Glossary

Adverse Credit

This is the term used if the borrower has suffered a poor credit history. This could include previous mortgage or loan arrears, CCJ's or bankruptcy. Other terms used to describe an adverse credit mortgage include:

• Credit impaired mortgage
• Bad credit mortgage
• Poor credit mortgage
• No credit check mortgage
• No credit mortgage
• Low credit score mortgage

Agricultural Restriction

A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.

Apportionment

Dividing the liability for property tax, water charges etc between the seller and buyer of a property.

APRC

APRC stands for the Annual Percentage Rate of Charge. The APRC is the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit.

Arrangement fee

These are usually charged by the lender when arranging a loan on certain products.

Assignment

Document transferring rights of ownership from one person to another, such as an endowment policy to the building society in connection with a mortgage. Can also be the document transferring the lease on a property.

ASU

Accident, Sickness and Unemployment insurance (See also MPPI). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.

Auction

Public sale of a property to the highest bidder. The purchaser must immediately sign a binding contract and should ensure that all valuations, searches etc are carried out prior to the sale.

Authority to Inspect The Register

Document from registered proprietor of land allowing another party, such as the purchasers' solicitor, to be given information from the register of a property.

Bankers Draft

A method of payment of funds which has all the appearances of a cheque, but in effect is a cash payment.

Base Rate Tracker

The newest type of mortgage. The interest rate is variable but set at a premium (above) the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that, usually there is little or no early repayment charge. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant.

Bank of England Base Rate

The Bank of England Base Rate determines how much other banks and building societies pay for the loans that they take out from the Bank of England. These base rates will in turn affect the interest rate paid for loans including the loan on your mortgage.

Bridging Loan

This is a temporary loan which enables you to complete the purchase of your property before completing the sale of your existing house. A typical example of when you may need one would be if you wanted to buy a second property before you'd sold your first.

Booking Fee

These are usually charged by the lender when arranging a loan on certain products.

Broker Fee

A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.

Building Societies Commission

Regulatory organisation for Building Societies. Reporting to Treasury Ministers.

Building Society

Mutual organisation specialising in lending money to individuals to purchase or remortgage residential properties. Most of this money comes from individual saving members who are paid interest. A proportion of building society funds is also raised on the commercial money markets. Since the early eighties there has been a progressive relaxation of the rules governing the allowable sources of building society funds for lending to allow societies to compete more effectively with banks and there is now no restrictions as between the allowable proportions of 'retail' and 'wholesale funding'.

Buy to Let

This is a type of mortgage used to buy property that will be used solely for the purposes of renting to a third party i.e. you as the owner never intend to live there.

Capital & Interest

This is simply another term for capital repayment

Capital Repayment

There are two ways of repaying a mortgage either by the capital repayment or interest only route. With a capital repayment mortgage, the capital and interest elements of the loan are paid off with each monthly installment, with the balance reducing over the length of the loan. Therefore by the end of the mortgage term, assuming all mortgage payments are made, you have paid off the balance in full and you therefore own your property outright.

Capped Rate Mortgage

This is a type of loan where a maximum rate of interest is set at the start of the mortgage term. During the capped rate period the interest rate can fall below the capped rate but will never rise above it.

What this means for you the borrower is that you know how high the mortgage payments could rise but are guaranteed the rate will not go any higher, therefore making home loan budgeting easier.>

Cashback

A payment you receive when you take out a mortgage. It may be a fixed amount, or a percentage of the amount of the mortgage.

CCJ

County Court Judgment. A decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this.

Centralised Lender

Term used to describe a mortgage lender who does not rely on a branch network for distribution. Originally applied to specialist lenders who entered the mortgage market in the mid-late eighties (National Home Loans, The Mortgage Corporation, First Mortgage Securities, Mortgage Express and many others). This followed some de-regulation, which made the securitisation of mortgage loans a viable and potentially profitable option for lenders. (See SECURITISATION). Several building societies now have centralised lending operations which operate quite separately from their branch networks and rely exclusively on mortgages from intermediary sources.

Charge

Any right or interest, especially a mortgage, to which a freehold or leasehold property may be held.

