Your home may be repossessed if you do not keep up repayments on your mortgage.

Accident, Sickness and Unemployment cover

This is a yearly renewable cover
that provides payment for a short
period of time if accident, sickness or unemployment occurs. Often there is a deferred period after the point of claim (e.g. six weeks), and it is after this point that benefits are then paid. Benefits are normally only paid for periods of up to two years. Be aware that premiums will vary at renewal each year.

Affordability

At the moment it is easy to lull yourself into believing you can afford the mortgage you need – mortgage rates are at all-time lows and feel easily affordable. However, you need to ask yourself not only can you afford it today but can you afford it in the future when mortgage rates return to more normal levels.
Let’s say you manage to find a mortgage with an interest rate of three percent, fixed for three years. That’s a great rate. After three years you find interest rates have gone up and the best deal you can now get is six percent. That’s an increase of three percentage points but, more frighteningly, your rate has increased by 100%. Will your net take home pay have increased at the same rate?
Interest rates will go up sooner or later. So be sure you can afford your mortgage repayments when that happens, not
just now.

Annual Percentage Rate of charge (APR)

This is the interest rate that takes into account the total charge for lending you the money each year. It includes the added costs of the loan (such as arrangement fees), as well as factoring in the frequency that interest is charged (daily, monthly, quarterly or annually). This results in a figure that shows the equivalent rate on an annual basis. While this is a good initial benchmark for comparison, it should not be looked at in isolation as the only way to choose your mortgage.

Buildings insurance

This is insurance that protects the property, fixtures and fittings. It can protect against fire, flood, subsidence and accidental damage. A key point to note is that the amount of cover chosen
is to cover the rebuilding cost of the property, which is often different to its market value. The amount you have to pay towards any claim is called an excess, and can vary depending on what is being covered (e.g. subsidence, fire).

Completion

The stage where your conveyancer arranges for the monies from your new lender to be paid to the previous mortgage lender or debtors, and completes the legal documentation.

Contents insurance

This insurance protects items that can easily be removed from a property. Cover can be for risks such as fire, theft or accidental damage. The amount you have to pay towards any claim is called an excess, and can vary depending on the item covered and what it is being insured against (e.g. accidental damage, theft).

Conveyancer

The job of a conveyancer (or solicitor) when remortgaging is to help:
• Carry out a search of local planning information for items that may impact the value (e.g. upcoming land developments, new roads)
• Confirm from the you whether you are aware of any material, structural or other defects to the property that the new lender should know about
• Obtain proof that the property legally belongs to you
• Research and confirm the property’s legal boundaries
• Agree a drawdown & completion date to settle the previous loan(s).
Most lenders will be prepared to accept your choice of conveyancer, as most experienced solicitors will have acted for the lender in question before. However, it can be best to check beforehand.

Credit reference agencies

These agencies hold information on most UK adults. That data helps lenders assess the risk of lending to a specific person. There are a number of agencies in the UK, the main ones being Experian, Equifax, Callcredit and Checkmyfile. You can request a copy of your credit file from them, which is very worthwhile. You may be charged for this and some also have a monthly fee, so take care to check their terms and conditions.

Credit score

To help a lender assess your application, it is usual that they will use a form of scoring system to decide whether to accept your application. Different lenders give different levels of importance to your circumstances, and some set a higher pass mark than others
It is normally based on three core areas
• Public record information (e.g. the electoral roll),
• Credit account information (e.g. records of amounts of loans and your payment history), and
• Search information (e.g. the number of applications you have made for credit).
This means that care is required to ensure you approach the most suitable lenders, as an application will be recorded as a search (even if unsuccessful) and can then influence other lenders’ decisions.
• Check your credit file – the information isn’t always accurate and you can ask the agency to correct any inaccuracies
• Make sure you’re on the electoral register – lenders can be a bit suspicious of anyone not registered to vote
• Check your address is current on all your credit, bank and mobile phone accounts – you don’t want to give the impression that you have more than one address
• If you have credit cards you don’t use, close the accounts – having several credit cards can count against you
• If you’ve never had credit in the past, apply for a credit card so you can build a credit score
• Make sure you pay all your bills on time – being only a few days late can result in a default showing on your credit file
• Never use payday loans – it will make you look like someone who can’t manage money.

Critical illness cover

This is insurance that pays out when
a defined medical event occurs.
For example, following a heart attack, stroke, cancer or some other specifically defined critical illness.
Cover is for a set term, which may be equal to a mortgage term, for when children have grown up, until retirement or another life stage milestone. It may be worth considering having one policy for a set term to cover the mortgage, and another that will provide money to help provide for your different lifestyle if a serious illness happens.
Most people choose a lump sum to be paid out. There is the option of receiving it as set income over the term remaining, which is often a lower cost option.

Deposit

Lenders are no longer happy to take all the risk of buying your new home, and so do not lend 100% of the value of the property. If you are unable, in the future, to pay your mortgage, the lender needs reassurance that it can take your home and cover the loan by selling it.
Less risk taking means lower loan-to- value (LTV) ratios, and personal deposits need to be larger than in the recent past.
You will need typically 20% to access the most competitive interest rates on the market.
The source of the deposit may come
from your current property, savings, inheritance or a gift. Be aware that deposit loans from family and friends can still not be accepted as a source of deposit by some lenders, or can influence how much they may lend you.

Disclosure

It is a legal requirement that you
disclose your circumstances fully and accurately. Also, non-disclosure of
credit commitments, missed payments, County Court Judgements (CCJs), accurate address history, and number of dependents will have a big impact on your application now and also on any future application for financial services (as evidence of this may be loaded onto fraud databases).
Disclosing any issues to a lender does not automatically mean the application will be declined – indeed many lenders have provision for this type of business.
You may wish to consider obtaining a credit report to identify any historical or current credit issues, as well as check your past address history.

