HMO Mortgages: Common Terms & Definitions
This includes missed mortgage payments, defaults or County Court Judgements (CCJs) – anything that could be considered a red flag to a potential lender.
Agreement in principle (AIP)
When you submit an initial application to a lender and it’s successful, you will obtain an AIP. This usually involves a credit search.
The annual percentage rate (APR) is the complete cost of the loan for the whole term, taking account of the interest and fees.
This is a rate set by the Bank of England, if you opt for a tracker or variable rate it will usually move in line with the Bank of England base rate.
Buildings insurance is a requirement of any mortgage. Usually, the policy will need the mortgage lender’s name included.
This is the amount of money borrowed.
When you buy, sell or refinance a property, there will be legal work involved. This is known as conveyancing.
This is the money that you put into a deal. If a 75% LTV (Loan to Value) mortgage is obtained, a 25% deposit will be required.
Early Repayment Charges (ERCs)
If you repay the mortgage early (e.g. within a fixed rate period), there will usually be a fee to pay. This is usually a percentage of the loan.
This is the capital value of the property you own. If the property is valued at £100,000 with a £75,000 mortgage owed, you have £25,000 (or 25%) equity.
An interest rate for a period of time, say 3 years. This means your payments will stay the same for the fixed rate period.
Lender arrangement fee
Most HMO lenders charge a fee for arranging the mortgage, this fee can usually be added to the loan.
Loan to value ratio (LTV)
This is the loan amount compared to the property value, if a property is valued at £200,000 with a £150,000 mortgage, the mortgage is 75% of the value giving a 75% LTV.
The amount you have to pay back to the lender each month.
How long the mortgage is taken out over, say 25 years.
This is when you replace an existing mortgage with another.
If the loan is interest-only, the full original loan will need to be repaid at the end of the term. The repayment vehicle is the means by which you will repay the loan (e.g. by selling the property).
Stamp duty land tax (SDLT) is a tax payable when you buy a property. Different property values have different rates of tax to pay.
When you borrow money against a property, a valuation of the property will be carried out to make sure the lender is happy to lend.