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Glossary


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Accident, Sickness & Unemployment Insurance (ASU)

A type of insurance policy designed to help in the event of accident, sickness or unemployment. It will typically pay a percentage of your normal monthly mortgage payment for a specified period (eg: 12 months). This type of cover does not apply to voluntary redundancy, dismissal due to misconduct, or as a result of self inflicted injuries. ASU is sometimes also known as Accident, Sickness and Redundancy (ASR) insurance.


Accountant's Letter

This is a letter to confirm a mortgage applicant?s income, provided by either a Chartered or Certified accountant. Some lenders will accept this instead of a set of audited accounts, and is only used for applicants who are self-employed or controlling directors.


Actuary

A professional who deals with calculations related to pensions, insurance and investments. In relation to mortgages, an actuary is the person who would calculate the amount you would pay for life assurance and the like.


Added to Loan

You sometimes have the option to add various costs (eg: administration or indemnity fees) which are charged by the Lender to the amount you borrow. When this happens, these costs are referred to as 'Added to Loan'.


Adjustment Date

On a variable rate mortgage, the rate can change, usually as a result of a general change in interest rates. The date on which the interest rate changes on your mortgage is called the Adjustment date.


Administration Fee

This charge, sometimes also referred to as an 'application fee', is levied by a lender to cover the costs processing your mortgage. The fee is not usually refunded if your application does not complete.


Amortisation

The amount by which your mortgage reduces during the term of your mortgage as you make regular payments to cover the capital and interest.


Amortisation Term

The amount of time required to pay off your mortgage loan usually expressed in months.

The APR is intended to identify the true cost of borrowing and can be used to compare different mortgages, as well as other types of loan. It will take into account repayments on the loan plus any fees such as booking, arrangement or redemption fees. You should find the APR on all mortgage illustrations and quotes.


Annualised Payment Scheme

To help the borrower on a variable rate or tracker mortgage to budget, some lenders may fix interest rates for 12 months. Once a year, the lender will review borrower's payments to see if they have under- or over-paid, and set a new interest rate for the next 12 months.


Applicant

The person or persons applying for a mortgage.


Application

The process of applying for a mortgage. This includes providing the personal and financial details of the applicant.


Appraised Value

The value which the surveyor puts on the property.


Appreciation

The increase in the value of a property during the period from when it is bought to when it is sold.


Arbitration

This is when and independent third party attempts to resolve a dispute between two other parties (rather than resort to legal action).


Arrangement Fee

This is a fee charged by the lender for setting up the loan (eg: for reserving the funds for certain types of mortgage). It is often payable in advance (ie: when the application is placed), paid on completion of the mortgage or added to the loan amount.


Arrears

Mortgage (or other loan) payments which have not been made in accordance with the mortgage deed ie: payments are late/behind schedule. Arrears can be expressed either in value or in months.


Asset

Any type of property owned by a person. As well as bricks & mortar, property can also include currency, stocks and shares, and other items of value.


Assignment

This is the process of transferring of an asset, or a mortgage, from one owner to another.


Balance Sheet

A statement of financial accounts, on a given date, which will includes assets, liabilities and equity.


Bankrupt

A debtor (either an individual, company or corporation) whose assets are under the administration of a court-appointed trustee for the purposes of redistribution to the debtor's creditors. A bankrupt cannot hold a bank account or apply for credit for more than a nominal amount without the permission of the court.


Bankruptcy

This is the legal process by which the assets of a debtor (who owes more than their assets) are transferred to a court-appointed administrator.


Base Rate

The rate of interest set by the Bank of England's Monetary Policy Committee. The committee meet every month to decide if the rate should rise, fall or remain the same.


Basic Earned Income

This is your basic salary, before tax, which is guaranteed regardless of a person's performance. It doesn't include any bonuses, overtime, or shift allowances, etc.


Beneficiary

A person or organisation entitled to benefit, for instance under the terms of a trust, insurance policy or a will.


Booking Fee

This is a fee charged by the lender for the arrangement of a mortgage and which usually guarantees funds or guarantees a rate for fixed or capped rate mortgages. This is usually paid at the time the mortgage application is submitted.


Borrowing Back

Borrowing back is a facility offered to holders of flexible mortgages. If you have made overpayments on your mortgage, it allows you borrow back these overpayments you have made if at any point you need extra cash to make a major purchase, or your circumstances change (eg: maternity leave).

This is a short-term loan, usually used to cover - or 'bridge' - the overlap between the purchase of a new property and the sale of an old one. The interest rates charged for bridging loans are higher than those of a typical mortgage so profesional advice should be sought before taking out this type of loan.


Broker

This is an agent or 'intermediary' who brings parties together and who may also assist in the negotiation of contracts between them. The broker can be tied to a specific product provider or group of providers, or, like the Mortgage Monkey, completely independent.


Broker's Fee

A fee charged by a broker/ intermediary to the applicant for locating the most appropriate product.


Building Society

This is a financial institution, regulated by the Building Societies Act. Building societies are mutual organisations, ie: owned by their members. Their main purposes are to provide mortgages and savings accounts, although many are also now branching out into other areas in the financial services industry.


Buildings Insurance

This type of insurance covers the structure of a building (and usually any part of the building which can't be taken away by the owner, eg: kitchen units, bathroom suites, etc), and is designed to pay the cost of repair or rebuilding if your property is damaged or destroyed. Most mortgage lenders will require you to take out buildings insurance as a condition of their loan, and have their interest noted on the policy. For leasehold properties, the buildings insurance is normally arranged by the freeholder, with the cost being passed on to the leaseholder within the annual service charges for the property.


