Glossary

Accident, Sickness & Redundancy Insurance (ASR)

An insurance policy designed to help you in the event of accident, sickness or redundancy. It will typically pay a percentage of your normal monthly mortgage payment for a specified period. This type of cover does not apply to voluntary redundancy or dismissal due to misconduct, or if your injuries are self-inflicted. ASR is sometimes also known as Accident, Sickness and Unemployment (ASU) insurance.

Administration Fee

This is a charge levied by the lender to cover the costs of processing your mortgage application. The administration fee is also sometimes known as an application fee.

Adverse Credit

This term is used to apply to a borrower or application that has past problems with credit, for instance late payment, bankruptcy or County Court Judgement.

Annual Percentage Rate (APR)

The APR is a figure that is used to compare different mortgages. It includes repayments on the loan plus any fees such as booking, arrangement or redemption fees. The APR shows the true cost of borrowing, and should appear on all mortgage illustrations and quotes.

Application

The process of applying for a mortgage, including the provision of the personal and financial details of the applicant.

Appreciation

The increase in the value of a property as a result of changes in market conditions.

Arrangement Fee

This is a charge levied by the lender to cover the costs of administering and reserving the funds for certain types of mortgage. May be paid separately or added to the loan amount.

Arrears

The amount, usually in either months or pounds, that your mortgage payments have fallen behind schedule.

Assignment

The transfer of an asset, or a mortgage, from one owner to another.

Base Rate

The rate of interest set by the Bank of England.

Basic Earned Income

Your basic salary, before tax, and without any bonuses, overtime, or shift allowances.

Bridging Loan

A short-term loan commonly used to cover – or ‘bridge’ – the overlap between the purchase of a new property and the sale of an old one.

Broker

An agent or ‘middleman’ who brings parties together and who may also assist in the negotiation of contracts between them.

Broker’s Fee

A fee charged by a broker for arranging the most appropriate mortgage.

Buildings Insurance

An insurance policy which pays the cost of repair or rebuilding in the event your property is damaged or destroyed. Most mortgage lenders will require you to take out buildings insurance as a condition of their loan.

Buy to Let

A particular type of mortgage designed for borrowers who intend to let the purchased property as an investment.

Cap and Collar

A cap is a maximum rate of interest that can be charged for a specified period, while a collar is a minimum rate of interest that can be charged for a specified period.

Capital

The amount of money either put into buying a property or the deposit placed on a property. Also known as equity.

Capital Improvement

Any improvement, such as new structures or components that permanently increases the value of the property.

Capped Rate

A capped rate mortgage sets a maximum rate of interest that the lender can charge, but only for a specified period.

Cash Back

An amount of money paid to the borrower by the lender at the end of a mortgage. A ‘Cash Back mortgage’ is one in which an amount of money is paid by the lender to the borrower at the start of the mortgage, typically to help with the costs of moving home.

Cash Back Remortgage

A remortgage that is structured so that the borrower receives a sum of money at the start of the new term.

Commitments

Charges, such as car loan payments, family maintenance and mortgage payments, which a person has contracted to pay.

Completion

The completion date is the date on which your solicitor forwards the money from your lender to the solicitor of the vendor. It is the date that you become the legal owner of your new property.

Compound Interest

An interest payment on both capital and on previously accrued interest.

Compulsory Insurance

Insurance that is required by a lender as a precondition of issuing a mortgage. The insurance will typically cover the building and contents, and some mortgage providers may insist that the insurance policy also be taken out with them. Also known as Conditional Insurance

Contents Insurance

Insurance that covers the contents of your home, including electrical goods, carpets, furniture and curtains.

Conveyancing

The legal procedure surrounding the transfer of ownership of a property between buyer and seller, typically carried out by a solicitor or licenced conveyancer.

County Court Judgement (CCJ)

A ruling for bad debt issued by a County Court or higher court. The judgement will be recorded and the record will show up during any credit checks and may count against you in your mortgage application.

Covenant

A clause in a mortgage contract or in a contract for the sale of a property that obligates or otherwise restricts one of the parties (buyer/lender, or buyer/seller). The contract should detail any penalties, including repossession, which will be incurred if the covenant is broken.

Credit

An undertaking or agreement under which one party (the borrower) receives money or property on condition that they repay the other party (the lender) at a later date.

