Glossary Of Common Terms
Some more detail from Mortgage, Protect & Insure.
Agreement in principle (AIP)
Lenders can agree to a mortgage in principle even before you find the right property. This is subject to further conditions being met, such as, credit checks and a property valuation.
APR
The Annual Percentage Rate is the total amount of interest that will be paid over the whole term of a loan. The rate quoted on loans and credit cards may only be the monthly or annual rate of interest you pay.
Buy to Let (also see Let to Buy)
Buying a property with the intention of letting it out to tenants for rent.
Capital and Interest Mortgage
Also known as a repayment mortgage where the monthly payments include both the interest on the amount borrowed and the outstanding mortgage.
Capped Rate Mortgage
A mortgage arranged for a set period which will go up and down with the variable rate, but where the interest rate charged will not rise above a maximum (Capped) interest rate.
Cashback Mortgage
The borrower receives a cash lump sum on completion, or after the first monthly payment. It can be a fixed amount or a percentage of the mortgage. This can help with the extra expenses of buying a house, such as: surveys, solicitor’s fees and removal costs.
Commercial Mortgage
A mortgage on a non residential building occupied by a business.
Completion
The date that the seller receives the money from the sale of the property and legal ownership passes to the buyer.
Conveyancing
The legal work involved in the transfer of ownership of a property or land, usually carried out by a solicitor or licensed conveyancer.
Credit Crunch
The credit crunch we are currently experiencing is a tightening in the availability of monies for lending. This recognises the inappropriate lending policies of banks in recent years and the losses now being experienced as many borrowers struggle to maintain payments.
Debt Management Programme
Such a programme starts with the borrower accepting that their debts are out of control. The solution may involve remortgaging to settle existing debts, and / or an Informal Agreement, or legal arrangement (IVA) to make lower payments to creditors.
Discount Rate Mortgage
A mortgage where the rate fluctuates with the base interest rate, but at a lower discount level for a set period.
Early Repayment Charge
Some mortgage contracts contain a penalty charge if you repay the mortgage early, such as during the period of a fixed or discounted rate - also known as Early Redemption Fee
Endowment Mortgage
An 'interest only' mortgage where the capital at the end of the mortgage term is repaid by the proceeds of an endowment assurance policy. There are risks involved as there is no guarantee that the endowment will earn enough to pay off the mortgage at the end of term.
Exchange
The signed contracts from the buyer and seller are exchanged and a completion date set. The buyer pays the deposit on the property. The exchange makes a binding contract.
First time buyers
Borrowers who are purchasing a property for the first time. Mortgage lenders can be very competitive with first time borrowers as they hope to interest them in subsequent mortgages.
Fixed rate Mortgage
The mortgage rate is fixed for a set period. Generally, the shorter the period is then the lower the rate.
Flexible Mortgage
A combined mortgage and current account that allows you to vary your monthly payments by overpaying, underpaying or taking a payment holiday. Any monthly savings earn the mortgage rate, which is generally a high, tax-free rate of return. There should be no early repayment penalty.
Freehold
If you buy the freehold of a property you own it and the land it stands on.
FSA
The Financial Services Authority (FSA) is an independent non-governmental body that regulates the financial services industry, including: mortgage lending, mortgage advice and general insurance advice. If the required standards are not met, then the FSA can take action against firms.
Full structural survey
An extensive property survey - known as a building survey – this is recommended for older buildings built before 1960, and should reveal most defects. Each visible element of the property is inspected and any necessary repairs and costs are identified.
Higher Lending Fee
Formerly known as a Mortgage Indemnity Guarantee, this is the sum required by the lender when the amount borrowed exceeds a given percentage of the value of the property. The charge is used to buy an insurance policy against you defaulting on the mortgage loan.
Homebuyer's Survey and Valuation
This survey is more detailed than a basic valuation and includes significant matters such as subsidence or settlement and urgent repairs for which the client should obtain quotations prior to exchange of contracts. This is usually recommended for conventional, unmodified properties and generally those built after 1960's.
