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Advance
The mortgage
loan.
Appointed
representative
This is a salesperson,
company or organisation that advises on the investment products (endowments,
pensions, unit trusts and so on) of one single life assurance company. It can
also refer to an Independent Financial Adviser who is a member of a network.
APR Annual
Percentage Rate.
This is meant to be a way of
comparing the cost of credit. It takes into account most of the up-front and
on-going costs involved in taking out a mortgage. You cannot always rely on it
because lenders work it out in different ways.
Arrangement
fee
A fee you pay to the lender in
return for a mortgage deal. This deal could be fixed, discounted or cashback.
The fees are known as the: · application fee · booking fee
· completion fee · drawdown fee · reservation
fee.
ASU
Insurance
This covers accident, sickness
and unemployment. It provides a monthly payment if you cannot work for an
extended period due to an accident, sickness or unemployment.
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BBA British
Bankers Association.
This is the trade
organisation of the banks.
Bonuses
These are payments that
a life assurance company adds to a 'with-profits' policy. Bonuses are usually
added at the end of each year, and there may be a final (terminal) bonus when
the policy comes to the end of its term. This normally coincides with when you
have to repay the mortgage. Bonuses aren't guaranteed and the amount awarded
can change each year. However, once a bonus is made by the life company, they
can't take it away.
BSA Building
Societies' Association.
This is the
trade organisation of the building societies.
Buildings
insurance
This covers the cost of
rebuilding or repairing the structure of the property. Lenders insist you have
enough buildings insurance before they give you a mortgage. With leasehold
properties, it is the freeholder's responsibility to arrange buildings
insurance, although the freeholder will usually pass on the charges to the
leaseholder.
Buildings and
contents insurance
This is combined
insurance, which may be cheaper than one policy for buildings insurance and
another separate policy for contents insurance.
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Capital and
interest
Your monthly payments are
partly to pay the interest on the amount you borrowed and partly to repay the
outstanding mortgage. Also known as a repayment mortgage.
Capped
rate
An interest rate charged for a set
period of months or years which can go up and down with the variable rate, but
there is a maximum (capped) interest rate which it cannot go above.
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 Judgement.
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.
CML Council of
Mortgage Lenders.
Building societies
and most banks and other lenders are members of this trade
organisation.
Completion
When the sale and
purchase of the property are finalised, and you become the owner of the house
or flat.
Contents
insurance
Insurance cover for your
possessions. This may include cover against loss or damage away from the home.
Contracts
The legal documents
under which you and the person selling the property agree to buy and sell the
property .
Conveyancing
The legal process
involved in buying and selling property.
Credit
search
A check the lender makes with a
specialist company to find out whether you have any County Court Judgements or
a record of not paying loans, credit-card bills and so on.
Credit
scoring
A lender's way of assessing
whether you are a good risk to lend a mortgage to.
Critical
Illness
Insurance that generally pays
out a lump sum if you are diagnosed with a life-threatening illness or
disease.
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Date of
entry
In Scotland, this is the same as
exchanging contracts.
Decreasing
term assurance
Life assurance that pays
out an amount if you die during the term of the policy. The amount of cover
reduces each year. So, this makes it ideal to cover repayment mortgages where
the amount you owe the lender reduces each year. Decreasing term assurance is
usually cheaper than level term assurance.
Deposit
The amount of money you
put towards buying a property.
Disbursements
A solicitor's
expenses - for example, for stamp duty, HM Land Registry fees, searches, faxes
and so on.
Discount
term
The time that a discounted rate
applies to a variable-rate mortgage. This term may be for a guaranteed number
of months or years, or it could be until a set date in the future; for example,
30 June 1998.
Discounted
rate
A guaranteed reduction in the
standard variable mortgage rate. This often lasts for an agreed period
.
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Early
redemption charges
A fee charged by the
lender if you pay off all or part of your mortgage before an agreed date or you
move the loan to another lender. These charges usually apply on fixed,
discounted, or cashback mortgages.