Credit Check

The procedure by which a check is made on the credit history of a mortgage applicant, usually conducted by one of the large dedicated credit check agencies on behalf of the prospective lender. The check will include items such as credit card repayments, outstanding debts, arrears, and County Court Judgements.

Credit History

A history of an individual’s open and fully repaid debts. Checking a credit history helps a lender to assess the likelihood that a prospective borrower will maintain their mortgage repayments.

Credit Rating

An assessment of a person’s likelihood of keeping up – or otherwise – on the repayments on their loan. A credit rating is usually based on a person’s credit history.

Credit Reference Agency

A company that collects and stores financial and public records dealing with the payment history of a prospective borrower. Most lenders will employ a Credit Reference Agency to check your payment records as part of their assessment of your application.

Credit Report

A report prepared by a Credit Reference Agency and which details the credit history of an individual. The credit report will be used by a lender to help assess the applications of prospective borrowers.

Credit Scoring

The procedure by which lenders assess the likely ability of an applicant to meet and maintain their mortgage repayments.

Current Account Mortgage

A mortgage that also offers the same facilities as a bank current account. Combined with a fully flexible mortgage, this type of mortgage allows over- and under-payments as well as payment holidays.

Daily Interest Mortgages

A mortgage in which interest is calculated daily, as opposed to monthly or annually.

Debt Consolidation

A procedure by which a number of loans, each with individual interest rates, are collected together in a single debt and at the lowest of the individual interest rates.

Deed

The legal document that sets out your ownership or title to a property.

Default

The failure to keep up with mortgage repayments on a regular or adequate level.

Deferred Interest Mortgage

A mortgage in which some or all of the interest is not paid for a specified period, usually at the start of the term.

Deposit

In relation to property, it’s the amount of money paid by the borrower as part of the purchase.

Depreciation

The decline or reduction in the value of a property caused by changes in market conditions.

Disbursements

The expenses – usually administration and legal costs – related to the conveyancing of a property.

Discharge Fee

The fee charged by lenders at the end of a mortgage term to cover the administrative costs of transferring the property ownership documents to the borrower.

Discharged Bankrupt

A bankrupt can be relieved of the status by a court of residual liability, usually after a certain number of years. The former bankrupt assumes the status of ‘discharged bankrupt’ and is able to apply for credit again.

Discounted Period

With a discounted rate mortgage, the discounted period refers to the length of time that the discounted rate is levied. Typically this will be three years.

Discounted Rate

A lower level interest rate, usually levied for a specified period, than the standard variable rate. The discounted rate typically applies at the start of the term of a discounted rate mortgage.

Draw Down Facility

The facility by which borrowers may increase the level of their debt up to specified limits and at specified times.

Early Redemption Fee

A charge levied by the lender as a penalty if a mortgage is paid off before the end of its term. Also known as Early Redemption Penalty.

Endowment Mortgage

A mortgage in which the borrower only repays the interest on the loan for the term of the mortgage, then repays the loan amount at the end of the term. The borrower pays into an endowment product during the course of the mortgage and then uses the proceeds to pay off the original loan at the end of the term. IT IS STRONGLY ADVISED THAT YOU TAKE INDEPENDENT FINANCIAL ADVICE BEFORE TAKING OUT ANY ENDOWMENT POLICY.

Equity

The amount of money either put into buying a property or the deposit placed on a property. Also known as capital.

Equity Release

A mortgage taken out on a home that is already fully owned, typically in order to make use of the capital tied up in it.

Estate

A legal term referring to the sum total of all the property and personal assets owned by an individual at the time of their death.

Examination of Title

The report that details the title of a property, usually taken from the public records or an abstract of the title.

Excess Payments

Mortgage repayments that are over and above the standard monthly rate. Some mortgage products impose charges for excess payment, and/or set limits to the size and frequency of such payments.

Exchange of Contracts

The stage in the purchase process at which the buyer and seller confirm legally binding commitments to the sale, and agree on the terms and conditions of that sale.

Existing Liabilities

Your financial outgoings, such as loan repayments, regular fees, or child maintenance, before taking out a mortgage. Borrowers are obliged to disclose all such outgoings as part of the mortgage application process.

Feuhold

A term used in Scotland to refer to the ownership of both a property and the land on which it is built. The closest equivalent in England and Wales is Freehold.

