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Glossary

Mortgage jargon explained.

A

Additional Lending

Once you have a mortgage with Aldermore, you may request at any time to release further equity for many purposes, including to buy a buy-to-let property, or expand your portfolio, for debt consolidation, home improvements or business purposes. Applications are subject to eligibility – call our team today to discuss your options.

Aldermore Managed Rate (AMR)

The AMR is Aldermore’s standard variable rate. The variable rate is reviewed monthly. The rate does not have a direct link to the Bank of England Base Rate (BBR), which is also reviewed monthly. Typically the AMR will move in line with BBR changes, but could also go up or down at any other point in time, as this is a variable rate set by Aldermore.

Affordability

When applying for a mortgage, Aldermore will assess your ability to repay the mortgage, taking your income and expenditure into consideration. Loans, credit cards and other outgoings (for example maintenance, season tickets, service charges) may affect the mortgage amount deemed affordable. The term of the mortgage can also affect this.

Annual Percentage Rate of Charge – (APRC)

When comparing mortgages, you will note an APRC (Annual Percentage Rate of Charge) which is often different to the initial rate of interest as advertised for the mortgage. As many lenders and products charge varying fees, it is a convenient way for you to compare all of your options – from lender to lender, product to product. The APRC takes into account the term of your mortgage and the associated fees you may have to pay, and is referred to as the true cost for comparison.

Application fee

This is charged when assessing and processing your application (even if your application is unsuccessful or you withdraw it).

Assured Shorthold Tenancy– (AST)

This is the default category of residential tenancy in the UK. This provides the tenant with assurances that the rent will not be reviewed during the fixed term of the agreement, but it can be reviewed after this date.

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B

Bank of England Base Rate (BBR)

The BBR is set monthly by the Monetary Policy Committee. The rate can go up or down, and will be taken into consideration when reviewing Aldermore’s Managed Rate.

Buy-to-let

This refers to a property or mortgage designed for to be rented out to tenants – either for a single residential unit, or for HMO’s and MUFB’s.

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C

Capital Balance

This is the amount of mortgage borrowed or owed to a lender. For a repayment mortgage, this will reduce monthly when making normal monthly repayments. For an interest only mortgage, this amount will remain the same throughout the mortgage term.

Capital Growth

The increase in a property’s value that can be realised on sale of the property, or released as equity when remortgaging.

Capital Raising/Further Advance

You can release your own equity from your property when re-mortgaging to Aldermore, or during your mortgage term by considering a further advance.  Aldermore accepts capital raising requests for many purposes – for example to buy another property (maybe a buy-to-let), for debt consolidation or for business purposes.

Commercial Mortgage

When purchasing a property that has commercial or mixed use – for example a shop, office or complex buy-to-let (such as a HMO – House in Multiple Occupancy or MUFB – Multi Unit Freehold Block, a commercial mortgage will be required.

Conclusion of missives

This terminology applies to property purchases in Scotland only. Once missives are concluded, the contract becomes legally binding. This means neither party can withdraw from the contract, or vary the terms. Once the legal and mortgage processes have concluded, completion can take place – this is moving day!

Conveyancing

Conveyancing applies to the legal procedures a solicitor will carry out, to transfer ownership from one party to another. The Solicitor will carry out searches and checks – known as Disbursements. These searches will provide peace of mind for the purchaser. These searches are carried out for the lender’s benefit too and form part of Aldermore’s decision to lend.

Aldermore requires conveyancers to be members of the relevant law society (England and Wales or Scotland). For England and Wales we require a minimum of 4 partners, and for Scotland 3 partners.

Your solicitor will be responsible for registering Aldermore’s charge on your property with the Land Registry.

County Court Judgement (CCJ)

This is an order from the County Court instructing you to repay a debt. A lender can apply to the court to reclaim unpaid debt; if you receive a summons of County Court Claim Form it means a lender has decided to take legal action against you to recover a debt. This can follow a default, when agreement to pay is not reached. CCJ’s can affect your credit file and rating, and hence a lender’s willingness to lend, for 6 years or more.

