied. Most flats or apartments are bought on a leasehold basis.

There will be a separate leasehold agreement with a set term where you have a right to live in the property (typically between 90 and 999 years). A mortgage lender may be cautious about letting you borrow money for a mortgage on a property where the lease is due to be renewed.

There will also be additional fees for leasehold properties such as ground rent and service charges (for flats and apartments).

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. 

Let to Buy

A let-to-buy mortgage allows you to buy another residential property and rent out your current home. Your existing home loan is switched to a buy-to-let mortgage and you take out a new residential mortgage for the house you’re buying.

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

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 Arrangement fee

Can also be referred to as a ‘product fee’. An arrangement fee is a one-time payment charged by a lender for setting up your mortgage. It is paid at the outset of your mortgage as either a lump sum or added to your mortgage loan.

Mortgage arrangement fees are either a set amount of a percentage of the loan and can set you back up to £1,500-£2,000 so it’s worth taking into account when looking at the overall costs. Typically, the lowest interest rate deals will have a higher arrangement fee. Some mortgage deals come with no arrangement fee at all, but the interest rate offered will usually be higher.

Mortgage eligibility

A mortgage lender will check you’re able to repay the money you want to borrow. To decide if you’re eligible they will look at several factors, mainly your monthly income and outgoings, credit history, size of your deposit and how much existing debt you have.

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.

Negative Equity

Negative equity is where you owe more money on something than it’s currently worth. So, in mortgage terms, your mortgage balance would be higher than the value of the property the loan was taken out for.

Properties in the UK don’t always rise in value and if you recently took out a mortgage with a high loan-to-value (LTV) just before a dip in the property market, you could find yourself in negative equity. Being in negative equity shouldn’t be permanent and property prices can rise as you pay down your mortgage.

Net profit

For the purpose of a self-employed mortgage, net profits are the total revenues generated by a business less the typical expenses and before personal income tax is paid. This figure is usually required as proof of income (through certified accounts and/or a SA302 tax statement) for sole traders and partnerships when applying for a mortgage.

Non-standard construction property

A property is considered non-standard if it’s been built using different materials not in line with traditional building methods and doesn’t have a roof made from slate or tiles. For example, wood-timber properties, thatched-roof cottages, barn conversions, concrete-construction houses (such as Cornish Units) and certain listed buildings.

P60 Statement

A P60 statement outlines the tax and National Insurance contributions you’ve made in the previous tax year. If you’re an employee, you should receive one at the end of each tax year.

You can also get a P60 for a specific tax year from the HMRC website.

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. 

SA302 tax calculation

An SA302 tax calculation and tax year overview is available online from HMRC and provides evidence of your earnings and income tax calculation for any given tax year. If you’re self-employed you will likely be asked for a copy of your SA302 tax calculation for the last two to three tax years by a mortgage lender as proof of income for your application.

SA302 statements are no longer issued automatically by HMRC, but they are available online and copies for each tax year overview can be printed for the purpose of mortgage applications.

Soft credit search

A soft search happens whenever you or a lender takes a general look into your credit history. When you have an account with a mortgage lender, a credit card company or any other kind of creditor, they’ll do a soft search on you to pre-approve your payment every time you’re due to pay back your credit. When this happens, it doesn’t affect your credit score, but the fact that they checked will come up on your file (which other lenders won't be able to see).

Unlike hard credit searches, a soft credit search does not appear on your credit record.

Standard Variable Rate (SVR)

A mortgage lender’s ‘standard’ rate with no discounts attached. The SVR is the rate used once your current mortgage deal comes to an end and is usually the highest rate across the lender’s product range. Not one you want to stay on for too long.

Tracker Rate

A tracker rate is a variable interest rate that tracks another interest rate, typically the Bank of England's base rate, for a set period of time. So, the repayments on a tracker rate mortgage can rise and fall in line with the Bank of England’s base rate.

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.

Variable Rate

A variable rate is an interest rate that can fluctuate over time, usually based on an underlying index or benchmark interest rate.