Advance
The amount of the mortgage loan.
Agreement In Principle This means you have been accepted for a mortgage or remortgage but it will depend on issues such as a valuation report and confirmation of employment.
Annual Percentage Rate (APR)
Annual Percentage Rate (APR) is a way to compare the costs of a loan. Although it’s not perfect, it gives you a reasonable standard for comparing the percentage costs on different loans on a like for like basis.
Application
The process of applying for credit, or other products. The vast majority of credit applications need to be made in writing, although it may be possible for some services, such as an overdraft extension, to be arranged over the phone. Even internet based credit applications will usually require you to sign documents before the application is finalised.
Application Fee
Any charges made for an application.
Bridging loan
A short-term loan to bridge the period between you buying a new property and selling your previous home.
Broker/ Intermediary
A person or company who will arrange a mortgage with a lender on your behalf and often also help you with the necessary paperwork and guide you through the mortgage process.
Building survey
An extensive survey, carried out by a qualified surveyor, to highlight faults and potential problems in the property you are buying.
Buy to Let
Buying a property with the intention of letting it out to tenants for rent..
Capital
The amount you have borrowed on the mortgage, and on which interest is charged.
Capital and Interest Mortgage
See also repayment mortgage – The monthly payments pay both the interest on the amount borrowed and a proportion of the outstanding capital owed on the mortgage.
Cashback Mortgage
There can be various ways in which a lender offers a cashback mortgage but fundamentally a borrower receives a free cash sum on completion. This can be a fixed amount or a percentage of the mortgage and is a bonus feature given by lenders generally to 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 completion of the transaction to either buy or remortgage a property. This is a specified date at which time legal documentation is finalised and property ownership transfers. Transfers of funds usually coincide with this date.
Contract
The legal document which transfers the ownership of the property from the seller to the buyer.
Conveyancer
A solicitor or licensed conveyancer who does the legal work involved in selling, buying and remortgaging a property.
Conveyancing
The legal work involved in selling, buying and remortgaging a property.
Credit reference agency
An organisation that keeps details of individuals and their credit histories. Lenders will check with a credit reference agency to see if someone applying for a mortgage has any known credit problems.
Disbursements
The fees, such as stamp duty and Land Registry fees, which you pay to the conveyancer.
Discount Rate Mortgage
A mortgage where the rate fluctuates with the base interest rate, but at a lower discount level for a set period.
ERC
See Early redemption fee/ early repayment charge
Early redemption fee/ early repayment charge
The charge some lenders make if a mortgage is paid off early.
Endowment Mortgage
An interest only mortgage where the capital at the end of the mortgage term is repaid by the proceeds of an endowment policy. There are risks involved with this method of repayment as the endowment is an investment and therefore there is no guarantee that the endowment will earn enough to pay off the mortgage at the end of term.
Equity
The total value of your property, less the amount of the mortgage. For example, if your house is worth £100,000 and you have a mortgage of £75,000, you have equity of £25,000.
Exchange of contracts
The point where the property sale/purchase becomes legally binding on the buyer/seller involved.
Financial Services Authority (FSA)
The Financial Services Authority (FSA) is the independent watchdog set up by the government to regulate financial services and protect your rights. The FSA has regulated mortgage sales since 31 October 2004. All lenders must be authorised by the FSA, and brokers must either be authorised directly by the FSA or be agents (known as “appointed representatives”) for other authorised firms. This means that all firms must follow FSA rules when dealing with you. You can check that a mortgage firm is authorised through the FSA website – or by calling the FSA Consumer Helpline (0845 606 1234).
First time buyers
Borrowers who are purchasing a property for the first time, they are usually offered special offers – discounts, cash back and fixed rates. Mortgage lenders are most competitive with first time borrowers as they hope to interest them in subsequent mortgages.
Fixed rate Mortgage
The mortgage interest rate is fixed by the lender for a set period. Generally speaking, the shorter the fixed period is then the lower the interest rate charged.