Credit score

Credit agencies use a set of rules to rate your creditworthiness. This is a digital decision. High scores can be achieved by meeting monthly credit payments and being on the voters roll, for example. Your score can be reduced by moving house regularly, missing payments and borrowing up to the limit on your credit cards. Aldermore has chosen not to use credit scoring in our process; we use highly experienced underwriters to add the human touch and assess your situation individually.

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D

Daily Interest

The interest on Aldermore’s mortgages is calculated daily. When you make your monthly repayment, a repayment mortgage will pay the interest due for the same calendar month, the surplus will be paid off the capital. Interest only will cover just the interest due for that month. As interest is calculated daily on the capital balance, any overpayments made will reduce the interest being charged immediately.

Debt Consolidation

The term used when re-mortgaging, or taking additional lending, to repay unsecured debts. It is advisable to get full advice before doing this. As the finances are taken over a longer period of time, normally at a lower rate of interest, your monthly cost can be reduced; however the total amount repayable can be increased, sometimes substantially, due to the longer term. Your home can also be put at risk by securing previously unsecured debts against your home, in the event of missed payments or defaulting on your mortgage.

Decision in Principle (DIP)

This is an initial indication that Aldermore will lend you the mortgage you require. This is based upon information supplied, such as income and expenditure, employment and address history. Upon application you will be asked to provide evidence of this information. To provide a decision, Aldermore will also carry out a credit search, although we do not use credit scoring to make our lending decisions.

Default

A failure to fulfil a financial obligation, to repay a loan or other credit agreement (e.g. mobile phone bills, credit cards, mail order agreements). Lenders will provide notice of your agreement falling into default, and this will be after a period of non-payment, or underpayment. Defaults can affect your credit file and rating, and hence a lender’s willingness to lend, for 6 years or more.

Discounted Rate

Discounted rates provide an initial discount for a set period of time, normally 1 to 3 years. The discount provides a reduction from Aldermore’s Managed Rate. As the rate is variable, the rate you are charged, and hence your monthly payments, will be subject to fluctuations. After the discount period, your mortgage will normally revert to Aldermore’s Managed Rate, unless you take advantage of a loyalty rate.

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E

Early Repayment Charges (ERC’s)

During the initial period of your mortgage, there may be a charge for making additional repayments to your mortgage. This is a charge which will be applied for over payments and full repayments, above the limits agreed. For details of how this might affect your mortgage, please see your mortgage offer. When applying for a mortgage, consideration should be given to any plans you may have to over pay your mortgage, to move house or any life changes that may impact your mortgage planning.

Equity

This is the difference between the amount you owe and the value of your property. Negative equity is when the balance of your mortgage exceeds the value of your property.

Exchange of contracts

Prior to buying or selling a house in England and Wales (which is referred to as completion), the solicitors will exchange contracts between the sellers and buyers. This is the point at which the sale becomes legally binding. A completion date will be set at this stage – this is moving day!

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F

First Charge When taking a mortgage with Aldermore, our interest will be registered on the property by placing a charge with the land registry. This must be the first legal charge on a property. In the event of the sale of the property, the lender with a first charge will be repaid first; then the second charge and so on. A second charge would normally be placed by a secondary lender who has supplied a secured loan, which could be for a range of different purposes.
First Time Buyer (FTB) Someone who has never owned a property in the UK before. There are no additional criteria requirements for a first time buyer with Aldermore.
First Time Landlord

This is someone who is buying a buy-to-let property for the first time. First time landlords often rent out their current home, when purchasing a new property – this is called let-to-buy.

Fixed Rate

With a fixed rate mortgage, the rate of interest you are charged is guaranteed not to change for a set period of time, agreed at outset. This means your payments will not change (subject to meeting your monthly payments) during this period. You may prefer a fixed rate if you would like peace of mind and greater stability to budget on a month to month basis. After the fixed rate period, your mortgage will normally revert to Aldermore’s Managed Rate unless you take advantage of a loyalty rate.

Freehold

A freeholder owns the property and the land it is built on.

Funds Transfer Fee

This is charged for electronically transferring the mortgage funds to you or your solicitor.