Buy to Let

A particular type of mortgage designed for borrowers who intend to let the purchased property as an investment. The sale of Buy to Let mortgages is not regulated by the Financial Services Authority, unless the borrower intends to let the property to members of their family.


Calculating Interest Daily

With some mortgages, your interest is calculated daily. This is where your regular mortgage payments and any overpayments are credited to your mortgage account on the day they are paid. This has an immediate effect of paying interest on a smaller amount of debt and saves you money in interest charges that would otherwise have stacked up to a significant sum over the term of the mortgage.


Cap

With a capped rate mortgage, the cap is the ceiling level above which the interest rate will not rise during the period of the deal.


Cap and Collar

With this type of mortgage deal, during the period covered by the deal, the cap is the ceiling above which the interest rate cannot rise and the collar is the rate below which the interest rate cannot fall.


Capital

In relation to a mortgage, the capital is the principle part of a loan. It can also refer to the amount of money being used as a deposit on a property. Capital is also known as equity.


Capped Rate

During a specified period, a capped rate mortgage will set out a maximum rate of interest that the lender can charge.


Cash Back

The Cash Back in a cash back mortgage is offered as an incentive by the lender. The cash back can be expressed as either a set amount or as a percentage of the mortgage loan, and is usually paid to the borrower on completion of the mortgage. Payments made as cash backs can be treated as gifts and potentially be subject to capital gains tax.


Centralised Lender

This is a generic term for a lender which operates from wholly from a central/head office location rather than from a network of branches. Examples include telephone or Internet banks.


Charge (aka Legal Charge)

This is recorded at the Land Registry and is the means by which lenders enforce their rights to a property. The type of charge used will vary from one lender to another. Building societies will use a charge for athe specific amount borrowed, whereas banks can use an all monies charge which can enable them to recover not only the amount of the mortgage outstanding, but also any other amounts (eg: overdrafts) which they have aslo advanced to the borrower. The main mortgage on a property will be sceured by a first charge, with any further borrowings being secured with a second (or subsequent) charge.


Clear Title

This is a legal term and means the clear ownership of a property.


Collateral

With a secured loan, collateral is an asset, eg: a home, which is used to guarantee the repayment of a loan. If the borrower fails to keep up with the repayments on the loan under the terms of the original contract, the asset can be seized by the lender.


Commercial Mortgage

A commercial mortgage is a loan for commercial purposes. It is usually secured against a commercial property (eg: shop, warehouse, office, etc.) and occasionally residential property if being let out as a rented property. This type of mortgage usually carry higher interest rates than those of residential mortgages as the risk to the lender is perceived to be higher. Commercial mortgages are not regulated by the Financial Services Authority


Commission

A fee paid by a product provider (eg: lender or life company) to a broker or agent for services relating to either the negotiation of a mortgage or insurance policy.


Commitments

Financial charges, such as car loan payments, family maintenance and mortgage payments, which a person has contracted to pay. These are taken into account when assessing the affordability of a mortgage.


Common Areas

These are sections of land (eg: gardens, parking areas) or parts of buildings (eg: hallways, staircases) where access is shared by more than one resident.


Comparative Search

Normally carried out by estate agents, this search compares a particular property with similar ones in the area to give an indicative selling price.


Completion

Thius is when the legal formalities of a property purchase or re-mortgage are finalies. This will usually involve the transfer of funds from the lender to the solicitor who will then transfer the monies to either the vendor's solicitor (in the case of a purchase) or the previous lender (in the case of a re-mortgage). This transfer of funds usually happens on the same say and is the day, if you are purchasing the property, that you become the legal owner.


Compulsory Insurance

Lenders will often set a precondition on a mortgage that some insurance is taken out. Most commonly, they will set a precondition that the borrower must take out adequate buildings insurance. Occasionally, some lenders will also stipulate that the borrower must take out the insurance with them. Compulsory insurance is also somethimes known as Conditional Insurance.


Concrete Construction

During the 1960s (but not exclusively), many properties were built using concrete with a high alumina cement content. This includes many of the low-cost high-rise blocks and some local authority houses. Buildings of concrete construction are considered to run a high risk of decay and as a result very few lenders, if any, will grant a mortgage on a property with this type of construction.


Contents Insurance

Distinct from, but often taken out in conjunction with Buildings Insurance, this covers the contents in your home. This is likely to include furniture, carpets, curtains, clothing, electrical appliances and other possessions.


Contract

This is an agreement which is legally binding. As well as in written form, a contract can also be a verbal agreement. In the case of the contract for the sale or purchase of a house, flat, etc., the contract will be in written form.


Converted Flat

A self-contained flat which has been created out of part of a larger building (eg: a large house being converted into two or more flats).


Conveyancing

This is the legal process whereby the ownership of a property is transferred from one party to another. It is usually carried out either by a solicitor or licensed conveyancer.


Conveyancing Fee

This charge is made by the solitor or conveyancer to carry out the conveyancing process.


County Court Judgement (CCJ)

CCJs are issued by the County Court as a result of a debt being unpaid..Even after the judgement has been made, the debtor has 30 days to pay the outstanding amount before the judgement is recorded on the credit register. If the debt/judgement is paid after being recorded on the register, it will remain but will show as being ?satisfied?. If a person has CCJs on the register which are not satisfied, it is very likely that the mortgage application will be declined by the lender. Lenders, at their discretion, can also decline mortgage application made by persons with satisfied CCJs, or possibly impose higher than standard interest rates to the loan.


Covenant

Occasionally, a contract for a property (or mortgage) can include covenants. A covenant could place an obligagtion on the owner (eg: a boundary hedge must be maintained below a certain height) or perhaps restrict them (eg: the size of any extension to the property). The contract for the property should also make clear what penalties (if any) are applicable if the convenant is broken.