First Adjustment

The point at which the borrower can expect the first rate adjustment under a variable rate loan.

First Charge

A legal right under which the holder (of First Charge) has first call on the property in the event that the borrower defaults on repayments.

First Time Buyer (FTB)

A purchaser who is buying a property for the first time. Typically a lender will offer more attractive deals for first time buyers. Also known as First Time Purchaser (FTP).

Fixed Rate Mortgage

A mortgage under which the rate of interest has been fixed for a specified period of time.

Flexible Drawdown

A facility written into a mortgage that allows a borrower to access additional funds.

Flexible Mortgage

A mortgage that allows the borrower to make over- or under payments, or take a payment holiday.

Foreign Currency Mortgage

A mortgage that is taken out in a currency other than sterling. Typically used by people who are paid in foreign currency, this type of mortgage carries a higher risk for the lender (due to foreign currency fluctuations) and the rates may be adjusted accordingly.

Freehold (England & Wales only)

A situation whereby the owner owns both the property and the land on which the property is built. See also Feuhold (Scotland)

Further Advance

A situation whereby the lender makes available another loan and under which both loans are included within first charge on the property. This is normally used to consolidate debt or pay for improvements to the property.

General Conditions

The standard conditions that apply to a mortgage, as set by the lender.

Gross Annual Income

Total income received per year, before taxes are deducted.

Gross Monthly Payment

The monthly amount a borrower will have to repay, before deductions for MIRAS (Mortgage Interest Relief at Source) is applied.

Guarantor

A person, other than the borrower, who guarantees the mortgage repayments in the event the borrower defaults. Typically the guarantor will be a parent or relative.

Home Buyer’s Report

A type of property survey that is more comprehensive than a mortgage valuation but less extensive than a full structural survey.

Home Buyer’s Valuation Fee

The fee charged by a surveyor for producing a Home Buyer’s Report.

Household Insurance

An insurance policy that protects against loss or damage to the property caused by fire, some natural causes and acts of vandalism.

Illustration

A quotation prepared for a potential borrower that shows the cost of a mortgage, usually on a monthly basis.

Impaired Credit

The credit rating of a person with a less than perfect record of credit usage, for instance due to arrears on other loans, past CCJs or a past bankruptcy.

Income

The amount of money a person earns.

Income Multiplier

The formula used by some lenders to calculate how much a prospective borrower can borrow.

Income Tax

A government tax that is levied on an individual’s earned income.

Independent Financial Adviser (IFA)

A person qualified and regulated to advice on financial products such as mortgages, insurance and investment vehicles.

Index

A published interest rate, such as the Bank of England base rate, or the London Inter Bank Offer Rate (LIBOR), which is used to base the interest rate on a variable rate mortgage.

Index Tracker

A type of mortgage in which the rate of interest charged follows exactly (‘tracks’) any changes in a published interest rate, for instance the Bank of England base rate.

Inflation

The general rise in prices over time.

Initial Fees

An estimate of the total fees payable for arranging a mortgage, including items such as solicitor’s fees, survey costs and reservation charges.

Initial Interest

As well as being the first interest payment on a mortgage, the Initial Interest is also usually higher than subsequent payments as it covers the period between the date of completion and the date when the first payment is due.

Initial Rate

The interest rate that applies between the start and end of any discount period on a mortgage.

Insurance Guarantee Premium

See Mortgage Indemnity Guarantee

Interest Only Mortgage

A type of mortgage in which the borrower only repays the interest on the loan for the duration of its term, and repays the full loan amount at the end of the mortgage period.

Intermediary

A company which matches borrowers with lenders, as well as undertaking a certain amount of application processing. Typically an intermediary will receive a fee directly from the lender for these services.

ISA Mortgage

An interest only mortgage that uses an ISA product to plan for the repayment of the loan.

Joint Income

The total gross income of the two borrowers in a joint mortgage.

Land Registration

The process of registering your title to an area of land with the Land Registry, typically handled by a solicitor.

Land Registry Fee

A charged levied by a solicitor to register ownership of an area of land with the Land Registry.

Landlord’s Reference

A reference given by a previous landlord, which confirms an applicant’s history of payment of rent and previous conduct as a tenant.

Leasehold

A type of ownership in which a person owns a property, but not the land on which it is built. Typically the land will be leased to the owner.

Legal Charge

A document held by the Land Registry detailing who had first claim on your property. Typically the owner will have first claim.