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G

Guarantor

When applying for a mortgage or other forms of credit, some banks will accept a guarantor to add strength your application. Guarantors can help in two different ways – by providing a guarantee on the monthly cost or an equity guarantee which gives a lender security on sale of the property. Our Family Guarantee Mortgage utilises an equity guarantee for your parent(s) or grandparent(s) to help you onto the property ladder, in lieu of a deposit.

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H

Houses in Multiple Occupancy (HMO)

An HMO is a house or a flat in which more than two households live as their main residence, and where some households share facilities such as kitchens, bathrooms and toilets. HMO’s can also be a block or converted building containing non self-contained flats. HMO’s can be licenced or un-licenced dependant on the local authority to the property.

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I

Initial Period

Refers to the period at the start of your mortgage, when a special deal applies and normally when Early Repayment Charges apply. This could be a fixed rate or a discounted rate. The end date of your deal will be confirmed in your illustration and offer letter.

Insurance

When taking a mortgage, Aldermore will insist that you have Buildings insurance in place. It is also sensible to consider other forms of insurance with your adviser to protect your home. This includes (but is not limited to) -

  • Buildings Insurance - This is an insurance policy to make repairs to the structure of the property in the event of damage, maybe by bad weather or fire. This covers the walls, roofing, windows etc.

  • Contents insurance – this covers personal possessions, appliances furnishings etc. in the home, for scenarios such as damage by a flood or fire, or if they are stolen.

  • Life Insurance – this cover provides a cash sum on death of an insured person. This can be used for repayment of the mortgage or other debt or for living costs and for others who may be financially dependent. It can also make estate planning easier.

  • Critical Illness Cover – this will also provide a lump sum, if during the term of the policy an insured person suffers a major illness (as defined in the policy). This can ease worries at an already difficult time, and reduce financial stresses and strains.

  • Mortgage Payment Protection and Income Protection – In the event of a less serious illness, or an accident that renders you unable to work for a period of time, this policy will provide a monthly payment to you that will help you meet your mortgage and other living expenses.

The monthly payments made on insurances are called premiums. Some policies are renewed annually, and others are set for the term of the mortgage (Term Assurance), and it is advisable to arrange a full advised review of these policies on a regular basis.

Interest Only

With an interest only mortgage, you will only pay the interest owed each month, and the capital balance will remain outstanding at the end of the term. A plan needs to be in place for repayment of the capital balance at the end of the mortgage term. Options will include -

  • Other investments such as ISAs, Pensions and Endowments

  • Sale of the property or another property

  • Making extra payments throughout the mortgage term

  • Switching to a repayment mortgage during the term.

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K

Key Facts Illustration (KFI) and Offer KFI

Before applying for a mortgage a KFI will be provided. This is a personalised illustration which covers the most important information about a mortgage such as your monthly repayments, any fees and early repayment charges.  KFI’s will be in the same format for all lenders, to help comparison of options. Post full application and with underwriter agreement, an Offer KFI will be provided. This contains a confirmation of the agreed terms for the mortgage.

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L

Landlord

Someone who owns a property and rents this to tenants. Aldermore defines a landlord as being experienced, once they have owned at least one buy-to-let property for a minimum of six months.

Leasehold

For a leasehold property, you own your property and the land, for a set period of time, i.e. the length of the lease. Leases can typically range from 99 to 999 years. When the lease ends the property is returned to the freeholder. Lease extensions are possible for short term leases.

With a Leasehold property additional costs could be required, including ground rent – payable to the freeholder, or a service charge which would normally include some elements of maintenance of common areas e.g. gardens or entrances with joint access. In England and Wales, flats and apartments are commonly Leasehold.

Let-to-buy

This is when you purchase a new home, but instead of selling your current house, you rent it out.

LIBOR

LIBOR is the London Interbank Offered Rate. This is the rate that the average leading bank would be charged if borrowing from other banks. The LIBOR is reviewed quarterly. Aldermore’s Commercial variable rate mortgages are normally linked to LIBOR.