Credit Check

A lender will make a check on the credit-worthiness of a mortgage/loan applicant. They will usually do this by referring to one of the major credit reference agencies such as Equifax or Experion, etc. The check will cover elements of the applicant's credit history such as outanding loan amounts (including those which are current and operating normally), credit card repayments, arrears, CCJs, etc. This check will assist a lender in deciding whether or not the prospective borrower is likely to keep up with their mortgage payments.

These assessments, made by lenders and/or credit reference agencies, are usually based on an applicant's credit history and give an indication of the likelihood or otherwise of the applicant maintaining their payments on a mortgage or loan.


Credit Reference Agency

Thes companies collects and stores financial and public records regarding the payment history of a prospective borrower. As they have information from many sources (eg: lenders, county courts, electoral rolls), and to reduce potential risk, most lenders employ a Credit Reference Agency to check your payment records as part of their assessment of your application.


Credit Report

Credit Reference Agencies, as a result of a credit check, can produce a report which details the credit history of an individual. It forms the basis of the lenders assessment of the applications of prospective borrowers.


Current Account Mortgage

A type of mortgage which can offer facilities you would expect to have with a bank current account (eg: cheque book, etc). Usually also fully flexible mortgages, they usually allow you to over- and under-pay and also take payment holidays.


Debt

An amount (usually of money) owed by party to another. NB: debt also includes amounts owing (eg: mortgages, car loans, etc) which are being serviced by the borrower normally and within the terms of the agreement.


Debt Consolidation

A procedure by which a number of loans (eg: hire purchase agreements, credit/store card balances, etc), often with short terms and relatively high interest charges, are collected together and replaced by a single debt. Invariably, the new debt/loan is taken out over a longer period of time and with a lower interest rate than the individual loans which can have the effect of reducing the borrower's monthly outgoings (but not necessarily saving them money in the long run).


Deed

This legal document sets out your ownership or title to a property. If a property is mortgaged, the lender will usually hold the deeds to the property.


Deeds Release Fee

At the end of a mortgage term, or when a mortgage is redeemed due to a house move or remortgage, the lender will usualy charge a fee to cover the administration costs to return the deeds of the property to your solicitor.


Default

Failure to keep up with regular or adequate repayments on a mortgage or other loan.


Deferred Interest Mortgage

A mortgage in which, for a specified period (usually at the start of the term), some or all of the interest is not paid. The ?deferred? interest is usually added to the amount outstanding on the loan. This can have the effect of the borrower owin considerably more than originally borrowed.


Deflation

A situation in which prices are falling. (The opposite situation to inflation).


Deposit

In relation to property, the deposit is the money paid by the purchaser upon exchange of contracts. This is usually a minimum of 10 % of the purchase price. In the case of a move from one proiperty to another, rather than a cash deposit, the equity from the first house can be used as the deposit for the second. The rest of the hopuse price is funded by a mortgage.


Depreciation

The reduction in the value of a property caused by changes in market conditions (eg: the slowing down of the housing market). In extreme cases, this can result in negative equity where the value of the proprerty is less than the value of the mortgage secured upon it


Disbursements

Expenses incurred , usually by solicitors, in connection with the conveyancing process, and can include things like, courrier or postage costs bank fees, etc . These costs are usually passed on to the client.

 


Discharge Fee

An administration charge levied by the lender at the end of a mortgage term. This charge covers the administration costs involved when the lender releases their charge over a property.


Discharged Bankrupt

A court of residual liability can relieve a bankrupt person of that status, but only after a minimum of 12 months. The now discharged bankrupt can apply for credit again, however it should be noted that credit reference agencies will normally identify former bankrupts up to 15 years after their discharge.


Discounted Period

This is the length of time that a borrower can expect to enjoy the benefit of a discount applied to the interest rate of their mortgage.


Discounted Rate

A discounted rate mortgage will have a fixed period of time (usually at the start of the mortgage) where the interest rate charged is at lower level than the lender's standard variable rate (SVR). It would normally be expressed as a set percentage reduction (eg: 2% below variable rate for 2 years).

Usually agreed at the time a mortgage is taken out, this facility enables the borrower to take out additional lending on the mortgage at some time after the main mortgage monies are advanced. It can be used to guarantee the release of the extra funds without the need to make further applications to the lender, and is commonly used to pay for things like home improvements.


Early Repayment Penalty (ERP)

A penalty charged by a lender if the borrower withdraws from a mortgage before a specific date, details of which will be on your mortgage offer. These penalties are particularly used by lenders where the mortgage is taken out on special/preferential terms (eg: fixed or discounted rates, cashback, etc)
 

Early Repayment (sometimes known as redemption)
The paying off in full of a mortgage or loan. This can be either to move to another property, when remortgaging or at the end of the mortgage term.
This is the amount quoted by the lender which is required to redeem a mortgage in the situations above. It may also include early redemption penalties if applicable.

Early repayment charges (sometimes known as early redemption charges)
Fees which may be charged by the lender if a mortgage is redeemed before the end of the full term. See also Early Repayment Penalty

Easement

This is where a person, other than the owner, has a Right of Way allowing the person to access a property (eg: in order to access a back yard/garden).


Encumbrance

Something which places a limit on the ownership of a property. An encumbrance could be financail (eg: a mortgage) or perhaps an easement or other right of way.


Endowment

A financial investment product which also includes an element of life assurance cover, usually taken out over a set period of time or ?term?. At the end of the term, the proceeds form the policy, if it has conformed to certain qualifying rules, are tax-free. Different types of endowment include ?with profits?, ?unitised? and ?unit linked?.