Legal Fee

Charges paid by a solicitor.

Lender

The party, typically a bank, building society or mortgage company, offering the loan.

Lender’s Fee

A charge levied by a lender to cover the costs of arranging a mortgage.

LIBOR linked mortgage

A tracker mortgage that tracks LIBOR.

Life Insurance

An insurance policy that pays a lump sum in the event of the death of the policyholder.

Loan to Value Ratio (LTV)

The proportion of the value of the property that the lender is prepared to loan. This can be up to 100%

Local Authority Search

A check carried out by a purchaser’s solicitor to ensure that the prospective property is not subject to any local authority issues such as road or town planning or any enforcement notices.

Local Authority Search Fee

The fee payable to the Local Authority for conducting a Local Authority Search.

London Inter Bank Offered Rate (LIBOR)

The interest rate at which banks in London buy and sell money from each other.

Main Residence

The property in which a person resides for the majority of the time. Also known as the ‘principal private residence’, it can often be important for tax purposes.

Maintenance

Legally enforceable payments made to contribute to the costs of bringing up a dependent, usually following a divorce.

Maisonette

A flat or apartment with more than one floor.

MIP

See Mortgage Indemnity Guarantee

MIRAS

Acronym standing for Mortgage Interest Relief At Source, a tax relief scheme that expired on 1st April 2000.

Mortgage

A legal document that pledges a property to the lender as security on a loan.

Mortgage Deed

The legal document that confers ownership or title to a property.

Mortgage Indemnity Guarantee (MIG)

An insurance policy taken out by a lender against any loss caused by a mortgage default. MIG is typically required for loans with an LTV of 90% or higher. Also known as Mortgage Indemnity Fee and as Mortgage Indemnity Premium.

Mortgage Term

The period of time over which a mortgage loan must be repaid.

Mortgage Types

The type of mortgage. May be fixed, variable, capped, discount, tracker, stepped or other type of mortgage.

Mortgage Valuation

A survey to assess the value of a property. Usually conducted by a professional surveyor, this is the cheapest and simplest type of property survey and is usually the minimum survey required by a lender.

Mortgagee

The lender in a mortgage.

Mortgagor

The borrower in a mortgage.

Multiplier (Income)

See Income Multiplier

Negative Equity

A situation in which the value of a property has fallen to below the level of the loan secured on it.

Net Monthly Payment

The monthly mortgage payment after MIRAS has been deducted but before the addition of any other fees.

Net Profit

Relating to a self-employed person, net profit is income after running expenses and taxes have been deducted.

New Build

A newly built property.

Non Status Mortgage

A mortgage that is offered without the need for the borrower to prove their income.

Other Income

Income that is in addition to basic salary.

Overpayment

Situation where repayments are increased so that the mortgage is repaid before the end of the agreed term. Some mortgages (flexible mortgages) allow for overpayment, but others may impose early redemption penalties for overpayment.

Payment Holiday

Under a flexible mortgage, borrowers are permitted to take a break from their mortgage repayments for a specified period.

Payment Method

The method by which an interest-only mortgage is to be repaid at the end of its term. Typically this will be either an endowment, an ISA, or some other investment product.

Penalties

A specified charge that is levied by the lender under certain circumstances, usually for early repayment.

Pension Mortgage

An interest-only mortgage that uses a pension as a means of paying off the loan at the end of its term.

PEP (Personal Equity Plan)

A tax-free savings plan that has since been replaced with the ISA.

Permanent Health Insurance (PHI)

An insurance policy that pays a monthly income if the policyholder becomes ill and cannot work.

Personal Pension Plan

A pension plan that allows individuals not covered by a company pension plan to save for a pension.

Portable

In relation to a mortgage, this refers to a mortgage that can be transferred between properties when the policyholder moves home.

Previous Lender’s Reference

A document from a previous lender that confirms a person’s previous repayment record.

Quotations

A document outlining the monthly cost of a mortgage and of any other expenses due under the mortgage.

Rate

The annual rate, expressed as a percentage, of interest on a loan.

Redemption

The name given to the full payment of a mortgage, at the end of its term.

Redemption Amount

The cost of repaying a mortgage.

Redemption Charges

A fee that is payable by the borrower on redemption (completion of the mortgage term).

Redemption Penalty

A penalty levied by the lender when the borrower pays off a mortgage.

