Mortgage Jargon Explained

The Credit Crunch means it has suddenly got tougher to get a mortgage. With this in mind, it pays to fully understand all of the options when looking for a mortgage, including getting your head around all of the jargon. There are plenty of phrases thrown around by analysts and experts that may mystify potential homeowners and those looking to refinance. Here's a quick guide to some of the main terms, while you should take a look at Santander’s mortgages if it’s time to reassess your deal.
 
Standard Variable Rate
Sometimes abbreviated simply to SVR, this is the normal interest rate at which lenders offer a home loan, without discounts or deals. It has become an attractive deal due to interest rate cuts by the Bank of England, which means many mortgage deals have fallen in response. People coming off their fixed rate will now normally revert to an SVR, as this will be offered at a lower rate of interest than their previous deal.

Other Mortgage types

• Fixed rate – The interest rate will not move on this type of deal for a fixed period of time. According to the Council of Mortgage Lenders, 56% of new mortgage customers take out a fixed rate deal.
• Tracker – These account for 31% of new mortgages and are linked to a rate not set by a lender. A common rate to be linked to is the Bank of England's Bank rate (Libor).
• Discounted – These have a cheaper rate of interest for a set period of time, after which the interest rate will increase.

Loan-to-value (LTV)
This represents the amount of equity in a property. For instance, if a house is worth £200,000 and has a mortgage on it of £100,000, then its loan to value is 50%. Since the Credit Crunch took hold, 100% LTV mortgages have all but disappeared, and the market 90% ones have shrunk considerably, so first time buyers will need to get a bigger deposit in order to get on the property ladder.

Gazundering
This occurs when a buyer offers a sum to buy a property, then lowers the offer just as the deal is about to go through. It usually happens when house prices are falling. It means the seller will have to accept less money than initially expected, or start the sale all over again, which will mean a loss of transaction costs.

Equity release
Equity release is made possible by the value of property increasing. If someone has a mortgage and the property increases in value, they might choose to take out a new one to release some of that value (equity). They then can invest the money or spend it. It's normally elderly or retired people on pensions who can release equity, as they have had more time to pay off their mortgage, while their home may have increased in value over the long term.