Endowment Mortgage

For this type of mortgage, the borrower only pays the interest throughout the term of the mortgage. At the same time, an endowment policy is taken out with the aim that, by the end of the mortgage term, the proceeds from the endowment will be sufficient to repay the capital element of the mortgage in full. Over the past few years, it has become clear that the ability of many endowments to meet the capital repayment requirements of this type of mortgage will be severely tested. WE WOULD THEREFORE STRONGLY ADVISE THAT YOU TAKE INDEPENDENT FINANCIAL ADVICE BEFORE TAKING OUT ANY ENDOWMENT POLICY.


Equity

The portion of the value of the property which is not encumbered by a mortgage or other loan. It can also refer to the amount of money being used as a deposit on a property. Equity is also known as ?capital?.


Equity Release

A mortgage taken out on a home that is already fully owned (eg: after the original mortgage has been paid off). The main purpose is to make use of the capital tied up in it.


Estate

When a person dies, the estate is a legal term for the sum of all assets (property and personal effects/monies) owned by that person at the time of their death.


Eviction

The legal expulsion of an occupant (typically a tenant) from a property.


Examination of Title

A report that details the title of a property. The report is obtained by a solicitor or licenced conveyancer as part of the conveyancing process and is usually taken from the public records or an abstract of the title.


Excess Payments

Sometimes referred to as ?over-payments?. Some mortgage products allow borrowers to pay more per month than the amount set out in the mortgage agreement. Often, a lender will put a ceiling on overpayments (eg: a maximum excess payment of ?500 per month), with any payments in excess of this incurring a penalty.


Exchange of Contracts (excludes Scotland)

On exchanging contracts, the buyer and seller of a property are confirming legally binding commitments to the transaction. And its terms and conditions. Once this stage is reached, should either of the parties withdraw from the transaction, they are likely to incur financial penalties (eg: 10% of the purchase price).


Existing Liabilities

A lender will take into account your existing liabilities when assessing whether or not you can afford the mortgage. The liabilities will include balances owing on credit/store cards, hire purchase agreements, child maintenance, school or childcare fees, etc. Due to the credit checking policies employed by most lenders, the borrower is obliged to disclose all such outgoings.


Expatriate

A person working and/or domiciled in a country other than that of their birth or nationality.

 


Fair Market Value

Often arrived at by looking at the prices of similar properties in a given area, the fair market value will be mutually agreed upon by the buyer and seller, ie: neither party is forced into agreeing the price and terms of the transaction.


Feuhold

This term is used in Scotland and is broadly equivalent to ?freehold? in England and Wales.


First Charge

The legal ?charge?/right with which the lender secures the main mortgage on a property. The lender with the first charge over a property has first call on any funds available from the sale of the property in the event that the borrower defaults on their mortgage payments.


First Mortgage

The primary mortgage which has the first claim against a property.


First Time Buyer (FTB)

A person looking to purchase their first property. Many lenders will offer mortgages with attractive rates or deals for first time buyers. Occasionally such first time buyer deals will be extended to a person who has owned a property in the past but who has sold it prior to buying again.


Fixed Rate Mortgage

A mortgage where the rate of interest is guaranteed to remain at a constant specified level for a certain lengthe of time, irrespective of any fluctuations in the lender?s standard variable rate.


Fixed Term

Under a fixed rate mortgage, this is the specified period during which the rate of interest has been fixed. This is usually at the start of a mortgage (eg: the first two years).


Flat over Shop

A residential flat or apartment which is located above a retail property. This type of property is often seen as more difficult to sell than a similar property in a wholly residential block. As a result lenders can view such a property as a higher risk category and perhaps adjust their mortgage offer or terms to reflect this.


Flexible Mortgage

This type of mortgage allows the borrower to make over- or under payments, or even take a payment holiday.


Foreclosure

See ?Repossession?


Foreign Currency Mortgage

A mortgage that is taken out in a currency other than Sterling (eg: Euro). A foreign currency mortgage could be taken out by a borrower who is paid in foreign currency, or perhaps to buy a holiday home abroad. The potential for currency fluctuations mean that this type of mortgage carries a higher risk for both the lender and the borrower interest rates charged by lenders will reflect their risk.


Freehold (England & Wales only)

The situation whereby the owner owns both the property and the land on which the property is built. Unlike leasehold, the land and the property built on it are owned ?in perpetuity?, ie: the owner of the freehold has it for as long as they wish to rather than being restricted to a certain number of years. See also ?Feuhold (Scotland)?


Full Status

A mortgage or loan is considered as full status if the borrower is subject to complete checks on the borrower?s credit history and income during the application process.


Further Advance

This is where a lender can make an additional loan to the borrower, often for the purposes of making home improvements or to consolidate debt. The additional loan will be included with the main mortgage within the first charge on the property.



General Conditions

The standard conditions which apply to a mortgage, as laid out by the lender. The will usually be set out on the mortgage offer, or in a booklet accompanying the mortgage offer.


Geographical Restrictions

Some lenders may decline to offer mortgages for the purchase of properties in certain areas or districts, mainly due to these areas being ?high risk? (eg: near the edge of a cliff, severely run-down neighbourhoods, etc.). Also, although this is becoming increasingly rare, some smaller lenders may only offer loans for properties within their local area.


Gross Annual Income

Total income received per year, before any deductions for tax and National Insurance. This can consist of both earned (eg: salary, bonuses, etc) and unearned (eg: dividends, rents) incomes.


Guarantor

A person, other than the borrower, who agrees to stand guarantee for a loan or mortgage, should the borrower default on their payments. The guarantor is fully liable for the loan and has to demonstrate an ability to meet the payments. As it is a serious undertaking, guarantors tend to be a parent or close relative of the borrower.



