GLOSSARY OF TERMS

A - D

A

Actuary

Actuaries compile and analyse data to calculate insurance premiums, annuity
rates, dividends and risks.

Added to Loan

Administration fees incurred during the mortgage process can be added to the amount being borrowed, in which case they are known as ‘Added to Loan’.

Adjustment Date

The adjustment date is the date from which interest accrues on your mortgage. It also refers to variable rate mortgages, where it is the date on which the interest rate changes.

Adverse Credit

Anyone who has a poor record when it comes to meeting their credit commitments, including late payments, CCJs or bankruptcy, has adverse credit.

Amortisation

Amortisation is simply the reduction in the amount you owe on your mortgage over time as your repayments are processed.

Annual Percentage Rate (APR)

This is a calculation which allows the applicant to compare the cost of borrowing across different lenders. APRs take into account the amount of interest and any other fees charged by the provider. The lower the APR, the better.

Applicant

The person applying for a mortgage.

Application

The process of applying for a mortgage, and supplying personal and financial details to the mortgage broker.

Appraised Value

A surveyor’s estimate of a property’s value.

Appreciation

The increase in a property’s value over time.

Arrears

When you have fallen behind your repayment schedule you are said to be in arrears, usually expressed in pounds or months.

Asset

An economically valuable resource controlled by a person, including any form of property owned, shares, cash and land.

Assignment

The situation whereby an asset, or mortgage, is transferred from one owner to another.

B

Balance Sheet

A document showing the assets and liabilities of a company.

Base Rate

The interest rate set by the Bank of England.

Basic Earned Income

This is your base salary, without taking tax or additional sources of income, like a bonus, into account.

Beneficiary

This is a person entitled to gain, usually financially, from a trust or will.

Borrowing Back

Available to flexible mortgage holders only, this allows you to borrow back any overpayments you have made if, for whatever reason, you need additional cash flow.

Bridging Loan

This is a stop-gap loan to finance a project until permanent financing can be obtained. Rates tend to be high and they are only recommended in the short term.

Broker

A broker facilitates the transaction between borrower and lender.

Broker’s Fee

The fee a broker charges for securing the most appropriate mortgage for the borrower.

Buildings Insurance

Buildings insurance covers loss or damage to the physical structure of your home (for example, the roof, walls and floors). Contents insurance, often sold alongside buildings insurance, covers loss of or damage to the possessions inside (furniture and so on).

Buy to Let Mortgage

This is designed for people who buy a property with the sole intention of renting it out for profit.

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C

Calculating Interest Daily

The interest on most flexible mortgages is calculated daily to take into account the reduction in the overall size of the mortgage as payments or overpayments go through. Over time this can save a substantial amount.

Cap

A cap is an upper limit on interest rates, usually for a specified period. For example, if your mortgage is capped at 4% for 2 years, you will not pay more for that time period even if interest rates rise to 5%.

Cap and Collar

A collar is a lower limit on interest rates, usually for a specified period. For example, if your mortgage has a 4% collar, you will not pay less than that, even if rates fall to 3.5%. A cap and collar mortgage is a combination of the two.

Capital

In mortgage terms, this is the money, or deposit people put into buying a property (also known as equity).

Chain

The interdependent events whereby a buyer is waiting on the completion of the sale of their existing property in order to complete on the purchase of a new property.

Clear Title

Legal term for the unequivocal ownership of a property.

Collateral

An asset, such as a car or an expensive television, which a lender may seize if the borrower fails to repay the loan under the terms of the original contract.

Commercial Mortgages

These are for individuals or companies buying commercial property, such as an office building, retail centre, apartment complex or warehouse.

Commitment Letter

A letter from a lender outlining a formal offer and explaining the terms and conditions of the loan. It is often referred to as a ‘loan commitment’.

Common Areas

Areas to which more than one resident has access (for example hallways, parking areas and gardens).

Completion

The day you become the legal owner of your new property, and time to crack open the champagne. The completion date is the date that your solicitor forwards the money from your lender to the seller’s solicitor.

