MORTGAGE GLOSSARY

Additional Lending means borrowing more money on top of your existing.

The annual rate charged for borrowing, shown as a percentage. This takes the total amount of interest to pay, as well as the other fees and charges that are applied, which is then averaged over the term of the mortgage. This is a standardised formula, so you can compare the true cost of borrowing for different loans. 

If you fail to pay your contractual monthly mortgage payments, you are ‘in arrears’.

This is a type of tenancy agreement, usually for an initial 6 or 12 months. At the end of this period, the tenancy can either continue or the landlord can give notice to evict the tenant. This is the main type of agreement accepted for Buy to Let applications.

The Bank of England’s official borrowing rate. This is set by the Monetary Policy Committee.

A mortgage adviser chosen by you. The role of a mortgage broker is to find and recommend the most suitable product for you and submit your application to a lender.

Insurance which covers damage to the internal and external structures of the property but does not cover contents. Buildings Insurance must be taken out as soon as contracts are exchanged and is a condition or your mortgage.

Buy to Let mortgages are for individuals who want to purchase or remortgage a property to rent it out. The money from your tenants is then used to pay off the mortgage.

Completion is the final step of the mortgage process; your solicitor or conveyancer will confirm completion of the transaction. If you are purchasing a new property, this is the day you will be able to pick up the keys.

The legal specialist who looks after your interests when buying, selling or remortgaging a property.

The legal process for the transfer of the legal title of a property from one person to another.

You can get a CCJ if someone takes you to court over missed payments and the court orders you to repay that debt. If this happens, it will also appear on your credit file.

An independent organisation that holds data about you, including your financial behaviour, credit applications and outstanding loans.

A check of your credit history that is done by the lender using a Credit Reference Agency when you apply for credit, in this case a mortgage. 

It gives us an idea of your financial behaviour, including how much credit you currently have outstanding and whether you have made all your payments on time.

A debt management plan (DMP) is an informal repayment arrangement usually made through a debt management firm, between you and anyone you owe money to. If you are struggling to make your contractual repayments, the firm will liaise with your creditors on your behalf to agree a repayment plan. DMPs are normally put in place for debts that are classed as non-priority, such as credit cards, loans and other credit agreements, such as a mobile phone contract.

This is the first step in a lender confirming that they may be prepared to give you a mortgage, based on the initial information received from your broker. This is only an indication; more details are required when you’re ready to do the full mortgage application. 

You may hear this also referred to as an ‘Agreement in Principle’ or a ‘Mortgage in Principle’.

Default is the failure to meet the legal obligations of a loan. If you fall behind with your mortgage payments, a company can record this as a default once you are at least three months behind.

An amount of money that you pay towards the property purchase. This will make up the difference between the mortgage you have applied for and the property’s purchase price.

For example, if the total property price is £175,000 and you have £17,500 to put towards it, this would be a 10% deposit.

Sometimes the deposit accepted by the lender can be as little as 5%.

A charge for repaying all or part of your mortgage early. ERCs vary and will depend on your mortgage terms and conditions; however, this is typically applied when the mortgage is repaid in full, whilst the interest rate is still in a fixed period.

The difference between the total outstanding balance of your mortgage and the market value of your property.

A document that lenders produce, outlining the key features of the mortgage. It is designed to help make it easy for you to compare the total cost of different mortgages because the information is the same, and includes details such as what your monthly mortgage repayments will be, and any fees you’ll need to pay.

The FCA are an independent body that regulate mortgage lenders and other financial services companies to ensure that consumers remain protected and that the industry remains stable. You can find out more about them here: https://www.fca.org.uk/

The initial mortgage payment, which is often higher than the following regular monthly payments. This is because interest due from the day the mortgage completed is included, in addition to the first monthly payment.

It is important to check your mortgage documentation to see if your first monthly payment is higher than the following amounts.

If you own the freehold, you have outright ownership of the property, as well as the land that it is on.

If your property is Leasehold in England and Wales, ground rent is often payable to the freeholder (a company or individual which owns the land the property is built on). This is often a fairly low sum and is stipulated in the contract.

A Government scheme that helps with purchasing a property. The scheme closed for new purchases in October 2022 for England and Scotland, however, we are accepting purchases on the Help to Buy Wales scheme. For more information about Help to Buy Wales, visit https://www.gov.wales/help-buy-wales.

For those who bought their property with the Help to Buy scheme in England, Scotland or Wales, you can still remortgage.

A type of mortgage where you only repay the interest charged each month.

This means your monthly payments would be less than on a repayment mortgage, but at the end of the mortgage term you will still owe the original amount you borrowed and must repay this in full.