Higher Lending Charge

Most lenders will typically only loan a maximum of between 75% and 90% of the purchase price of a property. In situations where a borrower is looking to borrow an amount greater than the lender's usual limit, a Higher Lending Charge is levied, usually in the form of a one-off payment.


Holiday Home

An additional property purchased to use for holidays or weekends away from the borrower?s main residence. As this type of property is likely to be unoccupied for periods of time, insurers can be a little reluctant to cover them, and as a result, lenders do tend to charge higher interest rates ? or even insist on a higher deposit - for the purchase of holiday homes.


Home Buyer's Report

This is a type of survey on a property, and is commissioned by the purchaser/borrower. It is more detailed than the mortgage valuation survey required by a lender, but less detailed or extensive than a full structural survey.


Home Buyer's Valuation Fee

The fee charged by a surveyor for producing a Home Buyer's Report.


Home Improvements

These are works carried out to improve an existing property. Such improvements are not restricted to the essential, often being more of a ?lifestyle? choice by the owner (eg: a conservatory or new kitchen, etc).


Household Insurance

A generic term for insurance which covers a property against loss or damage to a property. More typically, it is broken down into cover for buildings or the contents. ? or a combination of the two.



Illustration

A quotation prepared for a potential borrower which shows the costs of a mortgage and some types of insurance policy (monthly premiums, total amounts payable, etc). The illustration is also sometimes referred to a the ?Key Facts?.


Impaired Credit

As a result of past arrears, bankruptcy, CCJs, etc. a person could have a less than perfect track record of credit usage. This will have the effect of lowering their credit rating.


Income

The amount of money a person earns.


Income Multiplier

Lenders will employ this formula to calculate the amount a prospective borrower can borrow on a mortgage. A normal figure would likely be up to 3.25 times an individual?s income, or 2.5 times a couple?s joint income. Many lenders are prepared to offer higher income mutiples (eg: 4 or 5 times income), particularly for first time buyers. However, such raised multiples often result in higher interest rates.


Income Tax

A government tax that is levied on an individual's income (both earned and unearned). It can be deducted at source (eg: PAYE) or calculated and paid via a tax return.


Independent Financial Adviser (IFA)

A person qualified - and regulated by the Financial Conduct Authority - to advise on financial products such as mortgages, insurance and investment vehicles.


Index

In relation to mortgages and loans, an index is a published interest rate, such as the Bank of England base rate, or the London Inter Bank Offer Rate (LIBOR), which is used to base the interest rate on a variable rate mortgage or loan.


Index Tracker

A type of mortgage for which the rate of interest charged follows exactly ('tracks') any changes in a published interest rate, for instance the Bank of England base rate. Typically, this would be expressed as tracking a certain percentage above the subject rate (eg: 1% above base rate).


Individual Voluntary Arrangement (IVA)

An IVA is a way of allowing an individual or company to avoid bankruptcy whilst making maximum possible restitution to creditors. A proposal to pay off the debt is put to the debtor?s creditors, 75% of whom must accept for the IVA to become binding. If the debtor fails to meet the obligations set out in the IVA, the Insolvency Practioner who arranged the IVA will petition for the debtor to be made bankrupt. An IVA will show on an individual?s or company?s credit check.


Inflation

The general rise in prices over time.


Initial Interest

The first or initial interest payment on a new mortgage is likely to be higher than that on subsequent months. This is because it covers the period between the date of completion and that the date the first payment is due.


Initial Rate

The interest rate that applies at the start of a new mortgage. The initial rate for many mortgage products (eg: fixed or discounted rates) will change at the end of the initial deal


Interest

In the case of a mortgage or loan, interest is the charge made by a lender to a borrower for the facility of making the money available. Just like any item or commodity has price (eg: the price of a loaf of bread or a newspaper), the interest is the price of borrowing money.


Interest Only Mortgage

With this type of mortgage the borrower only pays the interest on the loan for the duration of its term and does not repay any element of the full loan originally advanced until the end of the mortgage term. Most lenders would expect to borrower to have some form of repayment vehicle in place to enable them to repay the capital at the end of the term.


Interest Rate Charge Structure

Most lenders will have a tarrif of interest rates charged to borrowers which reflect the circumstances of the loan, the property, the borrower or a combination of these factors. Generally speaking, the lower to risk to the lender, the lower the interest rate, and vice-versa.


Intermediary

A company such as The mortgage monkey which matches borrowers with lenders. They will also undertake a certain amount of application processing and chasing on behalf of the client. Intermediaries generally receive a fee directly from the lender for these services, but can also occasionally charge the client a fee for their services.


Introducer

A person or company (eg: broker, adviser, etc) who introduces borrowers to lenders.


Investments

Savings or money put into a fund with the intention that the money will ?grow?. Some borrowers use investments to repay the capital on an interest only mortgage.


ISA Mortgage

This is a type of interest only mortgage where the borrower uses an ISA (Individual Savings Account) to repay the capital at the end of a mortgage term.



Joint Income

This is the combined income of the two borrowers applying for a mortgage in joint names.



Land Registration

Usually dealt with by either a solicitor or licenced conveyancer, this is where the ownership or title of a property or piece of land is registered at the Land Registry.


Land Registry Fee

This fee is charged by the Land Registry for making a change to their records. The change can either be due a change in ownership of the property or land, or to a change of mortgagee. This charge will usually be passed on to you by your solicitor or licenced conveyancer


Landlord's Reference

A reference given by a tenant?s previous landlord. It should give details of the tenant?s rent payment history (ie: whether or not paymants were made on time) and also the general conduct of the tenant.