Compound Interest

Compound interest is the interest paid on capital plus on any previously accrued interest. For example, £1,000 borrowed for 5 years at 5% p.a. would become £1050 after 1 year, £1052.50 after 2 years and so on.

Contract

A legally binding agreement between the buyer and seller of a property.

Conveyancing

The legal process of transferring the ownership of a property from seller to buyer, carried out by a licensed conveyancer or solicitor. A fee is usually charged.

County Court Judgement (CCJ)

CCJs are rulings issued by a County Court or higher court against those who fail to repay money they owe. The judgement against the individual is recorded and will show up during lenders’ credit checks. Anyone with a CCJ will need the help of a specialist broker when applying for a mortgage.

Covenants

The various agreements and undertakings governing a property, usually outlined in the title deeds or lease.

Credit

This is when one party (the borrower) receives money, or an asset such as property, on condition that they repay the other party (the lender) at a specified point in the future.

Credit Check

The review of a person’s credit history as part of the mortgage application process. These checks are carried out by dedicated companies on behalf of the lender, and usually focus on any outstanding debts, arrears, credit card repayments and CCJs.

Credit History

The full history of a person’s paid and unpaid debts. These help lenders assess the ability of prospective borrowers to meet their mortgage repayments.

Credit Rating

Normally based on a person’s credit history, this is an assessment of whether or not they will be able to keep up repayments on a loan.

Credit Reference Agency

A company that holds financial records relating to the payment history of a prospective borrower. Almost all lenders will use such an agency during a mortgage application.

Credit Report

The findings issued by a Credit Reference Agency that details a person’s credit history, used by lenders to assess a mortgage application.

Credit Scoring

The process whereby a lender assesses the likelihood of mortgage applicants being able to meet their mortgage repayments.

Critical Illness Cover (CIC)

CIC pays out a tax-free lump sum to policyholders if, during the term of the policy, they are diagnosed with one of a number of listed ‘critical’ illnesses or conditions, such as cancer, Parkinson’s Disease, Multiple Sclerosis or paralysis following a heart attack or stroke.

Current Account Mortgage

Current Account Mortgages (often referred to as CAMs) have many of the facilities that apply to a standard current account and, when combined with a flexible mortgage, allow payment breaks and both over- and under-payments.

D

Deeds

The legal documents that prove ownership of a property, usually held by the lender.

Deposit

This is the money used as a down payment on a property.

Disbursements

These are the fees, such as stamp duty and land registry, paid by the buyer’s solicitor on the buyer’s behalf.

Discount Rate

Usually relating to the initial period of a mortgage, this is when the interest rate you pay is discounted by a certain percentage from the standard variable rate for an agreed period.

E - H

E

Early Repayment Charge/Fee

Charged by some lenders when borrowers pay off their mortgage before the agreed date, often because they are moving to another lender. These fees almost always apply to fixed and discounted rate mortgages.

Equity

Very simply, the amount of value in a property that isn’t covered by a mortgage. To work it out, simply subtract the mortgage from the value of the property.

Equity Release

Equity release is a means for homeowners to convert a proportion of the value of their homes into cash without having to sell. This could be a lump sum or a steady income stream. It’s often used to carry out refurbishments or to improve the quality of a person’s retirement. It must be repaid at a later date.

Exchange of Contracts

The exchange of contracts comes in the latter stages of the house buying process. Once both buyer and seller have signed, they are then legally bound to complete the transfer, meaning that if either party pulls out prior to completion they may have to pay compensation.

F

Financial Services Authority (FSA)

The independent watchdog set up by the government to regulate financial services. All lenders must be authorised by the FSA, and all brokers must either be authorised directly or be agents of other authorised firms.

Fixed Rate Mortgage

The interest rate on a fixed rate mortgage is set at an agreed rate for a specified period. It is a useful option for people who want to know exactly what they are paying each month, as the amount cannot be affected by any changes in the base rate. The downside is that fixed rate mortgages often come with heavy penalties if they are redeemed early; and if interest rates are lowered, you may end up locked into a higher rate.

Fixtures

Any item that is deemed to be attached to and therefore legally part of that property.

