Habito is committed to being a “free from” jargon mortgage broker. This means no confusing language, mortgage acronyms or unclear communications. It is about us using terms that are easy to understand and fully explaining the ones that aren’t.
So we will try our best not to speak to you in any complicated industry-talk. But, you might still encounter some on your journey to moving home, or remortgaging. In case you do, here’s our Top 10 worst list, covering the most commonly used mortgage terms and what they really mean.
APRC - This is the ‘Annual Percentage Rate of Charge’ (APRC) of borrowing which includes the interest rate and any other costs of the loan, for one year. It is a way of showing the overall cost of taking out a mortgage and allows you to compare different mortgages.
Conveyancing -This is the legal process associated with the sale of property and transfer of ownership from one person to another. This is a regulated process where solicitors, or conveyancers (solicitors specialising in property law) represent you legally in the buying process and protect your interests.
ERC - ‘Early Repayment Charge’ (ERC) is a penalty charge if you pay off your mortgage earlier than anticipated. This is a feature unique to each mortgage and is covered in your Key Facts Illustration document (KFI) or European Standardised Illustration Sheet (ESIS).
Fixed v.s. Tracker Rates - The interest rate you pay can vary depending on which mortgage you choose. Most mortgages are either Fixed or Tracker. A Fixed Rate is where the interest is guaranteed to remain the same (fixed) for a certain period of time, typically 2, 3 or 5 years. Tracker Rates follow the Bank of England’s Rate plus a lender’s added amount, for example +2.5%, again typically for 2, 3 or 5 years.
Freehold v.s. leasehold - When you purchase a home that is freehold, you will own the house and the land the house sits on. When you purchase a home that is leasehold, you don’t own the land that your house is built on. This means you have effectively have a contract from the freeholder to live in the property for a specified number of years. Leaseholders will often have to pay maintenance fees to contribute to the upkeep of the common parts of the building, which the freeholder carries out. Typically flats are leasehold and houses freehold.
'In Principles' (AiP/ DiP/ MiP) - these are documents that say, based on the information you've provided, you are likely to be approved for the mortgage that you want.
- MiP - Mortgage in Principle (MiP) - This is a document from your mortgage broker that states, based on the information you’ve provided, you are likely to be approved for your recommended mortgage. It comes without a credit check, but is still subject to full credit assessment and property valuation.
- AiP/DiP Agreement or Decision in Principle - This is a certificate given to you by your bank or lender that states, based on the information you’ve provided and a credit search, how much borrowing you have been provisionally approved for. However, it is not a guarantee and the mortgage application is still subject to a full credit assessment and property valuation.
KFI / ESIS - This is a document you will be get when you receive a mortgage recommendation. Each mortgage has unique features, such as interest rate, and these features are covered in this standardised document.
LTV - This stands for ‘Loan-To-Value’ (LTV) and is amount the loan (the mortgage) makes up compared to the total price (value) of the house you want to buy. For example, if you wanted to a loan of £60,000 (your mortgage) to buy a £100,000 (value) house, your Loan To Value would be 60%.
Mortgage Term - The length of time you need to repay your mortgage in full, is known as the mortgage term. This is typically between 25-35 years for first time buyers, but depends on what type of buyer you are, your affordability and how much you are borrowing.
SVR - stands for ‘Standard Variable Rate (SVR). Typically, your initial rate (fixed or tracker) will end after 2, 3 or 5 years and at this point, you are automatically moved to your lender’s SVR. This rate is set by the lender and is typically several percentage points higher than a fixed rate - which means it is more expensive.