Leasehold (England & Wales only)

A type of ownership in which the land on which a property is built is not directly owned by the owner of the individual property. The land itelf is usaully leased to the property owner for a fixed period of time. The most typical example of a leasehold property would be a flat. The lease would normally be granted by the owner of the land in the first instance for a set period of time and if the owner subsequently sells the property, they will be selling it with a shorter lease than which they purchased (eg: Mr X buys a flat on a 99 year lease and sells it after 3 years with a 96 year lease).


Legal Charge

See ?Charge?.


Legal Completion

See Completion.


Legal Fee

Charges made by a solicitor or licenced conveyancer.


Lender

The party offering the mortgage or loan to the borrower. The most common types of lenders will be banks, building societies and specialist mortgage companies


Level Term Assurance

A type of life insurance policy which pays out a lump sum in the event that the policyholder or person whose life is assured dies during the ?term? ? ie: time covered ? of the policy. ?Level? means that the sum paid out will be the same throughout the life of the policy. The alternative to ?Level? is ?Decreasing? which means that the sum paid out will decrease over the term of the policy


LIBOR (London Inter Bank Offered Rate)

The interest rate used when banks buy money (or sell it to) other banks. The rate is linked to the Bank of England Base Rate, varies daily and can be quoted for periods from overnight up to 12 months, although in the case of mortgages, the 3 month rate is the most commonly used. The relationship between LIBOR and the base rate can give an indication of the possible future direction of the Base Rate.


LIBOR linked mortgage

A tracker mortgage that tracks LIBOR. As a result, the inteest rate on this type of mortgage is typically likely to change every quarter.


Life Insurance

An insurance policy that pays a lump sum in the event of the death of the policyholder or person whose life is assured.


Loan Consolidation

See Debt Consolidation.


Loan to Value Ratio (LTV)

The ratio of the mortgage loan amount to the value of the property. Generally speaking the higher the LTV ratio, the greater the percieved risk to the lender of recovering their money at the end of the mortgage term. As a result, a mortgage with a ?high? LTV ratio (eg: 95 or 100%) will attract a higher interest rate than one with a lower LTV (eg: 50%).


Local Authority Search

A check carried out by a purchaser's/borrower?s solicitor to confirm the status of the property, and whether the property is affected by any planning applications/regulations or local authority enforcement notices.


Local Authority Search Fee

The fee payable to the Local Authority for conducting a Local Authority Search. Your solicitor will pass this charge on to you, and will often rquire you to pay before the search is carried out.


The typical form of endowment used by borrowers to repay a mortgage. See also ?Endowment? and ?Endowment Mortgage?.


Mainly used for endowment and other investment policies, this is a type of premuim structure whereby the premiums initially start off at a lower level and then build up over a period of time (eg: 5 years) at which point they level off for the remainder of the policy term.



Main Residence

The property which is a person?s normal place of residence. Also known as the 'principal private residence'.


Money either paid or received, usually on a regular monthly basis, under a court order in respect of a child and/or previous partner following the break up of the relationship (eg: after a divorce).


Maisonette

A flat or apartment with more than one floor. It can also refer to a flat which has its own entrance at street level.


Minor

A person under the age of 18.


MIRAS

Acronym standing for Mortgage Interest Relief At Source, a tax relief scheme that expired on 1st April 2000.


Mortgage

A loan which uses a property (or a piece of land) as security to the lender.


Mortgage Deed

The legal document which confirms/establishes a loan on a property.


Mortgage Disability Insurance

An insurance policy under which monthly mortgage payments will be maintained for a specified period in the event that the policyholder suffers a covered disability.


Mortgage Offer

A letter detailing a formal offer from a lender and setting out the terms and conditions of the prospective loan. The mortgage offer will usually be valid for a finite length of time, typically 6 months, during which time the legal formalities of the purchase or re-mortgage must be completed. Also known as a 'loan commitment'.


 


Mortgage Subsidy

Payment made by some employers to employees, usually via the monthly payroll, to help cover the cost of mortgage repayments. The subsidy could be paid for a variety of reasons, eg: part of a job relocation package, in lieu of provided accommodation, etc.


Mortgage Term

The period of time over which a mortgage loan must be repaid.


Mortgage Valuation

This is the minimum survey level required by a lender and also the cheapest of the three main types (the others being Home Buyers Report and Full Structural). The survey will normally be carried out by a qualified surveyor, and the principle purpose is to assess the value of a property to ensure that the lender is not advancing in excess of its lending crieria


Mortgagee

The lender in a mortgage.


Mortgagor

The borrower in a mortgage.


Multiplier (Income)

See Income Multiplier



Negative Equity

A situation in which the market value of a property has fallen to below the level of the loan/mortgage secured on it.


Net Profit

Net profit is what is left after the expenses have been deducted from the income of either a self-employed person or a company. In the case of a limited company, the net profit is what is left after both expenses and corporation tax have been deducted from income. The amount of net profit is the amount which is available to the owners of the business for their own benefit/use and as a result is the figure which lenders will use to assess the person?s ability to pay for a mortgage


New Build

A newly built property. This can be an individual property or aprt of an estate/housing development.


No Capital Raising

For remortgage purposes, this describes a new mortgage which is of the same value as the one it is replacing.


No Income Verification

Situation where the lender does not make any checks on the borrower?s income.


No/Low Fee Mortgage

A mortgage in which some or all of the usual fees (eg: booking fees, valuation fees, legal fees, etc.) for arranging/setting up the mortgage are either reduced or paid for by the lender, or perhaps refunded to the borrower on completion of the mortgage.


Non Status Mortgage

A mortgage that is offered by the lender without the need for the borrower to prove their income or credit status.



Ombudsman

An independent body which is tasked with investigating complaints about member institutions. In relation to mortgages, this will be the Financial Services Ombudsman.