Flexible Mortgage

A mortgage that allows you to vary your monthly repayments and, for a certain number of months, even take a payment break. Because of the ability to make overpayments, borrowers can pay off their mortgage early and therefore reduce the interest payable. However, in return for this flexibility, this type of mortgage usually comes at a higher interest rate.

Freehold

If you own your property’s freehold, you not only own the property itself but also the land it is built on.

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G

Gazumping

This is when the person selling a property initially accepts an offer, but then accepts a higher offer from a second party just before the exchange of contracts. Particularly common in strong housing markets.

Gazundering

The nightmarish situation for the seller where a buyer makes a reduced offer just before the exchange of contracts.

Ground rent

The fee payable by a leaseholder to the freeholder. Tends to be paid annually or biannually.

Guarantor

The guarantor is the person liable for the repayment of a mortgage if, for whatever reason, the borrower fails to keep up their mortgage repayments. Guarantors are usually parents or close family members.

H

Home Buyer’s Report

A surveyor’s report, more detailed than a mortgage valuation but less comprehensive than a full survey, intended to satisfy the buyer that the property they are purchasing is in good condition.

I - L

I

Income Multiples

When calculating how much they will offer as a mortgage, lenders multiply an applicant’s income by a set figure, depending on the person’s salary, outgoings, circumstances and ability to keep up payments.

Income Reference

Lenders often ask employers to confirm the amount the applicant earns in writing. For self-employed applicants, lenders may ask for confirmation from an accountant.

Individual Savings Account (ISA) Mortgage

This is an interest-only mortgage that relies on the performance of a tax-efficient ISA to pay off the loan at the end of the mortgage term. An ISA can invest in numerous asset classes, including shares, bonds and cash.

Interest

Interest is what lenders charge people for borrowing money. Exactly how much interest is charged depends upon various factors, including the time period of the loan and the deemed credit risk.

Interest-Only Mortgage

With interest-only mortgages, borrowers only have to pay off the interest on the mortgage and not the capital. However, the onus is upon the borrower to ensure, via an appropriate savings vehicle, that sufficient funds will be in place at the end of the term to pay off the mortgage in full.

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J

Joint Tenancy

A form of ownership whereby the property is held jointly by two parties. Each party’s share passes to the other (or others) upon their death.

L

Land Registry Fee

The fee paid to register the ownership of a specific area of land.

Leasehold

A common type of home ownership whereby you purchase a house or flat for an agreed number of years but the actual land remains the property of the freeholder. When the leasehold period ends, the freeholder reclaims ownership of the property.

Licensed Conveyancer

A person specialising in the transfer of the legal ownership of a property, often used in place of a solicitor.

Life Assurance

Life assurance policies pay out the ‘sum assured’ if a person dies during the term of the policy, usually to his or her dependents. This can be a lump sum or a series of payments, and is tax-free in most cases.

Listed Building

A building of particular historic or architectural importance which cannot be altered in any way by its owner without official permission.

Loan to Value (LTV)

The amount of money a bank or building society will lend you as a percentage of your property’s value. In some cases they will lend the full value of the property, or 100% LTV.

M - P

M

Mortgage

An agreement whereby a bank or building society lends money at interest, with the ‘mortgaged’ property acting as security until the loan is repaid in full after a certain term.

Mortgage Indemnity Guarantee (MIG)

An insurance policy that covers lenders in the event of a property being repossessed and the mortgagor not being able to repay any outstanding payments. Although these insurance policies protect the lender, it is the borrower who has to pay for them. MIGs are generally requested when the LTV is over 75%.

Mortgage Payment Protection Insurance (MPPI)

MPPI pays a percentage of a person’s mortgage payments if they are unable to work because of illness, accident or enforced redundancy.

Mortgagee

The organisation that lends you the money to buy a property, usually a building society or bank.

Mortgagor

The person who borrows money from a lender under a mortgage agreement.

N

Negative Equity

A property is in negative equity if it is worth less than the amount owed on a mortgage secured against it, usually caused by falling property prices. It becomes a problem if a person wants to sell their home.