Drawdown

During the completion stage, this is when funds are released from your lender to be used for the property purchase.

Early repayment charge

This is normally shown as a percentage
of the loan but can also be a fixed fee. They apply if you repay your loan during any special incentive periods (e.g. discount). Some products extend that time beyond the initial period so be aware.
Part payments can also sometimes trigger this, although most lenders allow a small percentage a year to be repaid without this happening.

Equity

The difference between the value of your home and your outstanding mortgage is known as equity. You could use the equity in your home as your deposit for your new mortgage. Less risk-taking by lenders means lower LTV ratios, so the more equity the better. If you get into trouble making your mortgage repayments your lender needs to be sure it can cover the outstanding mortgage by taking your home and selling it. The lower the LTV the more chance your lender has of achieving this.
To get the best deals on interest rates you’ll need around 20% equity. As a rule, the more equity you have, the lower your interest rate.

Family Income Benefit

This cover will pay out if death occurs, and provides an income per year for the term remaining on the policy. For example, for a 20 year term, where the claim occurred after five years, there would be 15 annual payments made in total.
The income is not normally subject to income tax but may impact some state benefits.

Guarantor

A guarantor doesn’t have to be a parent but usually is. A guarantor takes on some of the risk of you being unable to meet your repayments. The lender will normally require your guarantors to offer their property as security against the guaranteed part of the mortgage.
Technically they become immediately liable to repay the outstanding loan if
you are no longer able to make your payments. In reality what usually happens is an agreement is made between
the lender and the guarantor, so they maintain payments until you are able to do so.
The amount of lenders willing to consider this for buy-to-lets is very limited.

Higher lending charge

This was previously known as a mortgage indemnity guarantee (MIG). It is where high LTV lending happens and an insurance policy is taken out by the lender to protect itself – should you default and property values decline. This cost is passed on to you through this charge.
Not all lenders charge this.

Income protection

This provides income where you are ill
or injured, and as a result your income through employment or your normal route stops. If Houseperson’s cover is included, then it will pay out upon illness or injury, irrespective of any income stopping.
It is designed to replace most of your
net income.Cover lasts for either a set term in whole years, or to a given age (typically your state retirement age).
The amount you pay is called the premium. It can either be guaranteed not to change, or it can be reviewable. Reviewable cover normally changes based on the claims experience of the life assurance company.

Indexation of benefit

This is a feature that can be added to some insurance plans. This allows the amount of benefit and cover you have in place to increase during the term of the plan. Increases can be set amounts, or linked to inflation or national average earnings increases.
Normally increases happen at each anniversary. Premiums also increase to reflect the higher level of cover.

Interest only mortgage

With an interest only mortgage, your payments to the lender cover only the interest on the loan (i.e. they do not repay any of the capital). The total amount of your debt does not reduce over time and the full amount of the loan still has to
be repaid to the lender at the end of the term, so you will need to ensure you have that money ready.
So you can make this final payment, you can invest so that you generate enough capital to repay the loan at the end of the term. If you choose to invest, some investment vehicles can have
tax advantages and when you move or remortgage, your investment vehicle can usually be reallocated to the new mortgage.
However, there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case).

Legal fees

When you buy or remortgage a property there is legal work that needs to be done. You will often hear this called conveyancing. You will probably use a solicitor to do this work for you although you can use a licenced conveyancer.
Your legal bill will be the fees for the
legal work plus other expenses that your solicitor has paid on your behalf, such as searches and Land Registry fees. You may see these additional expenses described as disbursements.
Some remortgage deals may include free conveyancing, otherwise expect to pay around £500 + VAT for the legal work plus the cost of disbursements.

Letting agreement – buy-to-let

The type of tenancy agreement will influence the number of lenders who
will consider lending to you. A six month assured shorthold tenancy agreement (AST) is acceptable to most providers. Your choice will narrow if you are considering to let to a local authority,
a company or housing association.

Life cover

This is cover that pays out on death. Some plans pay upon earlier confirmation of a terminal illness where the prognosis is death within 12 months. It can pay
out as a lump sum, or as income for
a set period.
Cover can last for a set term called Term Assurance, or can last throughout life, called Whole of Life.
The amount of cover can remain the same or increase / decrease annually. Level term assurance stays the same throughout. Decreasing cover is sometimes used to cover a reducing debt, such as a repayment mortgage and usually assumes a given interest rate. Provided your mortgage rates don’t exceed that rate, then the cover should reduce at around the same rate as the mortgage.
The amount you pay is called the premium. It can either be guaranteed not to change, or it can be reviewable. Reviewable cover normally changes based on the claims experience of the life assurance company.

Loan-to-value (LTV)

This is shown as a percentage rate, and is the amount of loan compared to the value of the property. The higher the loan-to- value (LTV) the lower the deposit required, but typically also the higher the rate of interest payable. See also ‘Deposit’.

Mortgage arrangement fees

Unless you choose a lender’s standard variable rate mortgage you can expect
to pay an arrangement fee for your mortgage. Arrangement fees vary wildly, and may be expressed as a fixed fee or as a percentage of the loan. This means it is difficult to give an accurate estimate but it is not unusual to pay something in the range of £500 – £2,000 or more.
You will usually have the choice of paying the arrangement fee up front or adding it to the loan. Adding it to the loan may ease your cash flow but will cost you more as you will pay more interest.