Endowment
A life assurance
policy that is designed to produce a lump sum to pay off an interest-only
mortgage. There are different types of endowments, for example, 'with-profits',
'unit-linked' and 'unitised with-profits'.
Equity
The amount of value in a
property that isn't covered by a mortgage - simply take the amount of the
mortgage from the valuation to work out the equity.
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.
Estate agency
fees
The amount the estate agent charges
the person selling the property. This is usually worked out as a percentage of
the sale price, and may be negotiable. On a 4% fee, the estate agent selling
the property for £60,000, would receive £2,400.
Exchange of
contracts
The point where you and the
person selling the property sign and swap identical contracts that show the
price and what fixtures and fittings are being sold, as well as a date when
everything will be finalised. When you exchange contracts the deal becomes
legally binding, and if you or the seller pull out before completion, you or
they will have to pay compensation to the other side.
Execution
only
The company selling or arranging an
investment product like a pension or PEP cannot and does not give any advice on
the benefits of the scheme - they simply sell the product.
Extra cover or
accidental cover
This is insurance
against damage to the structure of your property and its contents - for
instance, putting your foot through the ceiling or spilling paint on the
carpet.
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Fixed
rate
The interest charged on the
mortgage is for a set amount for an agreed period of months or years.
Fixtures
Any item that is
attached to a property, and so is legally part of the property.
Flexible
mortgage
A type of mortgage where you
can make extra payments and even under payments without paying a charge or
penalty.
FPC Financial
planning certificate.
These are
professional qualifications for financial advisers. There are FPC Levels I, II,
III , and those who have passed all three and are members of the Life Assurance
Association are awarded the designatory letters MLIA(dip).
Freehold
This is when you own
the property and the land it is on.
Freeholder
Someone who owns the
freehold of the property.
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Gazumping
This is when the
person selling the property accepts an offer from a potential buyer, and then
accepts a new, higher offer from another buyer before exchange of
contracts.
Gazundering
This is when the
person selling the property accepts an offer, and then the buyer puts in a new,
lower offer just before exchange of contracts.
Ground
rent
A fee that a leaseholder has to pay
the freeholder every year.
Guaranteed
death benefit
On certain policies, there
is a guarantee that the company will pay out a certain amount when you
die.
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HM Land
Registry
The official organisation that
keeps records of properties in England and Wales. Transfer of ownership has to
be registered with the HM Land Registry.
Homebuyer's
report
This is when a professional
surveyor checks the structural state of a property. This is more detailed than
a valuation but less detailed than the structural survey. The report is
optional and you pay the bill; but, this report should pick up possible
problems and may give you the chance to negotiate a lower price. And, you have
more grounds to sue or get compensation from a surveyor for a poor report than
you would from a simple valuation .
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IFAs
Independent Financial Advisers.
These
advisers can give you information on and recommend investment products
(endowments, pensions, ISA's, etc) from a wide range of life assurance and
investment companies.
Income
multipliers or multiples
The size of
mortgage that lenders will offer will often be worked out by multiplying your
income each year by a set figure. If you are the only person taking out the
mortgage, the usual maximum income multiple is three times your yearly income.
So someone earning £15,000 could borrow three times this amount, or
£45,000. If you are taking out a mortgage with someone else, the
multipliers might be three times the main income plus one times the second
income. Or it could be two-and-a-half times the two incomes added together.
(Lenders may consider including all or part of any regular bonuses or
commission you receive as your income.
Income
protection insurance
This covers
accident, sickness and unemployment. It provides a monthly payment if you
cannot work for an extended period due to an accident, sickness or
unemployment.
Income
references
This is confirmation from
your employer that you earn the amount you claim in your mortgage application.
Accountants may also give confirmation of income if you are self-employed.
Interest
only
Your monthly payments to your
lender are simply made up of interest. You do not pay off any of the mortgage
during the term of the mortgage. You pay off the mortgage finally using the
proceeds of a separate investment plan for example, an endowment, personal
pension or ISA and so on.
IPT Insurance
premium tax.