Loan to Value (LTV)

The loan to value indicates what percentage of your property’s valuation you are mortgaging. To calculate this, divide your mortgage amount by the valuation of the property (this should be the valuation as confirmed by the surveyor), and multiply by 100. The remainder is the deposit you are putting down or your equity.

Loyalty products

A range of products available at the end of the initial period.

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M

Missed payment

A payment not made within the period established in your credit agreement. Regular or repeated missed payments can lead to a default. Missed payments can affect your credit rating, and a lenders willingness to lend. Aldermore’s Underwriters can assess your situation and take occasional glitches into consideration.

Mortgage

A loan secured on a property to enable you to purchase a property, or use equity in the property for another purpose (via re-mortgage).

Mortgage Application  

Once you are ready to proceed with your mortgage, a full mortgage application will be submitted on your behalf, by your adviser. This involves taking more in depth information about you, your employment history, the property and solicitors details. More in depth credit searches and fraud prevention agency searches are made at this time.

Mortgage Arrears

This means not all mortgage payments have been made during the calendar month it is due and in full. Missed payments can cause charges and additional interest. This will also affect your credit file. Please contact our team as soon as possible if you are worried about meeting your mortgage payments at any time.

Mortgage Deed

Is the legal contract that transfers interest in a property in return for the mortgage loan in England and Wales. This is the Standard Security in Scotland.

Mortgage Exit Fee

You may have to pay this if:

  • Your mortgage term comes to an end;
  • You transfer the loan to another lender; or
  • Transfer borrowing from one property to another.

This is payable either at the end of the mortgage term, or before the end of your mortgage term if you transfer the loan to another lender or another property (known as ‘redemption’).

You may be charged a separate fee by your solicitor or licensed or qualified conveyancer for their work relating to redemption of the mortgage and discharge of the security.

Mortgage Term

This is the period of time for which the mortgage lasts. Aldermore’s mortgages range from 6 years to 35 years.

Multi Unit Freehold Blocks (MUFB)

This refers to properties with several self-contained units in one block, all of which are on the same freehold.

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O

Overpayments

Overpayments can help you reduce your mortgage quicker than planned. In times of lower interest rates, or if you receive a windfall, you may wish to take the opportunity to reduce your mortgage balance. Aldermore allows up to £5000 per year during your initial period without Early Repayment Charges, and an unlimited amount after this time. As the interest is calculated daily on the capital balance, this will affect the amount of interest you are being charged immediately. On your illustration, it will indicate how much you will repay for every £1 borrowed; this can be dramatically reduced with even small overpayments.  Overpayments can be made regularly by standing order, or ad hoc over the phone or by cheque, electronic transfer and faster payments.

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P

Portability

If you move home during your mortgage term, may wish to take or “port” your mortgage to your new property. Many customers do this as they have an established relationship built with Aldermore and this can make the process easier. Others may choose to do this as otherwise they would be liable to pay Early Repayment Charges (ERCs). Eligibility to port will be confirmed on your mortgage offer. Aldermore will normally refund any ERCs paid on repayment of the original mortgage by home-movers subject to no more than a two months gap before commencement of the new mortgage. For BTL and Commercial mortgages, this feature is not currently available.

Product Fee

This is charged on some mortgages as part of the deal. It can be paid up-front or added to the total mortgage amount. If you add it to your mortgage, you’ll pay interest on it at the same rate as the rest of your borrowing. It might be a flat fee, or a percentage of the loan amount.

Product Transfer

this refers to the process of switching to a new product during your mortgage term but most normally at the end of your current deal. Aldermore regularly offers a suite of loyalty products.

Property Investor

Someone who invests their money in property. The investment return is made from the monthly rental income and eventually from the sale of the property, which will hopefully have increased in value at this stage.

Property Portfolio

A number of properties owned by a landlord, or property investor.

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R

Redemption Statement

When you come to repay your mortgage in full, a redemption figure will confirm the full amount needed to be paid, including any fees – for example the Mortgage exit fee. A Redemption Statement will be required by your solicitor acting for a sale or re-mortgage.