Home Information Packs (HIPS)
Home Information Packs, including Energy Performance Certificates, are being introduced on a phased basis from 1st August 2007. Initially only sellers of properties with four or more bedrooms in and are required to order a HIP pack although three bedroom houses are included after September 10th. The house can be placed on the market before receiving the HIP documents, as long as the seller can prove the HIPs have been ordered and will arrive within 28 days. HIPs are intended to improve the house buying and selling process. The packs are paid for by the property vendor and contain information and documents about the property, including a rating of the home's energy efficiency. They are likely to increase the cost of selling a house by around £300 to £600.
IFA
Independent Financial Advisers are authorised and regulated by the Financial Services Authority, which ensures they only provide advice most suited to your personal requirements and your risk outlook, before helping you to choose any financial products.
Informal Agreement - see Debt Management
An informal agreement made by an individual to temporarily make lower loan repayments to one, or more creditors. This is reviewed on a regular basis with a view to either resuming full repayments, or making an offer to settle the amount outstanding. A Debt Management firm maybe appointed to provide such services.
Interest only mortgage
A mortgage where the monthly payments only meet the interest on the capital amount borrowed. The capital amount remains outstanding and the borrower has to make provision for repaying this amount at the end of the mortgage term. Most borrowers use the proceeds of an investment, such as a long-term savings plan, an ISA or endowment policy run alongside the mortgage to repay the debt.
ISA Mortgage
This is taking out an interest-only mortgage and running an ISA investment alongside in order to repay the capital sum borrowed. There are risks involved as with any stock market investment, but there is the advantage of tax savings in that any savings you make are free from Capital Gains and income tax. Most lenders also require life insurance to cover the amount borrowed.
Individual Voluntary Arrangement (IVA) - see Debt Management
A legal agreement made by an insolvency practitioner (usually an accountancy firm) on behalf of an individual to make agreed, lower repayments to one, or more creditors. The arrangement continues until the individual is either: - in a position to make an offer to settle the debts; or after a period of 5 years the balance of the debt outstanding is written off.
Joint Tenancy
This is the owning of land or property by two or more people. The joint tenants both pay the mortgage and get an equal share when the property is sold. If one of the joint tenants dies, the ownership of the property passes to the survivor/s, in contrast to property held by 'tenants in common'.
Land Registry
The government body responsible for maintaining and updating the register of all properties in and – records and transfers land ownership. Since February 2005 for just a £2 fee online you can discover : who owns a specific property, how much it cost them, the name of their mortgage provider and the length of any lease on it.
Leasehold
This gives you the right of possession of a property, but not the ownership for an agreed period of time. Many flats in the are leasehold.
Let to Buy
Let out your own home, creating rental income to help buy another home.
LTV
Loan-to-value ratio – this is the difference between the loan amount and the house's market value. A loan of £80,000 on a £100,000 home gives a loan-to-value ratio of 80%. The bigger the difference is between the loan and the value of the house, then the smaller the LTV. This difference is known as the equity.
Mortgage
A loan to buy a house, where the property is the security for paying back the loan. The lender has the authority to sell the property if repayments are not maintained. Mortgage repayments are usually made monthly over a long period, usually 25 years. There are many different mortgage options : repayment, flexible, tracker, capped, discount, self certification.
Mortgage Offer
The document issued by the mortgage lender to the borrower following approval, setting out the conditions and terms.
Mortgage Protection
Usually taken out with a repayment mortgage this policy provides life assurance that reduces in line with the decreasing mortgage debt. The policy pays out a lump sum in the event of death, which is used to repay the mortgage. There are no savings with a mortgage protection policy, it purely provides life insurance.
Negative Equity
This is where the amount of money owed on the property exceeds the property's market value. So, if you sold your house you would not get enough money to pay off your mortgage loan.
NHBC Warranty
If you are buying a new house you should receive a NHBC (The National House Building Council) warranty. Providing the builder is registered and the property meets standards the NHBC will issue a Buildmark Warranty. This offers insurance protection against any structural or building faults for 10 years.
