Early Repayment Charge (ERC)
This is a penalty charged on traditional (i.e. non-Flexible) mortgages when the loan is repaid in full within a set period. Usually it applies on a pro rata basis when capital repayments are made outside of the agreed monthly payments. Many Early Repayment Charge periods are linked to those of offers, such as Capped, Discounted or Fixed rate periods. However, some mortgage rate have extended Early Repayment Charges which tie-in borrowers even while they are paying the Lender's SVR.
Also known as: Early Redemption Penalty (ERP); Redemption Penalty.

Early Redemption Penalty (ERP)
See Early Repayment Charge (ERC).

Endowment
A repayment vehicle associated with Interest Only mortgages

Exchange of Contracts
This is the stage in England, Wales and Northern Ireland that the deposit money is paid and both parties are legally bound to fulfil the agreed conditions of sale and purchase.

Exclusive mortgage
This is a mortgage only available to intermediaries through a specific packager, in conjunction with a Lender who provides the funding.

Fixed rate mortgage
This is a mortgage that is charged at a fixed rate within a set period. There are often early repayment charges applicable if the loan is repaid within the fixed period.

Flexible mortgage
As its name suggests, this is a type of mortgage that offers considerably more flexibility than traditional mortgages. Although specific details vary between Lenders, the core features of Flexible mortgages are:

• daily or monthly capital rest
• ability to make overpayments at any point of the loan term without an early repayment charge

• defer payment by taking payment holidays


• drawback overpayments


• drawdown further advances


• underpay without penalty (often only to the amount of any previous overpayments)

Freehold
The buyer of a Freehold property owns both the property and the land it stands on indefinitely. See also Leasehold.

Full Status
This term describes borrowers with a good credit history who are not self-certifying their income

Gazumping
This is when a prospective purchaser has an offer for a property accepted, before another potential buyer puts in a higher offer for the same property.

Higher Lending Charge
This is a premium charged by Lenders in order to indemnify themselves, and NOT the borrower, against any financial shortfall they may incur in the event of repossessing a property which must then be sold at a loss. It is applicable if the amount required is higher than a certain percentage of the property value, usually 75% LTV; often the Lender will pay the cost of this insurance themselves between 75% and 90% LTV. The charge may either be added to the loan or deducted from the advance on completion.
Also known as: Additional Security Fee; Indemnity; Mortgage Indemnity Guarantee (MIG)
.

Homebuyers' Report
See Valuation Fee.

Income Multiples
These are the multiples that Lenders apply to borrowers' income in order to determine the maximum loan they will offer them

Indemnity
See Higher Lending Charge

Individual Savings Account (ISA)
A repayment vehicle associated with Interest Only mortgages.

Interest Only mortgages
With this method the initial loan amount remains the same throughout the term of the loan, while the monthly mortgage repayments only pay off the interest being charged on this amount. For this reason, Interest Only mortgages are tied to investment in one of a number of different repayment vehicles, which, ideally, should cover the initial loan amount at the end of the loan term. These repayment vehicles include endowment policies, personal pensions, ISAs etc.

Introducer fee
See Procuration Fees

Leasehold
The buyer of a Leasehold property owns the property for a set number of years, but doesn't own the land on which it stands. See also Freehold.

Let to Buy mortgage (LTB)
This is a mortgage where the borrower's current property is let to other tenants and the rental income is used to cover the mortgage repayments on a new property, bought as the borrower's main residence. When Lenders calculate how large a loan the borrower can afford to repay on LTB they do so primarily on the basis of projected rental income, rather than salary income multiples.

Libor-Linked mortgage
This is a variable mortgage that is either above or below the London Inter-Bank Offered Rate by a set percentage within a set period. The Libor rate is set independently every 3 months. It is often associated with Lenders that offer loans to borrowers with elements of adverse credit.

Life Policy
See Term Assurance

Loan to Value (LTV)
This is a percentage figure of the loan amount in relation to the property value. For instance a £100,000 property bought with a mortgage of £70,000 has an LTV of 70%. The higher the LTV, the higher the interest rate charged will be; above certain LTVs a Higher Lending Charge comes into effect

Mortgage Indemnity Guarantee (MIG)
See Higher Lending Charge.

Mortgage Payment Protection Insurance (MPPI)
See Accident, Sickness and Unemployment Insurance (ASU).

Non-Conforming
See Adverse Credit.

Offset mortgage
This is a fully Flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purposes of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.

Overpayment
This is when an unscheduled capital repayment is made or when monthly payments are increased, in order that the mortgage is repaid before the end of the mortgage term, saving considerable sums in interest. Many traditional (i.e. non-Flexible) mortgages include early repayment charges if overpayments are made within a set period. In contrast, Flexible mortgages allow unlimited overpayments without penalty and, increasingly, mortgages are semi-Flexible, allowing borrowers to overpay a certain percentage of their loan each year without incurring early repayment charges.

Pension
A repayment vehicle associated with Interest Only mortgages.

Personal Equity Plan (PEP)
A repayment vehicle associated with Interest Only mortgages.

Portability
A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the Lender will be prepared to offer depends on whether the loan amount increases or decreases. If the latter, early repayment charges may apply.

Procuration Fee
This is commission paid by Lenders to intermediaries for introducing business to them. If the intermediary receives more than £250 they are obliged under the Mortgage Code to disclose to the borrower the exact amount they received.
Also known as: Introducer Fee

Redemption Penalty
See Early Repayment Charge (ERC).

Repayment mortgage
See Capital and Interest mortgages.

Right to Buy (RTB)
This is when a tenant living in a council-owned property purchases it at a discount, the size of which depends on the length of their tenancy.

Self Build
This is a mortgage for property under construction. The loan is paid out in stages as the property is completed, in order to ensure the LTV does not rise too high at any point.

Self Certification mortgage (S/C)
This is a mortgage where a borrower states their income and signs a confirmation of their ability to repay a loan, without having to provide evidence such as accounts, payslips or bank statements. Consequently, S/C rates are often higher than standard Full Status mortgages.

Shared Ownership
This is a scheme operated by a Housing Association where the borrower owns part of a property, and pays the mortgage on this, while a Housing Association owns the rest of the property, and the borrower pays rent on this.

Split Loan
This is a mortgage that is taken partly on a Capital and Interest basis and partly on an Interest Only basis.

Stamp Duty
This is a government tax charged on properties with a purchase price in excess of £120,000. Properties are charged 1% from £120,000 to £250,000, 3% from £250,000 to £500,000 and 4% above £500,000. It is not payable on remortgages.

Standard Variable Rate (SVR)
This is a variable rate determined entirely at each Lender's discretion. Unless linked to Libor or the Bank of England Base Rate, the SVR is the reverting rate at the end of any special offer period, such as a Capped, Discounted or Fixed rate.

Term Assurance
This insurance repays the mortgage in the event of the insured person's death.
Also known as: Life Policy.

Tracker mortgage
This is a variable mortgage that is either above or below the Bank of England's Base Rate by a set percentage within a set period.

Valuation Fee
Whether purchasing or remortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases exponentially with the valuation/purchase price. There are 3 levels of valuation: in order of increasing detail these are Basic, Homebuyers' Report, and Structural survey. The more detailed the valuation, the higher the fee.