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O

Offer

The sum of money a buyer proposes to pay a seller for a property.

Offshore Mortgage

These are usually for people with complex mortgage needs, such as high net worth foreign nationals and international sports stars looking to purchase a UK home. Finance is arranged through any number of trusts and companies from the Cayman Islands to the Isle of Man.

Open Market Value (OMV)

The price of a property when both buyer and seller are willing.

Overpayment

A larger repayment instalment than required under the terms of the mortgage is deemed an overpayment. Flexible mortgages allow overpayments without incurring a penalty. Over time, this can result in significant savings.

Overseas Mortgage

These can be secured against the equity in a UK property, and are taken out by investors looking to build a portfolio of properties abroad or simply buy a holiday home. Can be either sterling or foreign currency loans.

P

Portability

A mortgage that can be transferred between properties when a borrower moves house is said to be ‘portable’.

Principal

The amount of the loan on which lenders calculate interest.

Purchaser

The person who is buying a property.

Q - T

R

Redemption

The paying off of a mortgage when remortgaging, moving house or coming to the end of the mortgage term.

Redemption Penalties

Lenders levy redemption penalties when borrowers pay off their mortgage before the end of the agreed redemption period. They are very common with fixed rate and discounted mortgages.

Remittance Fee

An admin cost charged by lenders when sending mortgage funds to a solicitor immediately before the purchase of a property.

Remortgage

The act of paying off your old mortgage with the money you receive from a new mortgage, using the very same property as a security. People often remortgage to switch lenders and/or secure a more competitive interest rate.

Repayment Mortgage

Repayment mortgages require borrowers to repay not just the interest accrued on the loan but also a portion of the capital borrowed, on a monthly basis. This kind of mortgage is favoured by more conservative homeowners who want to be sure that, at the end of the mortgage term, the property will belong to them.

Repossession

The situation where the lender legally takes control of the property used as security when the borrower can no longer keep up repayments. The lender usually then sells the property at public auction in order to retrieve any outstanding debts.

Retention

The holding back of financing by a lender until certain repairs have been completed to their satisfaction.

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S

Sealing Fee

Charged by lenders when a mortgage is repaid.

Stamp Duty

Stamp duty is a tax levied on property purchases, and applies on a sliding scale according to the price of a property.

Standard Variable Rate (SVR)

The standard variable rate is a type of interest rate on a mortgage that often moves in line with the Bank of England base rate. However, unlike a tracker mortgage, changes are ultimately at the lender’s discretion.

Structural Survey

An in-depth structural analysis of the inside and outside of a property that should reveal any hidden problems, also known as a Building Survey. Carried out by a chartered surveyor who then produces an extensive report outlining any defects, structural surveys tend to be carried out on older properties or those that have been poorly maintained.

T

Term

The time period – usually in years – over which a mortgage is to be repaid.

Term Assurance

The most common form of insurance, this pays out a lump sum if the policyholder dies during the term of a policy. The money is usually used to pay off a mortgage or to provide for the policyholder’s dependants.

Tie-in Period

If you move mortgage during a tie-in period, you will usually be charged an early redemption fee

Title Deeds

The documents that prove ownership of the freehold and leasehold of a property.

Transfer Deed

Once you have signed the transfer deed, ownership of the property is transferred to you.

U - Z

U

Under Offer

When a seller has accepted an offer from a buyer but the exchange of contracts has not yet been reached, the property is ‘under offer’.

Unencumbered

When a property is owned outright and no mortgage is secured against it, it is said to be unencumbered.

V

Valuation

A check carried out by the lender to find out how much a property is worth and whether it is suitable for a mortgage. The valuation fee is usually paid by the borrower.

Variable Rate

On a variable rate mortgage, the interest rate charged by the lender goes up and down according to base rate movements and mortgage repayments change accordingly.

Vendor

A person selling a property.

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W

Waiver of Premium

A caveat within an insurance policy that allows a policyholder who has become incapacitated to stop paying the premiums while continuing to be covered.

Y

Yield

For buy to let investors, this is the income generated from a property, calculated as a percentage of its value.