Non-Status Mortgage
If you do not have a credit record or any proof of income or a mortgage history then you are termed by lenders as 'no status'. It is still possible to arrange a non status mortgage even if you have been turned down before and have a poor credit history - CCJ's, mortgage arrears, repossession, Discharged Bankruptcy. Generally the maximum loan to value is around 70% and the rates are usually higher.
Overpayment
This is when you pay more than the required monthly repayment to your mortgage lender. A flexible mortgage allows overpayment and underpayment. As long as there is no early repayment chargeyou should be able to overpay as much as you can afford and cut down your mortgage term and interest paid.
Pension mortgage
You can link your personal pension plan with your mortgage loan, so that at the end of the mortgage term part of the tax-free proceeds of the pension fund repays the outstanding mortgage loan. You receive tax relief on your pension plan contributions, but are left with less for your retirement.
Portable Mortgage
This is where a borrower can transfer their existing mortgage to a new property without incurring the penalty of early redemption fees. Most mortgages are now portable mortgages, meaning that if you decide to move you take your mortgage on the same terms and conditions to your new property. Mortgage portability can be advantageous, if for example you have secured a good fixed rate, a capped, cash back or discounted product originally and the market has since changed, leaving no comparable deals.
Property Chain
This is when a number of property transactions are dependant on others - when a seller needs the sale of their house before they can complete the purchase of another property. The chain can break if one buyer is unable to sell their home and a link breaks. A first-time buyer has no chain which is an attractive prospect for a seller.
Remortgage
The arranging of a new mortgage for your property without moving. The reasons for remortgaging are usually to get a better mortgage rate or to release equity for improvements.
Repayment Mortgage
You pay the mortgage along with the interest monthly. This is the most popular mortgage plan and the safest. A Mortgage protection policy is recommended with this mortgage plan, so if the policy holder dies the debt can be paid by the heirs. Also known as a Capital and Interest mortgage
Search
This is usually carried out by the solicitor as part of the conveyancing process on your proposed property. The search checks for any plans with the Local authorities which might affect the property, such as: new roads, proposed building developments or public rights of way. Most searches take around a fortnight, but they can take up to six weeks. It is usually possible if you need to act quickly to pay extra for a faster 'personal search'.
Second Mortgage
This additional mortgage on a mortgaged property is also known as a secured loan. The first mortgage takes legal priority, so the second mortgage is considered more of a risk for the lender, so the rates are likely to be higher.
Self Certification Mortgage
This mortgage allows borrowers to certify their own earnings without having to supply documentation, such as wage slips. This option often suits the self-employed, seasonal wage earners, or anyone with irregular earnings such as, a contract worker or commission-based employee, or those in salaried employment with a supplementary source of income, an unsalaried company director, or varying other circumstances. Specialist mortgage lenders can often be most flexible.
Shared Ownership
This government scheme enables you to buy property jointly with a Housing Association, a housing society or a non-profit making housing company, who will pay between 25 and 75 per cent of the cost. This scheme was developed to help those who could not afford to buy a home outright, and allows you to buy a share of the property and pay a rent on the remaining share. Up to four people can become joint owners, but all joint applicants must individually and jointly meet the eligibility criteria. The share you purchase is funded by a mortgage. It is possible to buy further shares and eventually own the property.
Stamp Duty
This tax imposes a percentage charge on the price of a property over £125,000 : up to £250,000 - 1%, up to £500,000 - 3%, £500,000 + - 4%
Tenants in Common
This is where two or more people own a property, but if one of the owners dies their share of the property passes to their next of kin not the other owner/s, unless there is a will stipulating otherwise. The terms are defined by the percentage of the property that each person owns.
Tracker Mortgage
The interest rate reflects the changes made by the Bank of England. It can be for only a few years or for the duration of the mortgage.
Valuation - Basic
This basic survey is carried out by the mortgage lender and assesses whether the property is good security for the proposed mortgage loan. The buyer usually pays for this and receives a copy. Some lenders do not charge. This survey is suitable for a new house, but for any other property it is recommended you commission your own survey, such as the Homebuyer's survey & valuation
Vendor
The person selling a property
Your property may be repossessed if you do not keep up repayments on your mortgage.