Charge Certificate

The certificate issued by HM Land Registry to the mortgagee of a property with registered title. Contains three parts - charges register, property register and proprietorship register. Contains details of restrictions, mortgages and other interests. Where there is no mortgage it is called the Land Certificate and issued to the registered proprietor.

Chattels

Moveable items such as furniture or personal possessions.

Chief Rent

A rent payable by the owner of a freehold property similar to the ground rent payable by a leaseholder. Normally only found in the North of England. Can be bought out by freeholder.

CML

Council of Mortgage Lenders

Commercial Mortgages

This is a mortgage used by businesses for the purpose of purchasing their own business premises or for financing for investment purposes.

For example, you would need to apply for a commercial mortgage when investing in commercial property or purchase commercial property for investment purposes.

Completion

This is the point at which the money to buy your new property is released to the seller, ownership is then transferred to you and you become a proud home owner!

Contract

Legally binding agreement for sale. In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.

Conveyance

The deed by which freehold, unregistered title changes hands. If the property is leasehold and unregistered it is called an assignment. If the title is registered the deed is called a transfer.

Conveyancing

This is the legal process involved when buying or selling property. Most people use a solicitor or a licensed conveyancer when buying or selling a property because there's quite a lot of detailed work to do when transferring ownership of a property. If you are obtaining a mortgage your lender will insist that you use a solicitor.

Covenant

A promise contained in a deed.

Credit Scoring

This is a way in which a lenders assess whether you are a good risk to offer a mortgage to.

Credit Search

A check the lender makes with a specialist company to find out whether you have any CCJs or a bad credit record.

Debt Consolidation

This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage.

Deed

A legal document which is 'signed, sealed and delivered' not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.

Decreasing Term Assurance

Decreasing Term Life Insurance (sometimes called mortgage protection assurance) is where the sum assured decreases over the term of the policy. This type of policy is typically purchased by people who want to protect their repayment mortgage in the event of death.

As the outstanding mortgage balance reduces every year, so does the level of insurance. The purpose of this type of plan is to repay any capital you owe if you died.

Deposit

A deposit is the term used for the monies that you use as a down-payment on a property that you intend to buy.

Disbursements

These are the fees your solicitor has to pay on your behalf (e.g. Stamp Duty, Land Registry fees and search fees) which will be added to your conveyancing bill from the solicitor on completion of the buying or selling of a property.

Discount rate

A discounted rate mortgage offers you reduced repayments for a given term. This interest rate is discounted from the published lender standard variable rate, for an agreed period from the start of the mortgage.

What this means for you the borrower is that you are guaranteed to pay a set amount below the standard variable rate for the period of the discount. The standard rate can go up and down, but the discount amount remains fixed during the agreed period.

Early Redemption Charge

If you pay off your mortgage in full or make overpayments in excess of the amount agreed by your lender at the outset you may be asked to pay an early repayment charge by your lender.

This charge is raised in order to recover any losses or costs incurred by your lender as a result of your early payment.

Easement

A right, such as a right of way, which the owner of one property has over an adjoining property.

Endowment Assurance

This is a form of life assurance savings scheme that pays out a lump sum at the end of an agreed period.
If the Endowment is linked to an interest only mortgage, the lump sum from the endowment policy is designed to repay the mortgage, subject to investment returns.

Endowment Mortgage

An endowment mortgage is a type of interest only mortgage designed to repay the mortgage, subject to investment returns. They usually have two parts, the first is a monthly interest payment to the mortgage lender and the second, a monthly payment into an endowment policy that is mainly invested in stocks and shares.

What this means is that you are only paying off the interest on the loan during the term on the mortgage so the balance of your mortgage never changes. The mortgage is designed to be repaid at the end of the term with the proceeds of the endowment policy, subject to investment returns

Equity

This is the positive difference between the value of your property and the amount of any outstanding loans secured against it.

For example if your home was worth £300,000 and the mortgage on your property was £100,000 your equity would be £200,000.

Equity Release

You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on.

Exchange of Contracts

This is the stage in England, Wales and Northern Ireland when both the buyer and seller have legally committed themselves to the sale and purchase of a property and are legally bound to complete the transfer.