A tax on all UK general
insurance. This is currently charged at 4% of the premium when you buy it from
an insurance company or an insurance broker (but the Government can change this
rate).
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Leasehold
This is when you own
the property for a set number of years, after which it goes back to the
freeholder. Most flats in England are leasehold, and although most lenders will
lend on leasehold properties, they will demand that there is a number of years
left on the lease before making a loan (this could be 60 years, but will depend
on the lender) .
Leaseholder
Someone who owns a
leasehold property.
Level term
assurance
Life assurance which pays out
a lump amount if you die during the term. The amount of cover stays the same
throughout the term, which makes the cover suitable for interest-only loans,
due to be repaid by an ISA, because the amount you owe on the mortgage stays
the same until the end of the mortgage.
Licensed
conveyancer
An alternative to
solicitors, these people specialise in the legal side of buying and selling
property.
Loyalty
bonus
These are special schemes if you
already have a mortgage, that may provide reduced interest rates or fees, and
even services like removals.
LTV
The size of the mortgage
worked out as a percentage of the price you are paying for the property or
valuation. (If your property was valued at £80,000, a £60,000
mortgage would be a 75% Loan to value.
LTV Loan to
value.
This is the size of the mortgage
as a percentage of the value of the property or the price you are paying for
the property. (A £45,000 mortgage on a house valued at £50,000
would mean an LTV of 90%.
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MIG Mortgage
Indemnity Guarantee.
This is insurance
that covers the lender in case your property is repossessed and the lender
cannot get back their money. (The lender may add the MIG, which usually applies
on high LTV mortgages, to the mortgage.). This guarantee provides no protection
for the borrower, and if a repossesed property results in the indemnity
provider making a payment to the Lender, the indemnity provider will have a
claim to the amount of the payment from the borrower.
Mortgage
A loan to buy a home
where you put up the property as security against you paying back the
loan.
Mortgagee
The company or
organisation which lends you the money under a mortgage.
Mortgagor
The person taking out
the mortgage.
MRP Mortgage
Repayment Protection
This is insurance
available to mortgage payers. This will pay an agreed monthly payment if you
cannot work because of an accident, sickness or unemployment. This amount
should cover your mortgage repayments.
Multiple
agency
A number of estate agents agree
to try to sell the property.
Mutuals
Organisations owned by
and for the benefit of their members (savers and borrowers), with no outside
shareholders. Some building societies are mutuals, and so are some insurance
and investment companies.
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Negative
equity
This is where the money you owe
on the mortgage is greater than the value of the property. For example, if you
had a £60,000 mortgage on a property valued at £50,000, you would
have £10,000 negative equity.
New for
old
This is insurance cover which will
pay the full cost of replacing damaged or lost property with a similar, new
item.
No-claims
bonus
This is similar to motor
insurance. You will be given a discount on buildings and contents insurance if
you haven't made a claim for a number of years.
Non-status
A borrower with
impaired credit looking for a mortgage, would likley only apply for Non Status
mortgages.,
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On
risk
This is when your insurance cover
begins. This may be before you have paid a premium.
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PEP
Personal equity plan. This
is a tax-free way to own shares or unit trusts. Depending on the lender, you
can use PEPs to repay an interest-only mortgage. New PEP's and ups to existing
PEP's are no longer allowed.
Personal
pension
This is a pension plan used to
save for an income in retirement. In some circumstances it will also pay a tax
free lump sum on retirement. Some lenders are prepared to grant mortgages to
borrowers wishing to use their lump sum to repay their interest only
mortgage.
PHI Permanent
health insurance.
This pays a regular
monthly amount until you retire or return to work if you cannot work because of
illness or an accident.
Policy
excess
The amount you will have to pay
when you make a claim. For example, this may be the first £50 of a
£500 claim for damage caused by a storm.
Policy
schedule
This gives policy details of
how much cover you have (the sum insured), the discount you qualify for (if
any), and the premiums you have to pay. With some policies you may get a new
schedule when you renew the policy or whenever you want to change your
policy.
Possession
The lenders' term
for repossessing your property.
