Applying for a mortgage can be confusing, especially if you are unfamiliar with the terminology and jargon often used throughout the application process. In a 2019 study, it was revealed that over 50% of prospective first-time buyers were confused by mortgage and housing terminology.
To help you understand this new dictionary of words, we’ve compiled a handy list of keywords and terms used concerning mortgages and housing.
Your affordability is how much you can afford to borrow on a mortgage, based on your income, outgoings and credit score.
An affordability check is an assessment that a mortgage lender e.g. a bank does on you to work out how much they’re willing to lend you on a mortgage loan
When you’re in ‘arrears’ on an account, it means that you currently owe money.
Bankruptcy is a legal status where you declare you can’t pay any more of your debts. You use your property and other possessions to pay back the people you owe money to.
BANK OF ENGLAND (BoE)
The Bank of England is the central bank for the United Kingdom and the model on which most modern central banks are based upon. The BoE issues currency and, most importantly, it oversees monetary policy.
Completion is the date that the contract requires the transaction of buying a house to be completed, and it is the day when the remaining money is paid to the buyer’s solicitor and the seller vacates the property and hands over the keys. This is usually moving day and is known as the date of ‘completion’.
COUNTY COURT JUDGEMENT (CCJ)
A CCJ is when you owe money to someone and they take court action against you. You get a CCJ when the court confirms that you owe money.
A credit check means to see what information is being held about your credit history. A mortgage lender will do a credit check on you before offering you a mortgage.
Your credit file is a list of your borrowing and repayment activity. Your credit file contains the information that determines your credit score and is a record of your credit history.
Your credit history is a record of all the credit you’ve had. 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 number between 300-850. The higher it is, the better your credit score is, the lower it is, the worse your score is. It’s what potential lenders will look at to decide whether or not to give you money like a mortgage.
A creditor is a person or company you owe money to. Someone who’s given you some kind of credit like mobile phone, utility or credit card providers.
DEBT MANAGEMENT PLAN (DMP)
DMPs are offered by debt management providers and are plans you can follow in order to pay off your debts.
A DIP is a mortgage offer from a lender that isn’t official, you can get one before a lender does a hard credit check on you, which means before they investigate your history thoroughly. 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 in 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 everyone in the UK who’s registered to vote. It contains their names and addresses. 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 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 of equity in your home.
HELP TO BUY SCHEME
Help-to-buy is a government scheme that offers an equity loan to first-time buyers to help them buy a newly-built home. They need a deposit of at least 5% of the purchase price. They can borrow 20% of the purchase price, interest-free, for five years.
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.
An insolvency practitioner is an authorised company who handle insolvency cases. They are appointed to handle the procedures that happen when a person or business goes insolvent.
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.
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 broker who connects you to your mortgage lender.
IVA (INDIVIDUAL VOLUNTARY AGREEMENT)
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 means the terms and conditions that a lender has in place to help them decide whether or not to lend to you. Lending criteria changes from lender to lender.
The criteria each lender has can change often too; during the COVID-19 health crisis, lenders changed their lending criteria often.
LTV is a ratio that shows the size of mortgage a lender will offer you in relation to the value of the property you want to buy or remortgage. For example, if a lender offers a mortgage deal that has a maximum of 90% LTV, that means they will lend you up 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. For example, if you missed a payment on your mobile phone bill but pay it as soon as you can.
The mortgage rate is the rate of interest charged on a mortgage. The lender will decide the rate and 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 loans are small, short-term loans designed to give people money until they get paid from their jobs.
A remortgage is when you take out a new mortgage on a property you already own or have a mortgage on.
Repossession is when you have a mortgage on a property, but because you can’t keep up with the mortgage repayments, the property gets repossessed and is given to the mortgage lender.
Retained profit is any profit a business makes that isn’t paid to the shareholders as dividends.
Underwriting is a financial term you might have heard when it comes to insurance. It’s the process of creating a legally binding document that accepts financial responsibility for the parties involved. When you get a mortgage, your mortgage legal document is underwritten, which means you and your lender enter into an agreement where they grant you a loan, and you agree to pay it back.