First Time Buyer Mortgage

There are mortgages available exclusively for first time buyers and can have some special features such as; assistance towards legal fees, cash backs and free valuations.

First Time Buyer

This is the term for a person taking out their very first mortgage.

Fixed Rate

This is a mortgage rate where the interest rate is agreed at the start of the mortgage and will not change during the term of the fixed rate.

So you know exactly how much your monthly payment will be each month during the fixed rate period.

Flexible Mortgage

This type of mortgage is relatively new. The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays.

Freehold

When you have the freehold on a property this means that you solely own the property and the land it is situated on.

Gazumping

This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.

Gross Monthly Repayment

This is the amount you must repay to the lender.

Ground Rent

A fee that a leaseholder has to pay the freeholder every year.

Guarantor

This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family relative.

Home Buyers Report

This is a property survey which lies between a mortgage valuation and a full survey. It is a multi-page report which gives the buyer some peace of mind about the property they are purchasing.

Higher Lending Charge

This is the term used for insurance for the lender for you defaulting on your payments when your property is worth less than the loan or in some cases this charge is payable when you are only able to pay a small deposit. There are many mortgages that do not carry this charge and based on your situation it is possible that this type of charge can be avoided altogether.

Income Multiples/Multipliers

The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 times the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this.

Income Protection Insurance

Income Protection Benefit provides a monthly benefit should you to be unable to work due to incapacity caused by accident or illness, resulting in a loss of earnings.

Income Reference

This is confirmation from your employer that you earn the amount you stated when you made your mortgage application. If you are self employed, the lender may require confirmation from your accountant.

Interest Charges

These are the charges made on a loan, calculated as a percentage of the total amount that you borrowed on your mortgage.

Interest Only

There are two types of mortgage, interest only or capital repayment. With an interest only mortgage the balance of your mortgage stays the same throughout the mortgage term.

Interest and sometimes a premium in a suitable investment vehicle are paid monthly. At the end of the term, the proceeds from the investment vehicle are intended to repay the mortgage. This amount will depend on the performance of the investment vehicle.

If you do choose an interest only mortgage you are responsible for ensuring that you have sufficient funds available to repay your mortgage at the end of the term.

Intermediary

A mortgage broker or advisor who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf.

Land Registry Fee

This is the fee paid to the Land Registry to register ownership of an area of land.

Leasehold

This is a system used mainly in England where you own the property for a set period before handing back ownership to the freeholder. When you hold a leasehold on a property, it remains the property of the freeholder.

A leasehold will set out the details of obligations of the leaseholder for repairs and maintenance of the property.

Licensed Conveyancer

An alternative to using a solicitor. This people specialise in the legal side of buying and selling property.

Local Authority Search

A check carried out by the buyer's solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.

Legal Fees

These are the fees charged by a solicitor or other qualified individual to carry out the legal work associated with buying a property.

Level Term Assurance

This is a life assurance policy which will repay your mortgage should you die during the term of the loan. The amount repaid is set as the balance of your mortgage at the start of your loan; this doesn't change during the term of the mortgage. Should you survive, there will be no benefit.

It is very important to understand the concept that if you are to live until the end of the term, your policy will expire and no payment will be made.

LTV

Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A £45,000 mortgage on a house valued at £50,000 would mean that the LTV would be 90%.

Mortgage Rate

This is the interest rate on a mortgage loan.

Mortgages

This is the term used for the type of loan used to buy a property.

Mortgagor

This is the person who borrows money, usually to buy a property.

MPPI

This insurance provides a monthly benefit to help you pay your mortgage for up to 12 months if you are unable to work due to accident, sickness and/or involuntary unemployment.

MRP

Mortgage Repayment Protection. This is insurance you could take.

Negative Equity

This situation occurs when a mortgage is greater than the actual value of the property. This can occur due to a decline in the value of the property after it is purchased.

For example, if the mortgage on the property is £300,000 but the value of the property is only £270,000 then a negative equity situation has occurred.

Overpayment

When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.

Offer of Loan

This is the formal document approving the mortgage you have requested. This document details the terms and conditions that will apply during the whole term of your mortgage

Payment Holiday

A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Personal Pension

These aim to build up a fund that'll provide you with a pension income when you come to take your benefits.

