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A

Accident, Sickness & Unemployment Insurance (ASU)

Insurance which pays all or a percentage of your monthly mortgage payment if you cannot work due to an accident, sickness or redundancy. Also known as Payment/Income Protection Insurance, Accident, Sickness and Redundancy Insurance (ASR) or Mortgage Repayment Protection (MRP) or Mortgage Payment Protection Insurance (MPPI).

Accidental Damage Cover

Extra insurance on your buildings and/or contents insurance policy to cover you against accidental damage to the structure of your property and/or its contents.

Administration Fee

A fee paid to the lender to cover the costs of processing the application. May also include the Valuation Fee.

Advance

A mortgage loan.

Adverse Credit

The term applied to someone with a poor credit history owing to late mortgage, rent or credit payments, County Court Judgements (CCJs) or bankruptcy.

Agricultural Restriction

A covenant restricting the use of a property to agriculture.

Annual Percentage Rate (APR)

An interest rate quoted by lenders to help compare the true cost of different mortgages. The APR takes into account all fees and charges applied to the mortgage as well as the monthly payments over the life of the loan.

Applicant(s)

The individual or individuals who apply for a mortgage and whose name(s) will appear on the mortgage documents.

Arrangement Fee

A fee to cover administration, usually for arranging special rate mortgages. Other names include Application Fee, Booking Fee, Reservation Fee.

Arrears

If you go into arrears it means that you have ‘defaulted’ at least once on your mortgage repayments. You will owe a sum of money ‘in arrears’ to your lender. If you find yourself in this situation you should contact your mortgage lender to seek help as soon as possible

Assignment

The term used when the ownership of a policy (for example, an Endowment or Personal Pension Plan) is legally transferred. In the case of mortgages, the ownership of a policy is usually transferred to a lender to ensure that the proceeds of the policy are used to redeem the loan.

B

Base Rate

The interest rate from which lenders set their rates for lending and savings products. It is usually based on the Base Rate set by the Bank of England.

Basic Income

Gross salary before taxes, excluding overtime, bonuses, commission etc.

Booking Fee

A fee to guarantee that a special rate will be available, provided that the mortgage application is received by a given date. Also called a Reservation Fee.

Broker (Finance)

A person who advises on and/or facilitates the purchase of a financial product.

Broker Fee

A fee charged by a broker or financial adviser for advising and/or facilitating the purchase of a financial product.

Buildings and Contents Insurance

Combined insurance covering both the structure of the property and its contents.

Buildings Insurance

Insurance that protects against loss or damage to the main structure of the property, also to fixtures and fittings, perimeter fences/walls and outbuildings.

Buy-to-Let Mortgage

A mortgage designed for those wanting to buy a property with the intention of letting it to others

C

CAP

The ceiling in a Capped-Rate Mortgage above which the interest rate cannot increase.

Cap and Collar Mortgage

A mortgage with a set maximum and minimum interest rate over a given period. The Cap defines the maximum rate and the Collar the minimum rate. The interest rate can fluctuate between these rates for the period of the product.

Capital Raising

A term normally used for remortgaging (changing lenders) where additional funds are raised over and above the existing mortgage amount for non-specific purposes.

Capped Rate

An interest rate that is guaranteed not to rise over a given period, but which can fall during that period.

Capped Rate Mortgage

A mortgage where the interest rate is guaranteed not to rise above a maximum level over a given period, but which can fall during that period. See also Cap and Collar Mortgage.

Cash Back

A sum of money paid to the borrower when a ‘Cash Back Mortgage’ completes. It may be a fixed amount, or a percentage of the mortgage.

CHAPS

Fee The fee lenders and solicitors charge for the same day transfer of funds, usually to complete a mortgage.

CIC or Critical Illness Cover

Will pay the policy holder a lump sum on diagnosis of a range of specified illness (refer to specific policy terms and conditions for further details) – the illness may vary but generally include the major illnesses like cancer, heart attack and stroke.

Commission

The fee paid by a lender to a broker for introducing business to that lender.

Completion

The date (normally agreed at Exchange of Contracts) when the buyer’s solicitor transfers the funds needed to complete the purchase of the property to the seller’s solicitor. For remortgages, it is the date that the mortgage is transferred from one lender to another.

Completion Fee

An administration fee sometimes payable to the lender on completion of the mortgage.

Conclusion of Missives

The Scottish equivalent of Exchange of Contracts.