Remortgaging

The process whereby a new mortgage replaces an old one, and both use the same property as security. See also Refinancing

Repayment Method

The method by which a borrower repays their mortgage, for instance interest-only, or interest and capital.

Repayment Mortgage

A mortgage in which monthly charges are used to repay the interest and to reduce the outstanding capital.

Repayment Period

The term, or number of years, over which the borrower must repay the mortgage.

Repossession

The legal procedure by which a defaulting borrower is deprived of their interest in the mortgaged property, typically involving the forced sale of the property at a public auction.

Retention

The ability of a lender to hold back (retain) part of a mortgage until certain conditions are met.

Right to Buy

Many local authorities offer tenants the right to buy the public housing they occupy, usually at a discount and usually the scheme will depend on the length of the existing tenancy.

Second Charge

The subsequent charge to the First Charge. See First Charge.

Self Certification

A mortgage whereby the borrower provides confirmation themselves of their income, rather than from an employer or company accounts. Typically the lender will charge higher rates of interest, or require a larger deposit.

Shared Equity

A scheme whereby a person purchases part of a property and the other part is held by a developer.

Shared Ownership

A scheme similar to shared equity, but in which the second part of the property is owned by a housing association.

Sitting Tenant

A person currently renting and occupying a property, and who is legally protected against being removed.

Sole Occupancy

A property that is occupied (lived in) by only the mortgage applicant(s) and their direct family.

Special Conditions

Conditions attached to your mortgage offer that are specific to your application.

Stamp Duty

A government tax payable by the purchaser upon purchase of a property. Currently no stamp duty is applicable on purchases up to a value of £60,000, with the duty rising incrementally to a maximum of 4% on purchases above £500,000.

Standard Construction

A building that has been constructed using conventional techniques and materials, for instance bricks and stone with a tiled or slate roof.

Standard Variable Rates

The ‘standard’ interest rate set by lenders, and which is subject to rise or fall (vary) at the discretion of the lender. The standard variable rate is the one that applies at the end of any fixed, capped or discounted period.

Structural Survey

A survey of the condition of a property, undertaken by a qualified surveyor, and for which the surveyor is responsible. A structural survey is the most detailed – and most expensive – of the property reports available.

Studio Flat

A property that consists of one main room, plus usually a separate bathroom and sometimes a kitchen.

Surrender

The conversion into cash of money held in an investment vehicle.

Survey Fee

The fee payable to a surveyor for surveying a property.

Surveyor

A professional person qualified to estimate the value of land and property.

Tariff

A document detailing the costs and charges for a particular service or services.

Term

The period of time between the start and finish of the mortgage loan.

Term Assurance

A life insurance policy that provides a lump sum in the event of the death of the policyholder during a specified period.

Timber Framed

A property whose major structural components are constructed from wood, rather than brick, stone or concrete. Typically a lender will charge more for a mortgage on a timber-framed property.

Title

The document that confirms the right of possession to an area of land.

Title Insurance

An insurance policy against any loss resulting from defects of title to a specifically described parcel of property.

Title Search

An investigation, carried out by a conveyancer or solicitor, into the history of ownership of a property. The search will check for liens, unpaid claims, restrictions or any other problems that may affect ownership.

Tracker

A type of mortgage whereby any changes in the rate of interest charged follow exactly (‘track’) another, specified, interest rate. Typically a tracker mortgage will track the Bank of England base rate.

Underpayment

Situation where repayments are reduced so that the mortgage is not repaid by the end of the agreed term. Some mortgages (flexible mortgages) allow for a specified level of underpayment.

Unencumbered

A property that has no loans or borrowings secured on it.

Valuation

A simple survey carried out on a property for the benefit of the lender. Because the report is carried out for the lender, if the surveyor makes a mistake you have no legal claim against him.

Valuation Fee

A fee charged to cover the cost of a valuation, typically paid by the borrower.

Value

The price of a property under normal conditions, i.e. When the buyer is not forced to buy and the seller not forced to sell.

Variable Rate

A mortgage in which the rate of interest charged is altered at the discretion of the lender, typically but not necessarily in relation to changes in the Bank of England base rate.

Waiver of Premium

An option within an insurance policy that allows a policyholder who has become seriously ill or disabled to not pay the premiums while continuing to be covered.

Yield

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