Private
medical insurance
This simply pays the
costs for private medical or hospital treatment.
Purchaser
The buyer of the
property.
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Rebuilding
cost
This is the recommended amount
(from your property valuationthat you should take out buildings insurance cover
for. This may be higher or lower than the market value of your property.
Remittance
fee
A charge made by the lender for
sending the mortgage funds to your solicitor when the purchase is just about to
be completed.
Remortgage
A new mortgage
although you are not moving home.
Removal
expenses
The cost of hiring a removal
firm. This may depend on the total amount and size of your possessions, the
distance travelled, the number of stairs and so on.
Repayment
Your monthly payments
are partly to pay the interest on the amount you borrowed and partly to repay
the outstanding mortgage. Also known as a capital and interest
mortgage.
Replacement
value
This is the cost of buying the
same or similar items as new if you have to replace them in the event of a
claim.
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Sealing
fee
A charge made by lenders when you
repay the mortgage.
Searches
Checks carried out
during the conveyancing. These checks are made with local authorities and other
official organisations to check planning proposals and other matters that may
affect the value of the property, and if it can be sold in the future. The HM
Land Registry is also searched to establish that there are no unknown charges
registered against the property.
Self-certified
You confirm how
much you earn, and the lender does not need any references.
Settlement
In Scotland, this is
the same as completion.
Sole
agent
A single estate agent agrees to
sell the property.
Solicitor
The person who deals
with the conveyancing.
Stamp
duty
A tax you pay on properties which
cost over £60,000.
Structural
survey
This is the most wide-ranging
check of the outside and inside of a property. This is carried out by a
professional surveyor, and it should pick up all but the most hidden faults.
The structural survey is optional and you must pay the bill, but it provides
the greatest protection for the potential buyer in terms of the information it
provides. It also gives you cover against negligence by the
surveyor.
Sum
assured
This is normally the amount paid
out on a policy if you die within the term. It is also the guaranteed amount to
be paid out at maturity on a low cost or full with profits endowment
policy.
SVR Standard
variable rate.
The interest rate the
lender charges goes up and down, with your interest payments changing
accordingly.
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Tie-in
period
As a condition of a special
mortgage deal (discount or fixed rate, for example), 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 redemption charge.
Term
The period of years over
which you take the mortgage and when you have to repay it. Most new mortgages
are taken on a 25-year term.
Third party
buildings insurance
A charge a lender
may make if you decide to take buildings insurance from someone other than the
lender. A typical charge is around £35.
Title
deeds
Documents to show proof of who
owns the freehold and leasehold property.
Transfer
deed
A document that, once you sign it,
actually transfers the ownership of the property to you.
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Unit
trust
A popular type of stock
market-linked investment that you may use to repay an interest-only mortgage.
Your monthly premiums buy units in a fund of stocks and shares that is run by a
professional manager. The value of units can go down as well as up, and a unit
trust doesn't include life assurance.
Unit-linked
endowment
Your monthly premiums are used
to buy units in a fund or funds run by professional managers. Like unit trusts,
the price of these units can go up and down, so the value of the endowment can
change.
Unitised
with-profits endowment
A recent
development allowing investors to buy units in an insurance company's with
profit fund. Unlike the unit-linked endowment, the value of the units cannot
fall, on either death or maturity, once an increase has been made.
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Valuation
A simple check of the
property in order to find out how much it is worth and whether it is suitable
to lend a mortgage on. This is carried out by a professional surveyor for the
lender. You usually pay the bill and will usually get a copy of the
report.
Variable
rate
The interest rate the lender
charges goes up and down, with your interest payments changing accordingly.
Vendor
The person selling the
property.
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With-profits
endowment
Your monthly premiums are
invested by the life assurance company in their with profits fund. The policy
will have a basic sum assured to which bonuses are added , to build up a cash
sum. This should be enough at the end of the term to repay the mortgage,
assuming that the investment has performed at a rate equal to that assumed when
the policy started.
If you can suggest any other
mortgage and property-related terms that don't already appear in this glossary,
please feel free to e-mail them to us.
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