Conditional Insurance or Compulsory Insurance

An insurance product that a lender requires the borrower to take out in order to qualify for a particular mortgage. May include buildings and/or content insurance, or accident, sickness and unemployment insurance (ASU).

Contents Insurance

Insurance that covers against loss or damage to the contents normally kept in the property.

Converted Flat

A flat created from a larger property that has been subdivided.

Conveyancing

The legal work involved in the purchase and sale of land or the transfer of a mortgage. This is usually, but not always, done by a solicitor or licensed conveyancer.

County Court Judgement (CCJ)

A ruling against a person who does not repay a debt, obtained in a county or higher court by the person or company owed the money. The order spells out the terms under which the person owing the money is required to repay it.

Credit Check

A report showing a person’s use of credit, using information supplied by a Credit Reference Agency. Credit Checks provide information on credit card repayments, outstanding debts, past or current arrears, County Court Judgements and similar.

Credit Reference Agency

An organisation that stores and updates financial and public records information about the payment history of individuals who have received credit. Almost always used by lenders to check payment records before they will offer a mortgage.

Current Account Mortgage

A mortgage which combines a current bank account with the features of a Flexible Mortgage allowing overpayments and underpayments, payment holidays, and enabling cheques to be written from the mortgage account.

D

Debt

An amount of money owed to a person or company.

Debt Consolidation

The act of combing two or more outstanding loans into one lower rate loan. The new loan repays the old loans.

Defaulting

If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as ‘defaulting’. If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession.

Deposit

The difference between the purchase price of a property and the amount being borrowed.

Disbursements

Legal and administrative costs payable to the Solicitor or Licensed Conveyancer, related to the purchase or remortgage of a property. Includes Stamp Duty, Search Fees, HM Land Registry fees, CHAPS Fees and so on. Disbursements do not include the Solicitor’s fee for carrying out the legal work.

Discounted Period

The length of time the Discounted Rate is payable. Can range from 6 months to several years.

Discounted Rate

A variable rate set at a fixed percentage amount below the lender’s standard variable rate for a period of time. At the end of the period, the mortgage reverts to the lender’s variable rate.

Draw Down Facility

A facility which allows you to borrow additional funds under your existing mortgage agreement.

DTA or Decreasing Term Assurance

A form of life assurance where the sum assured reduces over the term of the policy – often used to protect a repayment (capital and interest) mortgage.

E

Early Redemption Penalty

A fee imposed by a lender if all or part of a mortgage is paid off before the expiry of a Fixed, Discounted or Capped Rate period or within a specified period for these and other products (such as Cash Back mortgages). These penalties typically equate to a number of months’ interest, or to a percentage of the total loan amount. Also called Early Redemption Fee or Prepayment Penalty.

Endowment Mortgage

An interest only mortgage with an endowment policy assigned to it. The borrower normally pays only interest during the term of the mortgage and pays separate premiums into an Endowment Policy that is designed to repay the mortgage at the end of the term, although not guaranteed. The Endowment Policy also provides life insurance to repay the loan if the borrower dies.

Endowment Policy

An investment product which may be assigned to an interest only mortgage and the proceeds used to pay off the capital at the end of the mortgage term.

Equity

The difference between the market value of the property and the amount of the owner’s mortgage on that property.

Estate Agency Fees

The amount the estate agent charges the person selling the property. Normally equates to a percentage of the sale price.

Exchange of Contracts (Not Scotland)

The stage in the buying process when the deposit is paid and the sale of the property on the terms agreed by the seller and buyer becomes legally binding.

Existing Liabilities

The individual’s existing financial outgoings which lenders may take into account when assessing ability to meet future mortgage repayments. Includes all nature of existing loan/credit card repayments, hire purchase agreements, rental agreements, maintenance payments etc.

F

Feuhold (Scotland)

Similar to freehold in the rest of the UK. However, whilst you own both the property and the land it is built on, a ‘Feudal Superior’ has an interest in the title of the property and may impose certain restrictions.

First Charge

A document which records a lender’s or other party’s contractual rights to title of a property over and above any other party(s) if the conditions of the legal charge are not met.

First Time Buyer (FTB)

Someone who has never previously owned a property. Some lenders also include applicants who have owned a property previously but have nothing to sell now and/or joint applicants where only one is a FTB.