Remortgage

This is when you take a new mortgage on a property already owned.  This could be a property that you own outright and where you are looking release some of your equity. This could also be to replace a mortgage already on the property; you may choose to release additional money at this time as well.

Rental Coverage

The percentage of the mortgage payment that the rental income covers. Ability to cover other costs and periods of rental void should be considered, and Aldermore will require this when calculating serviceability.

Rental Income

The monthly rental paid by the tenant for letting the property.

Rental Void

Void periods are those gaps between tenants, when a rental property is generating no income. During this phase the landlord must still cover costs such as the mortgage payments and related insurances.

Rental Yield

The rate of return over the costs associated with an investment property, presented as a percentage. This is frequently used in property investment to evidence the strength of return.

Repayment

With a repayment mortgage, you will repay the interest accrued each month plus a portion of the capital owed. Your balance will reduce over time, to zero at the end of your term, as long as all payments have been met. During the early years, you will be repaying proportionately more mortgage interest than capital. As the term of your mortgage progresses, and the balance on which the interest is calculated reduces, you will start to repay more of the capital balance.

Retention

When a property is surveyed, the surveyor might make recommendations for the lender to retain an amount of money, equal to the cost of any remedial works deemed necessary to make the property a suitable security – for example for damp and timber repairs, to make the property habitable by adding a bathroom or kitchen. The lender can choose to apply this, or a greater figure, or may chose not to lend if the remedial works are too great. Once confirmation has been provided that remediation has been completed from the surveyor, Aldermore will then release the retention. This can be done before completion, or within 6 months of completion.

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S

Serviceability

When applying for a buy-to-let mortgage, Aldermore will assess your ability to repay the mortgage, taking the expected rental income into consideration. We also consider if there are periods of rental voids, how you will meet the mortgage payments and other costs associated the property. For this we may assess your personal income and expenditure. We ask for between 125% and 150% rental coverage – i.e. the rental income is at least 125% of the mortgage payment on interest only.

Stamp duty

This is a tax on land and property. It is levied against the full purchase price; currently residential properties over £125,000 and commercial properties over £150,000 are liable. The tax is charged to the purchaser.

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T

Tenant

A person who lives in a property or occupies land rented from a landlord.

Term Variable Rate

Term Variable Rate mortgages offer a discounted off Aldermore’s Managed Rate (AMR) for the full term of your mortgage. This means that, unlike a fixed or discounted rate, you will have the same product for the full term of your mortgage, unless you choose to take advantage of a loyalty rate in the future. As the rate is variable, the rate you are charged, and hence your monthly payments, will be subject to fluctuations.

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U

Underwriter

An underwriter is someone who reviews your mortgage application and all the facts presented to them. They are able to make lending decisions, based on the lending criteria set out. Aldermore is committed to reviewing applications on a case by case basis. Our lending decisions are made by experienced underwriters who review all aspect of your situation to make an informed, risk-based decision. The underwriters add a human touch and can take into consideration a wide scope of situations, allowing Aldermore to be more flexible with lending decisions.

Unencumbered

A property with no mortgage charges held, i.e. you own the property outright.

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V

Valuation

When arranging a mortgage Aldermore requires a valuation to be carried out on the property the mortgage will be secured against. There are 3 types of valuations available –

  • A basic valuation for mortgage purposes - This is the most basic property valuation and the least expensive type of report. It enables Aldermore to decide whether the property is suitable security for us to lend you the mortgage. It gives you limited information about the property. So if you choose this type of valuation, bear in mind that the report may not mention defects that may affect your decision to buy.

  • A homebuyers valuation - This is a survey for you and a basic valuation for us. The survey gives you guidance on the essential things you may need to know about the property, such as defects and problems that are serious or that may significantly affect the value. You'll get a copy of the report, we don't. We receive a copy of the valuation for mortgage purposes and any significant observations that may affect our decision to lend.

  • A full structural survey - This is the most comprehensive type of survey, and therefore the most costly. A building survey is a detailed report that can be tailored to fit your needs. The surveyor will discuss what kind of report you want beforehand. Building surveys don't provide a valuation of the property, so you'll need to take into account the extra cost of a basic valuation for mortgage purposes.

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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