Learn the Lingo

31st May 2017

Adverse Credit : A term used to describe applicants with a poor credit history.

Annual Percentage Rate (APR): The annual rate that is charged for borrowing expressed as a single percentage. It represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction. This standard calculation helps you to compare the cost of different mortgage deals.

Arrangement Fee: Lenders can sometimes charge a fee to cover any work involved in setting up your mortgage or for certain mortgage rates.

Bank of England Base Rate: This is the standard lending rate regulated by the Bank of England. If this is altered in an attempt to control the overall economy, then the lenders will normally follow its movement and alter their own Standard Variable Rate.

Bridging Loan: A loan that works as a sort of ‘bridge’ between the sale of your present property and the purchase of your new home – when the dates don’t coincide (or until long-term finance comes through from your mortgage lender.)

Broker: Someone who will give advice and offer a range of mortgages.

Building Society: Somewhere to go for Mortgages & Loans.

Buildings Insurance: Protection for your property against hazards such as fire, flood and subsidence.

Buildings Survey: A report that will offer you a comprehensive account of the condition of the property, describing any structural or other defects.

Capital: The sum borrowed in a mortgage.

Capital and Interest Mortgage: A repayment mortgage. This means that your monthly payments gradually pay off the money you’ve borrowed, covering the interest on the amount outstanding.

Capped Rate: The mortgage interest rate will not exceed a specified value during a certain period of time, but it will fluctuate up and down below that level.

Cashback: This is when money is offered as an incentive to take a mortgage product.

CAT Standard: A CAT mortgage meets a number of government defined standards relating to Charges, Access and Terms. The objective of CAT standards is to ‘prevent confusing marketing and hidden charges’. The Government is hoping to set out basic and transparent conditions for mortgage products.

Chain: This occurs when the seller needs the sale of their house to occur before they can complete the purchase of another property. The same situation may exist for others in the chain. As a result, the whole chain can collapse if one link breaks.

Completion: The finalising of the sale, when all payments are passed over and the buyer has legal right and ownership of the property.

Contents Insurance: This type of insurance pays for damage to, or loss of, an individual’s personal possessions whilst they are located within that individual’s home.

Contract: This is entered into by the seller and buyer of a property, which only becomes binding on exchange of contracts – when both parties have signed the contract and the purchaser has handed over the agreed deposit to the solicitor.

Conveyancing: The legal process involved in buying and selling a property or land.

Covenant: A restriction or condition affecting the property, which must be adhered with.

Credit Scoring: A quantitative approach, used to measure and evaluate the creditworthiness of a loan applicant. This normally includes a measure of profitability, solvency, management ability and liquidity in a credit scoring model.

Current Account Mortgage (Offset Mortgage): This is what you call a linked mortgage account and current account. Any positive balance in the current account is deducted from the mortgage balance reducing the amount you owe. This is called offsetting and will reduce the interest charged on your mortgage.

Daily Interest: This method of calculating mortgage interest is charged on the amount of mortgage outstanding from day to day. This means lenders take into account any changes in the amount you owe on a day-to-day basis.

Deeds: The legal documents relating to the property.

Deposit: Your initial contribution towards the purchase of your new home and means of securing a property.

Disbursements: The various costs itemised on your conveyancer’s invoice.

Discharge Fee: This is the fee that you have to pay to most lenders for releasing their hold over a property once you’ve paid off your loan.

Discounted Rate: This means that interest is charged at the variable base rate that applies to the mortgage, less a discount for a set period. Your monthly payment will vary whenever the variable base rate changes, but will remain below the variable base rate during the discounted rate period.

Early Repayment Charge: This is a fee charged by a lender to a borrower for paying off their mortgage before its scheduled completion date. This is done in order to compensate for the loss of income that would have been generated had the mortgage run its full course.

Endowment: This type of mortgage is where monthly payments are made into a endowment (life assurance) policy. The loan is paid off in one lump sum at the end of the loan period.

Energy Performance Certificate: The sellers of properties in England and Wales are required to provide a valid Energy Performance Certificate (EPC). It gives details about the energy efficiency of the property.

Equity: The difference between the amount you owe on your mortgage and the value of your property.

Excess: The initial sum you have to pay on an insurance claim.

Exchange of Contracts: This is a milestone on the road to buying or selling a house. Exchange of contracts is the point in the process at which you commit to buying or selling the property, but do not take final ownership of it. Once you have exchanged contracts you are both legally bound to the transaction. This is dealt with normally by a phone call between the solicitors.

Financial Services Authority (FSA): The UK financial regulator for financial services.

Fixed Rate: An interest rate that applies to a loan for a set term. Both the interest rate and loan repayments are fixed for the agreed term, regardless of any interest rate variations in the home loan market.

Freehold: The full ownership of both the property and the land on which it stands.

Further Advance: When the lender makes another loan available, under which both loans are included within the first charge on the property. A further advance can be used to consolidate debt or pay for improvements to the property.

Gazumping: This is when a prospective purchaser has an offer for a property accepted and then another potential buyer puts in a higher offer for the same property and the seller accepts the higher.

Gazundering: When the buyer blackmails the seller into accepting a lower offer just before contracts are about to be exchanged.

Ground Rent: This applies to leasehold properties and is a sum paid annually to the freeholder by the leaseholder.

Guarantor: A person that signs a guarantee with a lender and promises to repay a borrower’s loan if the borrower can’t or won’t.