Open Market Value

See Fair Market Value.


Other Income

Income that is in addition to the borrower?s basic salary. This could include, dividends, car/ housing allowances, income from property, etc


Outgoings

See Existing Liabilities


Outstanding

The amount of money (eg: on a mortgage) remaining to be paid.


Overpayment

Situation where the borrower increases their monthly mortgage payments to a level higher than the expected payment. This has the effect of paying the mortgage off earlier than the original term. Some mortgages, particularly flexible mortgages, allow for overpayments (some unlimited, some with a ceiling), but others can impose eary redemption penalties for overpayments.



Part & Part Mortgage

A mortgage which elements of different type of mortgage. A common example is where part of the mortgage is on an interest only basis and the other part is on a repayment basis.


Payment Holiday

Flexible mortgages often allow the borrower to take a break from their mortgage payments for a specified period of time to allow for a change in personal circumstances (eg: career break, maternity leave, time for travelling, etc.)


Payment Method

The way by which an interest-only mortgage is to be repaid at the end of its term. This could take the form of an endowment, ISA, tax-free lump sum from a pension or other types of investment. Payment method is sometimes also referred to as a ?Payment Vehicle?.


Payment Protection Insurance

See Accident, Sickness & Unemployment Insurance.


Penalties

These charges can be imposed by the lender if the borrower deviates from the mortgage agreement, and will vary from one product to another. A common type is an ?Early Redemption Penalty?.


Pension Mortgage

An interest-only mortgage where the borrower will use the tax free cash from a pension to repay the loan at the end of the mortgage term.


Permanent Health Insurance (PHI)

A type of insurance policy which pays out a monthly income up until a specified date (often retirement) if the policyholder/life assured becomes ill and cannot work. The qualifying illness, etc. can vary from one policy to another.


Portable

A mortgage described as ?portable? means that it can be transferred to another property if the borrower moves house.


Previous Lender's Reference

A reference from a prospective borrower?s previous lender to confirm the conduct of the borrower?s loan account (eg: payment history, etc).


Principal

The amount of the loan outstanding (excluding interest).


Principal and Interest Mortgage

See Repayment Mortgage


Purpose Built Flat

A flat in a building which was specifically designed to be a flat when it was first built.



Quotation

A document outlining the monthly cost of a mortgage insurance or investment product and also any other associated costs (eg: survey fees, etc).



Redemption

The paying off in full of a mortgage or loan. This can be either to move to another property, when remortgaging or at the end of the mortgage term.


This is the amount quoted by the lender which is required to redeem a mortgage in the situations above. It may also include early redemption penalties if applicable.


Redemption Charges

Fees which may be charged by the lender if a mortgage is redeemed before the end of the full term. See also ?Early Redemption Penalty?


Refinancing

Where borrowings (eg: a mortgage) are rearranged, usually with a different lender, in order to obtain more attractive terms or raise fresh capital. See also ?Remortgaging?.


Regional Lenders

Lenders who restrict the geographical area in which they will lend. Many such lenders are small local building societies.


Remortgaging

Arranging a new mortgage to replace an existing one on a property already owned by the borrower. See also ?Refinancing?.


Repayment Method

The way in which a borrower repays their mortgage. It could be on an interest only basis, using some form of investment to pay off the capital at the end of the term, or it could be on an interest and capital basis ? or sometimes a combination of the two.


Repayment Mortgage

A mortgage in which the monthly payments are used to repay both the interest and to reduce the outstanding capital.


Repayment Period

Also known as the ?Term?, this is the number of yearsover which the borrower must repay the mortgage.


Repossession

If a borrower defaults on their mortgage payments, the lender can deprive the borrower of their ownership of the property. The lender will then force the sale of the property in order to recoup the money it had loaned on the mortgage


Retention

The lender might decide to hold back part of a loan until certain conditions are met. A common cause of this is where a property is shown in the survey/valuation to have a structural defect and the lender retains part of the mortgage advance until remedial works are carried out.


Right to Buy

The opportunity for a tenant of a local authority owned property to purchase their home. This usually involves a discount being given to the tenant which is proportional to the length of time the tenant has occupied the property.



Second Charge

The subsequent charge to the First Charge. See ?First Charge?.


Second Mortgage

A further loan secured against a property which has another loan already secured upon it. The lender of the second mortgage will have the second charge over the property, after the lender with first charge.


Self Build

A property which is in the process of being built, and whose construction is being controlled by the borrower. A mortgage on a self-build property is usually released in stages as the build progresses, and is subject to the relevant planning and building regulations being adhered to.


Self Certification

The borrower makes a statement of their own earnings instead of relying on confirmation from an employer or accountant. The lender will also make fewer checks on the borrower. Self certification mortgages usually carry higher interest rates than a ?full status? mortgage, and lenders will usually require a higher deposit as well


Self Employed

A person who works for themself. For the purpose of mortgage applications, partners in unlimited companies and professional practices (eg: vets, accountants, etc.) are also classed as self-employed.


Shared Equity

A scheme whereby a person purchases only a percentage (usually the majority) of a property; the remaining percentage being held by a developer or builder, usually giving the purchaser the option to buy the remainder at some point in the future. The builder/developer will normally register a ?second charge? on the remaining portion until such time as it is purchased. Depending on the deal, the remaining portion could be on an interest free basis, or it could attract interest which is added to the sum paid by the purchaser when they buy the extra portion.


Shared Ownership

This type of scheme, similar to ?Shared Equity?, is primarily designed for people who would not otherwise be able to become homewoners. However, the purchaser will share the ownership of the property with a housing association, and the percentages of ownership are generally more even (50-50 is very common). The purchaser will pay a mortgage for the share they own and will also pay the housing association a rent for the share they own.but in which the second part of the property is owned by a housing association.