Fixed Rate Mortgage

A mortgage where the interest charge rate does not change for a set period – usually a number of years or until a fixed date in the future. At the end of the period, the mortgage usually reverts to the lender’s variable rate.

Fixtures

Items attached to – and therefore legally part of – a property. For example, built-in cupboards, sink, bath etc.

Flexible Mortgage

A mortgage which allows overpayments and underpayments on the mortgage without penalty, and, in some cases, to take payment holidays.

Foreign Currency Mortgage

A mortgage taken out in a currency other than Sterling.

Freehold (Not Scotland)

A property where you own both the building and the land on which it is built indefinitely. See Feuhold for Scotland.

Freeholder

The person who owns the Freehold of a property.

Full Status – Mortgage

A mortgage where the lender requires proof of income and credit references in order to verify the applicant’s ability to meet the mortgage repayments.

Further Advance

An additional loan which is consolidated with an existing mortgage.

G

Gross Annual Income

Yearly income before taxes are deducted.

Ground Rent

A fee that a leaseholder has to pay the freeholder every year to provide certain services, for example, maintenance of the grounds in which the property stands.

Guarantor

A person who has opted to be legally liable for the repayment of a mortgage if a borrower fails meet repayments. Sometimes used to support a borrower with insufficient income to qualify for a mortgage.

H

High Loan To Value Fee

A fee charged by a lender if the mortgage amount is above a specified percentage of the property value (usually 75%-80%). Also known as Mortgage Indemnity Premium/Protection (MIP); Mortgage Indemnity Guarantee (MIG); Mortgage Indemnity Fee; Mortgage Guarantee Insurance (MGI); High Percentage Loan Fee; Additional Security Fee.

Home Buyer’s Report

A surveyor’s report which provides details concerning the condition of a property and its fixtures. See also Valuation and Structural Survey. A Home Buyers Report usually contains more detail than a Valuation Report and less detail than a Structural Survey.

Home Buyer’s Valuation Fee

The fee payable to the Surveyor for producing a Home Buyer’s Report.

Homebuy Schemes

These are government schemes designed to help existing tenants and key workers (nurses, teachers and social tenants) to get onto the property ladder.

I

IFA

Independent Financial Adviser.

Illustration

A document setting out the costs of a particular mortgage for a potential borrower, usually showing the monthly payments for the first five years, and the cost of all fees associated with that mortgage product.

Impaired Credit

The term applied to someone with a poor credit history owing to late mortgage or rent payments, County Court Judgements (CCJs) or bankruptcy.

Income

The amount of money a person earns, whether from employment or other sources.

Income Multiplier

The factor(s) by which lenders multiply one or more applicants’ annual income to determine the maximum amount they are prepared to lend.

Income Reference

Written confirmation from an employer of an applicant’s stated earnings. If self-employed, the applicant’s accountant may be asked to confirm income either by letter or by providing audited accounts for a specified period.

Independent Financial Adviser (IFA)

An individual who operates independently of any financial product provider and is qualified to give impartial advice on financial planning and the selection of financial products such as insurance, pensions and mortgages.

Index Tracker

A mortgage type where the interest rate rises and falls in line with a particular published interest rate (usually the Bank of England Base Rate).

Interest

The money you are charged for borrowing.

Interest Only Mortgage

A mortgage which only requires the interest charged on the loan to be repaid during the term of the loan and the amount borrowed to be repaid at the end of the term (usually from the proceeds of an investment such as an endowment or pension policy).

J

Joint Income

The total income before tax of two people applying jointly for a mortgage with the intention of sharing responsibility for meeting the monthly repayments.

Joint Life

Where a life insurance policy is covering two individuals.

Joint Life 1st Death

The sum assured is paid on the death of whichever of the two lives dies first. In this case, the two lives assured are normally also joint policy holders, and the sum assured would be paid direct to the policy holder.

L

Land Registry Fee

A fee paid by the solicitor or licensed conveyancer to the Land Registry to record a change in the registered ownership of a property and/or land.

Landlord’s Reference

A document provided to a lender by an applicant’s current or previous landlord commenting on the applicant’s ability to meet regular rent payments.

Leasehold Property (not Scotland)

A property – usually a flat or maisonette – which is leased for an agreed (usually extended) period of time as stated in the lease but where the property itself is owned by the ‘Freeholder’.

Leaseholder

Someone who owns the lease to a property.