Flexible Mortgage
A mortgage and current account combination 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.
Freeholder
Someone who owns a property and the land it stands on.
Full Structural survey
An extensive property survey also known as a full building survey. This is recommended for older buildings and should be thorough enough to reveal most defects. Each visible element of the property is inspected and any necessary repairs and costs are identified.
Ground rent
A yearly fee leaseholders have to pay to the freeholder or landlord who owns the land the leasehold property is on.
High lending fees
Not all lenders charge these, but if you borrow a high percentage of the price of the property – for example, over 80% or 90% – you may have to pay this type of fee. This is because the mortgage represents a higher risk to the lender if you do not keep up your repayments
HIPS
See Home Information Packs
Home-buyer’s report
A surveyor’s report on a property. This type of survey is less extensive than a full building survey but more extensive than the lender’s valuation. Probably the most popular survey homebuyers request as it should gives a good all round view of the property’s condition and highlight any of the more obvious faults that may need more specialist review.
Home Information Packs (HIPS)
Home Information Packs (HIPS) were introduced initially in August 2007. HIPs were intended to improve the house buying and selling process. The packs were paid for by the vendor/seller and contained information and documents about the property, including a rating of the house’s energy efficiency.
The new coalition government abolished home Information Packs in May 2010. They believed as did many others that the packs had limited benefit to potential purchasers and a negative effect on the recovery of the housing market as their cost discouraged sellers from placing their properties on the market.
IFA
See Independent Financial Advisor
Independent Financial Advisor
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.
Interest
The amount you are charged by the lender for borrowing money.
Interest only mortgage
A mortgage where the monthly payments only pay the interest on the capital/loan 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 running alongside the mortgage to repay the debt.
ISA Mortgage
This is an interest-only mortgage with an ISA investment running alongside that when it matures should repay the capital sum borrowed. As with any investment there can be risks to both your capital and the expected return, but there is the advantage with an ISA of tax savings in that any investments you make up to the prevailing limits are free from Capital Gains and income tax.
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 England and Wales. It records who owns the property/land, all transfers of ownership, how much the property sold for, details of any loans or mortgages secured on the property .
Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
Lease
A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.
Leaseholder
Someone who owns a property, but not the land it stands on, for a fixed period of time.
LTV
See Loan to Value
Loan to Value (LTV)
The ratio of the mortgage loan to the value of the property used by lenders as part of the assessment of the risk of lending. If a mortgage loan is required of £75,000 on a property valued at £100,000 then the Loan to Value is 75% i.e. 75,000 divided by 100,000 = 75%.
Mortgage
A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.
Mortgage application fees
These are fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.
Mortgage deed
The legal agreement which gives the lender a legal right to property relative to the mortgage secured on it.
Mortgage Offer
The document issued by the mortgage lender to the borrower following approval, setting out the conditions and terms.
Mortgage term
The length of time over which the mortgage will be repaid.
Negative Equity
This situation arises when the amount of the loan or mortgage secured on the property exceeds the property’s market value. So, if the house were sold you would not get enough money to pay off your mortgage loan.
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 ‘non- status’. Since the credit crisis the availability of non-status mortgages has been severely restricted with very few providers left in the marketplace. It is still possible to arrange a non status mortgage even if you have been turned down before and have a poor credit history, county court judgements (CCJs), mortgage arrears, credit defaults, been repossessed or are a discharged bankrupt. Generally the maximum loan to value is about 70% and the rates will almost certainly be significantly higher than a full status mortgage.
Offer of advance
The formal offer of a mortgage from a lender (see Mortgage Offer).
Overpayment
Overpayment is paying more than the required monthly repayment to your mortgage lender. A flexible mortgage allows over and under payment. Subject to there being no specific conditions or early repayment charge (ERC) you should be able to overpay as much as you can afford which in turn cuts down your mortgage term and interest charges.