Sitting Tenant

A person or group of people currently renting and occupying a property. They have legal rights of occupation, even if the property changes ownership, and can also apply for the local authority to set a fair rent. Properties with sitting tenants are often cheaper but more difficult to sell than equivalent properties with ?vacant possession?.


Sole Occupancy

A property lived in by the mortgage applicant(s) and their immediate family only, ie: no paying tenants living there.


Special Conditions

Specific terms or conditions that a lender might attach to a particular mortgage offer (eg: loan X must be paid off before the mortgage is completed). In some cases, a lender might insist that the borrower?s solicitor confirms the conditions have been met before the money is advanced.


Stamp Duty

A government land tax on the purchase price of a property, usually paid by the purchaser. The tax is charged at different rates, depending on the purchase price of the property.


Standard Construction

A building constructed using conventional techniques and materials, namely bricks and stone with a tiled or slate roof.


Standard Variable Rate (SVR)

A lender?s normal rate of interest which runs broadly in line with the country?s general cost of borrowing, ie: it can vary (up and down). At the end of any fixed rate, capped or discounted period, a mortgage will revert to the lender?s SVR.


Start-up Business

A new business which has not been trading long enough to have accounts dating back for three years.


Structural Survey

The most detailed ? and consequently the most expensive - of the three main types of survey on a property (the others being mortgage valuation and home buyers report). The survey is carried out by a Chartered Surveyor, who has a legal responsibility for the content of his/her report, and is usually commissioned by the purchaser of the property.


Studio Flat

A property which consists of one habitable room, plus usually a separate bathroom and sometimes a kitchen.


Sum Assured

The maximum amount payable in the event of a claim on an insurance policy. In the case of life or critical illness insurance, it would be the maximum sum paid out upon death or diagnosis (as applicable). The sum assured under a general insurance policy must adequately represent the value of the goods at risk.


Surrender

The termination of an investment policy, usually before the end of its term, in order to convert the proceeds into cash.


Survey Fee

The fee payable to a surveyor for surveying/valuing a property.


Surveyor

A professional person qualified to estimate the value of land and property.



Tariff

A document detailing the costs and charges for a particular service or range of services.


Term

The length of time between the start and finish of a mortgage loan or insurance policy.


Term Assurance

A life insurance policy which provides a lump sum in the event of the death of the policyholder or life assured during a specified period.


Thatched Roof

A method of roofing a building using a natural straw/reed material which is by nature both perishable over time and flammable. As a result, most insurers will place special terms on policies, mostly regarding fire.


Timber Framed

A method of house construction where the major structural components/frame are constructed from wood, rather than brick, stone or concrete. Older properties using this type of construction have traditionally been prone to poor damp proofing, making them a less attractive security for a lender. Consequently, lenders do tend to charge higher interest rates on mortgages for this type of property.


Title

The document which confirms a person?s right of possession to a biuilding or an area of land.


Title Insurance

An insurance policy against any loss resulting from defects of title to a specific piece of property.


Title Search

A search conducted by a solicitor or licenced conveyancer into the history of the ownership of a property. As well as ownership, it will also make checks for any restictions or claims on the property which could affect the ownership of the property.


With this type of mortgage, the interest rate charged by the lender will follow/?track? the changes in another specified rate, ie: when the tracked interest rate goes up, the mortgage rate will also rise, and vice-versa when interest rates fall. In England & Wales, this type of mortgage is commonly linked to the Bank of England Base Rate.



Underpayment

This is where monthly mortgage payments are less than the amount originally specified to pay off a mortgage by the end of its term. Some mortgages, particulary flexible mortgages, allow for a specified level of underpayment but this tends to be balanced out with overpayments at other times in the life of the mortgage


Unencumbered

A property owned without any loans or borrowings secured on it.


Unit Linked

A type of investment which is purchased within a collective investment fund. Its value is that of the underlying investments within the fund.


A type of a With Profits investment or endowment which is intended to reduce the impact of stock market fluctuations. In certain circumstances, it also enables the insurer to adjust the level of bonuses already allocated.



Vacant Possession

A property sold with vacant possession means that there are no ?Sitting Tenants? in residence.


Valuation

A basic survey carried out on a property for the benefit of the lender, as it ascertains whether the property is a good security for a mortgage or loan. Occasionally (eg: in the case of a low loan to value ratio), it can actually take the form of a ?drive-by? valuation where the valuer doesn?t even enter the property. The borrower is usually given a copy of the valuation, but as it is only a limited inspection, it should not be relied upon when making a decision to buy a property, nor can the borrower make any legal claim against the surveyor if he/she makes any mistakes. It is therefore advisable that a borrower looks to obtain a Homebuyers Report of Full Structural Survey.


Valuation Fee

A fee charged by the lender to cover the cost of a valuation, usually passed on to the borrower.


Value

The price of a property under normal market conditions, ie: when the buyer is not forced to buy and the seller not forced to sell.


Variable Rate

The rate of interest charged for a mortgage or loan can be varied by the lender over the term of the loan. The changes in the interest rate will broadly follow that of the general cost of borrowing (eg: Bank of England base rate



With Profits Policy

A type of life assurance, investment or pension policy which, on maturity, allows the beneficiary to participate in the profits of the life or pension company involved. Such profits or reversionary bonuses are usually declared and added to the policy annually, and once added to a policy, cannot be taken away. In addition, a terminal bonus may, at the discretion of the company, be added to the policy on maturity. However, in extreme market conditions, some companies reserve the right to apply a ?market value adjustrment? to the policy which can effectively reduce the amount paid out if a policy is surrendered before the end of its term.


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