Financial services terminology can be confusing, so Lending Expert Money have put together this guide to some of the terminology you might come across during the mortgage advice and application process. Please contact your Lending Expert Money adviser if you require any further clarification.

Security

This means an asset which the lender can take possession of should you fail to maintain your repayments. For any borrowing arranged by Lending Expert Money, this security will always be your home.

Second mortgage / second charge mortgage / secured loan / homeowner loan

These are generally interchangeable terms, and they all describe the type of loan offered via Lending Expert Money. Your existing residential mortgage is your ‘first mortgage’ and the loan arranged by us becomes your ‘second mortgage’. In the event that you fall so far behind with repayments that re-possession is the only option, the sale proceeds will initially be used to pay off your first mortgage. The second mortgage lender then has access to the remaining sale proceeds to pay off your second mortgage.

Loan to value

This refers to the proportion of the value of your home that is covered by one or more mortgages. If your home is valued at £200,000, the balance on your first mortgage is £100,000 and you take out a second mortgage of £50,000, then your total mortgage borrowing is £150,000. As £150,000 is 75% of £200,000, your second mortgage will take you to 75% loan to value.

Fixed rate

This means that your interest rate is guaranteed not to change, regardless of the wider economic environment. A fixed interest rate might be in place for the first two, three or five years of your mortgage.

Standard variable rate

This means that the interest rate you pay is entirely at the discretion of your lender and can be changed by them at short notice. Most mortgages revert to the standard variable rate a few years into the term.

Tracker rate

This means that the interest rate you pay rises and falls in line with changes to a publicly known interest rate, such as the Bank of England’s base rate. For example, the rate you pay might be advertised as being the base rate plus 2%. At time of writing, the Bank of England base rate is 4.75%, so this type of mortgage would have an interest rate of 6.75%. The Bank of England’s Monetary Policy Committee meets on a monthly basis to decide whether to increase or decrease the base rate, or to leave it unchanged.

Capped rate

This is a variable rate mortgage where the interest rate can vary at short notice, but where you have the security of knowing payments cannot rise above a certain level. If your mortgage has a cap of 9%, this is the highest interest rate that will apply.

Collared rate

This is a variable rate mortgage where the interest rate can vary at short notice, but where payments cannot go below a certain level. If your mortgage has a collar of 4%, this is the lowest interest rate that will apply.

APRC

The annual percentage rate of charge (APRC) is the total cost of your borrowing. The APRC, which is shown on your mortgage illustration, will be a higher figure than your headline interest rate, as it takes into account all of the fees and costs you need to pay.

Capital and interest mortgage

Also known as a repayment mortgage, this means that every monthly repayment involves both payment of the interest on your mortgage and an element of paying off the mortgage balance. Lending Expert Money does not offer interest only mortgages, so every mortgage we arrange is a capital and interest mortgage.

Broker fee

A fee paid to Lending Expert Money to cover the costs of advising you on your mortgage needs and the costs of arranging your mortgage.

Arrangement fee

A fee paid to your lender to cover the costs they incur in arranging your mortgage.

Early Repayment Charge (ERC)

This is a charge that may be applied if you pay off your mortgage entirely in the early years, or if you make a significant repayment. Any ERCs will always be prominently shown on your mortgage illustration.

Stress test

When assessing your mortgage application, a lender will not only assess whether you can afford the monthly repayments shown on your mortgage illustration. They will also carry out a stress test, which is an assessment of whether you are likely to be able to afford the repayments if interest rates rose by several percentage points.

Credit score

This is an indication of how well you have shown you can manage your money in the past, and a lender will use your credit score to assess how risky it is to lend to you. The lower your score, the higher the risk you are judged to present. A low credit score might be the result of previous missed payments on credit agreements, or sometimes because you simply haven’t entered into many borrowing arrangements in the past.

Sub-prime

This is a name given to a mortgage offered to someone with a less than perfect credit history, for example someone who has missed repayments on credit agreements in the past, or who has had County Court Judgements issued against them, or who has experienced bankruptcy or entered into a formal agreement with creditors. A sub-prime mortgage will be offered at a higher interest rate than a standard mortgage.

Debt consolidation

This means taking out a new loan to pay off several existing loans and debts. It may be an attractive option for some people, as the monthly repayment needed to service the debts may reduce significantly. Consolidation can mean, however, that it takes longer to clear your debts and that the total amount you repay to clear your debts will be higher. If you consolidate via a second mortgage, then you are also increasing the amount of debt that is secured on your home.

Creditor

Someone to whom you owe money, whether this is an individual or a firm, such as a mortgage lender.

Forbearance

Hopefully you will not have any problems maintaining your repayments. If, however, you do experience difficulties, Lending Expert Money strongly encourages you to seek assistance from your lender at the earliest opportunity. Any special arrangements your lender puts in place to make it easier for you are known as ‘forbearance’.

Financial Conduct Authority (FCA)

The FCA is the principal regulator of financial services in the UK. It is a legal requirement to be authorised by the FCA in order to give mortgage advice. Lending Expert Money is authorised by the FCA and its senior managers have also been individually approved by the FCA as being ‘fit and proper’ to carry out their roles. Firms authorised by the FCA have to follow a set of detailed rules when providing services to customers.

Financial Ombudsman Service (FOS)

The FOS is an independent body that adjudicates complaints where the customer and the firm cannot reach agreement. The FOS can make legally binding instructions for firms to pay compensation to customers. Should you wish to make a complaint about us, please contact our Head of Compliance in the first instance. If you aren’t satisfied with how we handle your complaint, you can refer the matter to the FOS.

Financial Services Compensation Scheme (FSCS)

The FSCS is an insurance scheme that provides reassurance that you won’t lose out financially should a financial services provider that you use become insolvent.