Kensington Standard Rate (KSR) is a variable interest rate which is set and reviewed by us on a quarterly basis. KSR is reviewed quarterly on the 10th March, 10th June, 10th September and 10th December (or if this is not a working day the working day immediately prior to these dates) each year. Following any changes to KSR the interest rate change will take effect on the first calendar day of the month following the month in which it is changed. It is calculated as the Bank of England Base Rate (BBR) plus an adjustment of between 0% (zero) and 1% to take account of our costs in funding your loan. Our costs of funding are controlled by interest rates available in the market (currently a rate called Term SONIA Reference Rate) so in practice the timing and size of changes in the value of KSR are likely to follow the timing and size of changes in the value of Term SONIA Reference Rate. However, KSR will never be lower than BBR (or 0%, whichever is greater), nor more than 1% above BBR at each date on which it is set. If BBR is lower than 0% (zero) at the time we set KSR we shall deem BBR to be 0% (Zero). 

KSR will be applied for all new mortgage applications (including any product transfers on existing mortgages) placed after 1st October 2020.

Kensington Synthetic LIBOR Rate (KSLR) is the interest rate that will replace LIBOR in our existing mortgage contracts. 

KSLR will equal LIBOR whilst LIBOR continues to be published in its current form. When LIBOR stops being published from 31 December 2021, KSLR will equal the fall-back rate being developed by the FCA that would apply to mortgages in which LIBOR has not been replaced by a new rate.

The value of KSLR can be found here.

A temporary right to occupy land or property. Whoever owns the freehold of that land or property can grant a ‘lease’ for a fixed term. 

For example, if you purchase a property Leasehold, you may own the property but not the land it has been built on. 

A Legal Charge gives security to a lender for money you owe by registering a charge against your property. The charge (called a Standard Security in Scotland) is registered with Land Registry (properties in England, Wales and Northern Ireland) or Land Register of Scotland (properties in Scotland).

The company who you have taken your mortgage out with. This could be a bank or building society, or a company that specialises in lending money for mortgages (like us). 

LIBOR is a rate of interest (the London Inter-Bank Offered Rate) which before 31 December 2021 was often used as a benchmark for pricing financial products.

We previously used the London Interbank Offer Rate (LIBOR) to set the interest rate for our mortgages until we replaced it in new mortgages with Kensington Standard Rate (KSR).

LIBOR will stop being published from 31 December 2021 and will be replaced with a new rate. If we have used LIBOR in your mortgage it will be replaced with the Kensington Synthetic LIBOR Rate (KSLR).

A Limited Company Buy to Let mortgage is where you own the property through a limited company, rather than owning it personally. This company is called a special purpose vehicle (SPV), meaning it is set up only for the purpose of owning investment properties.

A ratio describing the size of a mortgage (the amount you borrowed) in relation to the value of the property, expressed as a percentage.

For example, if you have a deposit that will cover 25% of the property price, then you will need a mortgage that is 75% of the property price, meaning the loan is 75% of the value of the property. If you had a 5% deposit, the LTV would be 95%.

A mortgage is a loan taken out to buy property or land. The loan is 'secured' against the value of the property until it’s paid off.

A legal document that, once signed, provides confirmation that you're happy to proceed with the property purchase or remortgage, based on the terms of your mortgage offer.

The length of time that you have agreed to repay the mortgage over.

A MUB is where there are several separate properties in one block of land, for example, a block of flats.

This is when the value of your property is lower than your total outstanding mortgage balance.

A mortgage offer, otherwise known as an 'offer of advance,' is the formal document issued by a mortgage lender to a customer that confirms that the lender is happy to advance them the money. The mortgage terms and conditions together with the mortgage deed, illustration and special conditions and tariff of mortgage charges are generally incorporated into a mortgage offer.

This will usually be referring to the outstanding amount left to pay on your mortgage, including any interest and fees too.

If you miss a mortgage payment, we will try and come to an arrangement with you to pay an additional amount each month to reduce your payment arrears. To help us make sure that any payment arrangement is affordable to you, we will go through your income and expenditure before agreeing the arrangement with you.

Porting means transferring your current interest rate and remaining term onto another residential property when you move house.

The process of repaying one mortgage by taking out another one secured on the same property. You may consider this to get a lower rate or to borrow more money to cover home improvements for example.

Also called a capital repayment mortgage, this is a type of mortgage where you make a monthly payment to cover both interest and the money borrowed. Assuming you make all your mortgages payments as agreed, the mortgage will be completely paid off by the end of the mortgage term.

Repossession is a last resort legal process where a mortgage lender takes ownership of a property.

This is the rate that your mortgage will revert to at the end of any short-term or initial fixed rate interest period. You would be told before you take out your mortgage how the reversion rate will be calculated.

A Standard Security is the term used in Scotland to refer to a Legal Charge. It gives security to a lender for money you owe by registering a charge against your property. The charge is registered with the Land Register of Scotland.

Top-slicing is where a buy to let lender may offer a customer a higher loan amount than they would otherwise qualify for based upon the rental value of the property. This is done by using some of their personal income in the affordability calculation.

Also known as a mortgage valuation, a valuation survey is an inspection of the property that is used by the lender to confirm its value.