Legal Charge

A document which records a lender’s or other party’s contractual rights to title of a property if the conditions of the legal charge are not met.

Lender

A bank, building society, mortgage company, or other company offering a loan.

Lender’s Fee

May include one or more of the following: Administration Fee; Arrangement Fee; Booking Fee; Completion Fee; Valuation Fee.

LIBOR-Linked Mortgage (LIBOR)

The rate for this kind of mortgage is normally quoted as an amount above LIBOR. Although the LIBOR rate changes daily, the rate for a LIBOR linked mortgage will normally only be adjusted every three to six months.

Licensed Conveyancer

Someone who undertakes the legal work associated with buying, selling and remortgaging property. May be used instead of a solicitor.

Life Insurance

A policy which pays a lump sum on the death of the policyholder.

Loan to Value (LTV)

The amount of a loan expressed as a percentage of the value of the property. For example, a mortgage of £90,000 on a property valued at £100,000 would be shown as 90% LTV.

M

Mortgage

A loan secured against a property and incorporating a document which records a lender’s or other party’s contractual rights to the title of a property if the conditions of the legal charge are not met.

Mortgage Deed

The legal document recording the existence of a mortgage on a property.

Mortgage Subsidy

A payment made by Mortgage Term The period over which a mortgage will be repaid. an employer towards an employee’s mortgage payments.

Mortgage Term

The period over which a mortgage will be repaid.

Mortgagee

The mortgage lender.

Mortgagor(s)

The individual(s) taking out the mortgage.

N

Negative Equity

A situation where a property is worth less than the mortgage secured on it.

Net Profit

A self-employed person or company’s income after taxes and expenses have been deducted.

New-Build

A recently built property that has never previously been occupied.

Non-Status Mortgage

A mortgage where the lender does not require proof of income or other references (at their discretion).

O

Offer Letter

A formal offer of mortgage by a lender stating the terms under which it agrees to lend money to an applicant.

Offset Mortgages

Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe. You are unlikely to earn interest on your savings which are offset against your mortgage.

On Risk

The point at which your policy comes into effect.

Other Income

Income in addition to basic salary.

Other Outgoings

A catch-all phrase covering all types of expenditure other than those specifically mentioned.

Outstanding

Amount still owing. Hence outstanding loan amount is the amount you still owe the lender.

Overpayments

Increased or additional mortgage payments made by the borrower usually to repay the mortgage early. Also sometimes called Excess Payments

P

Part and Part Mortgage

A combination of a Repayment (Capital & Interest) and Interest Only mortgage.

Payment Holiday

A period of one or more months when the borrower does not make any mortgage repayments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Pension Mortgage

An Interest Only mortgage where the borrower plans to use some or all of the cash lump sum from a pension policy to repay the mortgage at the end of the term.

Portable

A mortgage that can be transferred to another property.

Previous Lender’s Reference

A document provided by a lender outlining an individual’s previous repayment history.

Q

Quotation

A document showing the actual monthly cost of a particular mortgage (including any fees that have been added to the loan), based on the information supplied. The quotation also shows all other mortgage-related expenses for a particular mortgage, such as estimated solicitor fees and survey costs. (Also called Illustration).

R

Rate

The percentage interest rate charged by a lender.

Redemption

The process of paying off your mortgage in full. Occurs at the end of the mortgage term, when changing lenders, or when moving house and taking out a new mortgage with a different lender.

Redemption Amount

The amount of money required to repay the mortgage in full.

Redemption Charge

Fees charged by the lender to cover administration costs when a borrower pays off a mortgage. Sometimes includes Early Redemption Penalty.

Remortgaging

Changing mortgage lenders without moving house and in so doing, using the proceeds from the new mortgage to repay the old one.

Renewable Premiums

Where the premium is subject to review and potential increase over the term of the policy.

Renewable Term Assurance

A term assurance of life assurance policy that contains an option, which can be exercised at the end of term, to renew the policy for the same sum assured without further medical evidence.

Repayment Method

The means by which a mortgage is repaid. The two main repayment methods are Interest Only and Repayment Mortgage.

Repayment Mortgage

A mortgage where part of the actual loan plus interest on the outstanding loan amount is repaid each month, gradually reducing the amount borrowed. A repayment mortgage guarantees to repay the total mortgage debt at the end of the mortgage term provided the correct monthly repayments are made on their due dates. Also called a Capital & Interest Mortgage.