Higher Lending Charge: A Higher Lending Charge (HLC) is a charge made by mortgage lenders in the UK when the loan-to-value ratio of a mortgage is higher than they are prepared to accept at standard rates.

Homebuyer’s Valuation Report: An assessment of the value (and general condition) of a property for mortgage purposes by the building society’s surveyor.

Inflation: The percentage that prices rise or fall by year on year. In the UK, the primary measure of this is the Retail Price Index (RPI). The underlying rate of inflation is the RPI with mortgage repayment figures stripped out.

Insurance: You will need buildings and contents insurance for your new home. This is usually discussed with your mortgage advisor or lender when making mortgage arrangements.

Interest-Only Mortgage: You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn’t reduce.

Joint Agents: When the seller employs two independent Estate Agents to sell their house.

Key Facts Illustration (KFI): The KFI is a mortgage quotation detailing all of the costs and payments for the mortgage you are applying for.

Land Certificate: Issued by the Land Registry to certify proof of ownership.

Land Registry: Carried out by the Solicitor to register the buyer as the new owner of the house.

Land Registry Fees: These are paid through your solicitor to register your ownership of the property with the Land Registry. The scale of fees is fixed by the Government.

Lease: Document in which the owner of a freehold property lets out their premises to a named party at a certain price and for a specified time.

Leasehold: The land on which the property is built is owned by someone known as the freeholder and whilst living in the property you will be required to pay them a small amount of rent each year. When purchasing the property, you are actually purchasing a lease giving you rights over the property for a set number of years. Leases are most commonly found in association with flats.

Lender’s Legal Fees: Fees incurred by the lender when arranging a mortgage. These costs are sometimes passed on to the buyer.

Lender’s Valuation: A valuation of the proposed property carried out by the lender before agreeing to give out a mortgage. This is only a valuation survey – a separate full structural survey is needed by the buyer.

LIBOR Linked Mortgage: A variable rate mortgage, linked to the London Inter-Bank Offered Rate. The Libor rate is set independently every 3 months.

Life Assurance: An insurance policy that pays out on death (or on certain other conditions)

Loan to Value (LTV): A amount that represents the size of loan to a property’s worth as a percentage. Mortgages where no deposit exists have 100% LTV.

Local Authority Search: A search carried out by the Solicitor to find out if there are any Local Authority Notices, with respect to the building itself (e.g. has it been condemned?) and the surrounding area (e.g. have plans gone through to build a motorway next to the house?).

Mortgage: Most people will need to take out a mortgage, or loan, to buy a house. There are many different types of mortgages available to homebuyers – your mortgage advisor will help you decide which one is best for you.

Mortgage Deed: A legally binding contract between lender and borrower. The main type of mortgage deed used in England and Wales – it is a legal charge.

Mortgage Offer: A written offer to lend money on a property. The Mortgage Offer will contain all the terms of the Loan and the conditions upon which the money is loaned.

Mortgage Protection Policy: An insurance policy, often arranged in conjunction with a repayment mortgage, which is taken out to ensure that the loan will be paid off should the borrower die before the end of the mortgage term. Insurance may also be available to protect your repayments in the event of redundancy.

Mortgage Term: The amount of time which the lender has agreed to lend you the money for.

Mortgage Valuation Survey: Prior to making a mortgage offer, your lender will have the property valued for ‘mortgage purposes’. This will incur a fee (variable on the purchase price of the property).

Mortgagee: The lender.

Mortgagor: The borrower (whose property is secured for the loan).

Negative Equity: The amount by which the market value of a property falls below the amount of the mortgage secured upon it. The situation in which a property is worth less than its mortgage.

Redemption Penalties: With some mortgages you have to pay a redemption penalty, if you pay off some or all of your mortgage, or you transfer to a different mortgage product within a certain timescale. Registered land (including buildings on it) the title to which is registered at the Land Registry and legal ownership of which is guaranteed.

Re-mortgaging: A remortgage (also known as refinancing) is the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.

Repayment Mortgage: A repayment mortgage is a term generally used in the UK to describe a mortgage in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest. The mortgage statement, usually received annually, shows how the amount borrowed decreases throughout the term.

Searches: A term used to denote the physical and written procedure for determining any adverse effects in/on a particular property, whether already in effect or planned to take place.

Second Charge Mortgage: A secured loan taken out on your property as well as the main mortgage.

Self Build: This is a mortgage for property under construction. The loan is paid out in stages as the property is completed.

Sold Subject to Contract (STC): When the seller and buyer are proceeding with the sale, but the paperwork is not yet complete.

Stamp Duty: Government tax on the purchase price of a property. Your solicitor will automatically handle payment on your behalf.

Structural Survey: A detailed survey of the structure of a building, carried out by a Structural Engineer or Chartered Building Surveyor.

Title: The rights and liabilities that attach to the property.

Title Deeds: Legal documents that outline the rights and liabilities that attach to the property and prove ownership of property.

Title Report: A solicitor’s’ certificate that confirms that the title to the property is acceptable. A lender must have one before an advance cheque for the mortgage monies can be issued.

Tracker Rate: Tracker rates mortgages are linked to the Bank of England base rate, the interest rate applicable and subsequently the amount charged each month fluctuate in line with this.

Variable Base Rate: The basic rate of interest charged on a mortgage which may go up or down in relation to market conditions.

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