Pension mortgage
Linking 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
A portable mortgage allows a borrower to transfer their existing mortgage to a new property without incurring a possible early redemption charge and other fees for settling the mortgage on the previous property and taking out a new loan . Most mortgages are now portable which means you can take your current mortgage on the same terms and conditions to your new property. Mortgage portability can not only be advantageous in terms of saving fees but also it means you can retain a good fixed rate, a capped, cash back or discounted product that may no longer be available in the market.
Property Chain
This occurs when a number of property transactions are dependent on others –the transactions are like links in a chain. Often a seller requires the sale of their house to complete before they can complete the purchase of another property and frequently the seller of that property may well require his house to sell before he can complete on his next house purchase. So each of these transactions is a link and a series of these links forms a chain. The chain can break if one buyer is unable to sell their home and therefore a link breaks. Generally A first-time buyer who has no chain behind him is an attractive prospect for a seller as is a cash buyer.
Redemption
The paying off of a mortgage loan.
Remortgage
This is the arranging of a new mortgage on your property without moving. The reasons for remortgaging are usually to get a better mortgage rate, better terms or to release equity to raise cash for any legitimate reason.
Repayment Mortgage
With this type of mortgage, each month your payment is made up of interest on the outstanding loan together with a payment reducing the amount of the loan. This is the most popular type of mortgage and arguably the simplest and safest as it is set up so that you are guaranteed to pay off the whole balance by the end of the term subject to you maintaining the agreed monthly payments.
Retention
When the lender holds back some of the mortgage money until certain repairs have been done. The amount held back is known as a ‘retention’.
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 is an additional mortgage on an already mortgaged property and is also known as a secured loan or second charge. The first mortgage takes legal priority, with the second mortgage only being recovered after the first charge has been paid. Lenders consider this more of a risk and so the rates charged on these loans are likely to be higher than those of a first charge mortgage.
Security
The property the mortgage is being used to buy is the lender’s ‘security’ for the loan. This means that the lender has rights over the property. If the mortgage repayments are not kept up to date, the lender can repossess the property and sell it to recover the debt.
Self Certification mortgage
This type of mortgage allows borrowers to certify their own earnings without having to supply documentation, such as wage slips or certified accounts and tax returns. This option often suits the self-employed and certain types of employed people. In terms of employed people, these could be seasonal wage earners, contract workers or commission-based employees, or those with a supplementary source of income e.g. a second job in the evenings. For the self employed it covers, an unsalaried company director taking dividend income, together with those businesses where accounts and tax returns were not yet available. As with many mortgage product types, self certified products disappeared during the credit crisis as they were deemed too risky by the Financial Regulator. Some commentators blamed much of the cause of the banking crisis on the loosening of rules around lending including self certification.
Shared Ownership
This government scheme enables you to buy property jointly with a Housing Association, a housing society or a non-profit making housing organisation, 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 in the future and eventually own the property.
Stamp duty
This is a government tax on buying properties. A percentage of the price of a property over £125,000 is levied on the buyer and collected by the solicitor upon completion of the conveyancing process. The current charges are 1% on prices from £125,000 up to £250,000, 3% from £250,001 up to £500,000 and 4% above £500,000.
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.
Term assurance
Life insurance arranged to pay off a mortgage if the borrower dies.
Title deeds
The legal documents which set out the details of ownership of a property.
Tracker Mortgage
The interest rate charged reflects the changes made by the Bank of England to base rates in that it moves up and down in a direct relationship with them. The tracker can be set for only a few years or for the duration of the mortgage.
Valuation Report
The lender’s inspection of the property to assess whether it is suitable for a mortgage. This is normally for the lender’s use and generally does not give the detail that a property purchaser may require to fully highlight all the faults a property may have. A homebuyer’s report and full building survey are more comprehensive reports that any potential purchaser should commission prior to buying a property.