Repayment Period

The number of years and months over which the borrower agrees to pay back the mortgage. Also called the Mortgage Term.

Retention

This is when a lender holds back or ‘retains’ part of the agreed mortgage until certain conditions have been met, for example receipt of warranties, carrying out of repairs or improvements, or, for new-build properties, reaching a key stage in the building program.

Right-To-Buy

The right of a tenant in a local authority owned property to buy the property, sometimes at a discount, the discount depending on length of tenancy.

S

Searches

Checks carried out by a Solicitor or Licensed Conveyancer with local authorities and other official organisations to ensure there are no planning proposals or other matters that could adversely affect the value of the property.

Second Charge

A document which records a lender’s or other party’s contractual rights to title of a property if the conditions of the legal charge are not met.

Self-Build Mortgage

A mortgage taken out on a property that is still under construction. The lender normally pays out the loan in stages to ensure that it doesn’t at any stage exceed the value of the property at its current stage of building.

Shared Ownership

Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so. The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder. The portion that is owned will vary depending on the circumstances.

Stamp Duty

A tax paid by the buyer when purchasing a property. The amount payable works on a sliding scale dependent upon (and calculated as a percentage of) the property price.

Standard Construction

A building constructed using standard techniques such as bricks and mortar, tiled roof and cavity walls.

Standard Variable Rate

The default interest rate charged by lenders which is usually in line with a stated index, such as the Bank of England Base Rate. It rises and falls broadly in line with changes in the Bank of England Base Rate and is normally applied at the end of a ‘special rate’ period, such as a fixed, capped or discounted rate.

Stepped Rate Mortgage

A mortgage where the interest rate charged rises in stages over time.

Structural Survey

A detailed examination of a property’s structural condition by a surveyor or other qualified person. A structural survey report will normally provide a full and detailed description of the structure, list all the defects and alert the recipient if a specialist report is needed, e.g. drainage, damp or subsidence. Also called a Buildings Survey or Full Structural Survey, and ranks higher than a Home Buyer’s Report.

Survey Fee

The fee charged by a surveyor to carry out a Home Buyer’s Report or Full Structural Survey on a property. May also incorporate the lender’s Valuation Fee if you are using the same surveyor to carry this out.

Surveyor

A person professionally qualified to estimate the value of land and property and carry out a survey.

T

Terminal Illness Cover

An option included in life assurance policies whereby the life company will pay out if the policy holder is terminally ill – this should not be confused with Critical Illness Cover (CIC).

Tie-in Period

The period you agree to stay with the lender for when you take up a special offer mortgage (Fixed Rate, Discount, Cash Back etc). These sorts of products normally commit you to staying at least until the end of any special rate offer, and sometimes for a period afterward. If you decide to repay your mortgage during the tie-in period you will normally have to pay an Early Redemption Penalty.

Tracker

A product where the interest rate is set at a stated percentage above a published index rate, then rises and falls in line with that index.

Trust

If a policy is written in trust, then you can help determine who should benefit from the policy when it is eventually paid.

U

Underpayment

A mortgage payment that is less than the amount normally required for that month. Usually only allowed for borrowers with flexible mortgages or by prior arrangement with the lender.

Underwriter

The role of the underwriter is to look at individuals based on knowledge of that individual – e.g. medical history, hereditary illnesses, occupation, sporting activities. For the life assurance, they will assess the risk and decide whether to offer cover and if so at what price. For mortgages they will decide whether to lend.

V

Valuation

Not to be confused with a survey. A Valuation is report for the lender’s own use stating the current value of the property and other information concerning the state of repair, the area, etc. See also Home Buyer’s Report and Structural Survey.

Valuation

Fee A fee paid to the lender to cover cost of the Valuation.

Value

The price that a property would in normal circumstances be expected to sell for in prevailing market conditions. Normally determined by an estate agent familiar with the local property market.

Variable Rate Mortgage

A mortgage whose interest rate rises and falls roughly in line with a stated index, such as the Bank of England Base Rate.

Vendor

The person or persons selling a property.

W

Waiver of Premium (WOP)

Is an additional option that can be taken out with most forms for protection. The insurance company will pay the premiums due on a life assurance policy if the policy holder is unable to do so because they are unable to work due to accident or illness. The insurance company will pay the premiums for you until you are able to return to work.

Will

If you do not make a will then you will die intestate and will lose control over the proceeds of your estate.