Portability

A term used to describe a mortgage that can be transferred between properties when you move house.

Repayment

The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term.

Repayment Penalties

Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed repayment period. These are often charged on fixed, capped or discounted rate mortgages.

Remittance Fee

A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed.

Remortgaging

This is the term used when moving your mortgage from one lender to another without actually moving house. You may do this to save money.

This might be possible by switching to another mortgage product with the same lender or by switching your mortgage to a competitor. But remember, if you move lenders, the saving you make on the interest rate you pay may be partially or wholly eaten up by the transaction charges associated with moving your loan.

So, if you are thinking about remortgaging it is advisable to do your sums carefully and take good advice from a mortgage adviser. If you don't do your homework properly you could face the equivalent of several months' mortgage payments which would effectively wipe out any of the benefits of remortgaging

Repayment

Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.

Repossession

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Right to Buy Mortgages

These are mortgages specifically tailored for public sector tenants who qualify to buy their home under the Government's Right-to-Buy scheme. You may be eligible to qualify to buy your council home if you are a secure tenant of either; a London Borough council, a district council, a non-charitable housing association, or a housing action trust.

Discounted rates are usually offered to council tenants for their homes. So if you are a council tenant wanting to buy your home, the rate you will pay will depend upon how long you have lived there. The amount of discount you will receive is roughly in proportion to the number of years you have been paying rent.

Sealing Fee

This is a charge made by lenders when you repay a mortgage.

Searches

These are the enquiries made, usually by your solicitor, at the Land Registry, the Land Charges Register and Local Authorities to ensure there is nothing to cause concern about title to the land and the property you intend to buy.

Self Building Scheme

This is a package for people looking to build their home themselves.

Shared Equity

A scheme operated by a developer where the developer retains a percentage equity of around 10% in the property. Thus the developer holds a second charge over the property. The 10% owing may be interest free or may incur interest and be added to the total amount owing on the property.

Shared Ownership

A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this.

Stamp Duty

This is a charge levied by the government on house purchases. There is a sliding scale of stamp duty depending upon the value of the property you are buying. Your mortgage broker can provide more information on the amount you will have to pay when purchasing your property.

Subject to Contract

This is the provisional agreement made between the buyer and the seller, before contracts on a property are actually exchanged. This allows either side to back out of the agreed sale without any financial penalty.

Survey

This is an evaluation of the condition and value of a property, carried out by an approved surveyor and paid for by the buyer.

SVR

Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly.

Term

This is the length of time over which your mortgage loan is repaid.

Term Assurance

This is an insurance policy designed to help repay the mortgage on the death of the insured person during the policy term. Level Term Assurance covers a lump sum throughout the policy term and pays out the full amount on death. Mortgage Decreasing term Assurance is designed to help repay the balance outstanding upon death during the policy term. Term Assurance may also pay out early on the diagnosis of a terminal illness.

Tie-in Period

As a condition of a special mortgage deal, you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early repayment charge.

Title

This is the legal right to the ownership of your property.

Title Deeds

These are the legal documents showing the ownership of your property.

Tracker Mortgages

This is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Therefore when the Base Rate changes, the rate on your tracker mortgage changes by the same amount. For example, if the Base Rate increases by 0.25% then your mortgage payments will increase by the same amount.

Transfer Deeds

This is the legal document which transfers ownership of registered land from the seller to the buyer.

Unencumbered

This is where the property is owned outright and no mortgages or loans are secured against it.

Valuation

This is an independent assessment of the value of a property carried out by an approved surveyor and paid for by you the customer. All lenders insist that a valuation is carried out on a property. The valuation is used by the bank or building society to decide how much they are willing to lend you.

Valuation Fee

A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.

Variable Rate

This rate can go down as well as up during the course of your mortgage and is usually based on The Bank of England Base Rate, but can also be based on the lender's own standard variable rate that they can determine.

Vendor

The person selling the property.

This glossary of definitions has been collated from multiple sources and is intended for reference only. Whilst every effort has been made to provide the most accurate information it cannot be guaranteed.