Glossary of Terms
Accident Sickness & Unemployment Insurance
Policies vary from lender to lender. Generally policies offer protection against sickness, accident and redundancy for the first and second wage earners. Cover is also available for self employed borrowers and under certain circumstances for non working partners. Cover is not mandatory but recommended in most cases where no insurance would result in financial hardship for dependent relatives.
Adverse Credit
Information registered against borrowers with the credit rating agencies. Existing arrears on current mortgage facilities. An inability to satisfactorily prove the level of income required by a high street lender.
APR
Annual Percentage Rate of charge. The true rate of interest charged on a loan taking into account the total cost of interest and other charges e.g. brokers fees/legal fees. The calculation is set out in statutory regulations.
Capped Rate
Usually for a set number of months/years where the interest rate can go up and down but there is a maximum (capped) interest rate above which it cannot rise.
Cashback
A type of loan where the borrower is given back a sum of money, which may be a percentage of the loan or a lump sum.
CCJ
County Court Judgement. A court order against a debtor to pay money owed toa creditor.
Conveyancer
A person, used as an alternative to a solicitor, to carry out the legal work involved in buying and/or selling a property. Note: It should be checked that they are licensed to carry out this function.
Discounted Rate
A discounted rate gives you a reduction of, for example, 1% off the standard variable rate (SVR) for a specific period. So, during this period should the SVR rise and fall, you will still qualify for the discount and therefore pay a lower rate than the SVR.
Early Repayment Charges
When a loan is redeemed (paid off) early, either in full or in part, many lenders will charge a fee. This particularly applies to Fixed, Discounted or Capped rate loans or mortgages.
Endowment
A life assurance policy that is designed to produce a lump sum to pay off an interest only mortgage. There are a number of different kinds of endowment policies: 'with-profits', 'unit-linked' etc
Exchange of Contracts/Signing Missives
Agreement signed by house purchaser and vendor committing themselves to the transaction. Once this has occurred a legally binding contract is in existence and the purchaser must complete the purchase within a specific period of time.
FSA
Financial Services Authority.The industry regulator which authorises financial firms in the provision of financial advice to the public.
Fixed Rate
A mortgage providers interest rate is fixed for a specific number of years, so you know what your payments will be over that period. Following this period, the rate will usually revert to the lender's standard variable rate.
Flexible mortgages
A more recent innovation, these give various benefits which usually include the ability to vary payments in line with your circumstances. They may also allow you to take "payment holidays" and to borrow back any overpayment you may have made.
Freehold
Land / Property is owned outright by the Freeholder. Whether the property is held on a lease or a freehold basis will be identified in the deeds to the property.
Feudol
A Scottish legal term relating to the land/property title.
Homebuyers survey
A more detailed survey than a mortgage valuation but not as detailed as a Full Structural Survey, and is carried out by a qualified surveyor.
IFA
Independent Financial Advisor - provides financial advice drawn from the whole market place and not just one provider.
Interest Only Mortgage
With this type of product, your monthly repayments will only cover the interest element of the loan. You will typically set up another repayment vehicle eg an endowment or ISA(Individual Savings Account) to repay the capital element of the loan, or plan to sell the property and repay the loan from the property proceeds at a planned date in the future.
Leasehold
A leaseholder holds the title to land only for a finite term i.e. the length of the lease upon payment of a consideration e.g. rent.
Lender
The actual company that provides the finance to satisfy a loan or mortgage request.
LTV
Loan to value. This is the size of the loan or mortgage as a percentage of the value of the property or price being paid for the property e.g. A property valued at £100,000 with a mortgage of £90,000 would have an LTV of 90%.
Mortgage Indemnity Guarantee
Also known as Higher Lending Charge, this is an insurance policy designed to make good any shortfall between the amount owed on a mortgage and the value of the mortgaged property. Provides the benefit to the lender in the event of repossession resulting from non-payment.
Mortgage valuation
Basic valuation carried out by a qualified building surveyor to establish the value and suitability of a property as security for a mortgage. A minimum requirement for all mortgage lenders. In Scotland purchasers can instruct their own independent survey if they so wish, but in England the lender will insist on arranging the survey through their own surveyor.
Mortgage
A loan to purchase a home where the property is used as security in the event of non-payment of the mortgage.
Mortgage/Finance Broker
Is an intermediary who identifies, and places, customers requiring a loan or mortgage etc. with a company (Lender) able to provide it. The broker often carries out the administration to do with processing the loan.
Negative Equity
The situation where the amount owed on a mortgage exceeds the value of the property.
Offer of Advance
Sometimes informally known as a mortgage offer. This document details the terms and conditions upon which the lender is prepared to make a mortgage loan. The applicant must sign and return a copy of the offer indicating their acceptance of the proposed terms.
Processing
The administration and paperwork related to a loan from the time a completed application form is received through to completion of the loan process.
Remortgage
Loan taken out by a borrower to replace another one secured on the same property. Typically taken out by borrowers switching lenders to achieve a better rate.
Repayment Mortgage
With a repayment mortgage the borrower pays part interest and part capital repayments to the lender each month and in this way the capital borrowed is reduced until the loan is repaid.
Retention
Sum of money retained from a mortgage pending completion of improvements or repairs as stipulated by the Building Surveyor.
RTB
A term associated with legislation that gives council house tenants the Right to Buy their homes.
Sealing Fee
A charge made by lenders when a mortgage is paid off.
Second Charge
Mortgage or loan ranking behind a first mortgage ie a second loan and secured on a property.
Second Mortgages
Company or building society who have registered a charge or mortgage directly behind that of the first mortgages.
Secured Loan
Mortgage ranking behind a first mortgage ie a second loan.
Security
When a loan is taken out it is 'secured' on a property, the borrower agrees to the lender creating a charge over the property; the deed makes reference to the rights and obligations of both parties as detailed in the Legal Charge, Standard Security or Loan Agreement. Thus the property is known as the 'security'.
Settlement Figure
The sum quoted in order for the loan to be repaid during the contracted term of a loan and may include outstanding fees.
Stamp Duty
This is a tax payable on a conveyance/transfer/assignment of an interest in land. Stamp Duty is payable if you are purchasing a property for more than £175,000. The rate of duty is currently: 1% between £175,001 and £250,000 - 3% between £250,001 and £500,000 - 4% over £500,000. Disadvantaged Areas Relief can reduce the amount of Stamp Duty payable in areas designated by the government as 'disadvantaged'. To make a claim for Disadvantaged Areas Relief you must complete an SDLT return.
Standard Security
The equivalent of the Legal Charge in Scotland.
Status
The credit-worthiness or otherwise of a potential borrower.
Structural Survey
A detailed survey of the structure of a building carried out by a Structural Engineer or Chartered Building Surveyor.
Sub-prime Mortgage
A sub-prime mortgage loan is a mortgage that is specifically designed for people who are denied prime or standard mortgages by traditional lenders. A sub-prime mortgage may be suitable for people who have a poor credit rating or have difficulty proving a regular, reliable income. The term typically refers to mortgage candidates; though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Rates on sub-prime deals are typically higher to reflect the extra risk in lending to people who have struggled in the past.
Secured Loan
A secured loan requires the borrower or homeowner to provide some form of security for the lender - in the majority of secured loan applications the security will be the borrower's property regardless of whether there is any mortgage outstanding or whether it is owned outright.
Term
Period of a loan expressed in months or years.
Term Assurance
Life assurance which pays out a lump sum if you die during the term. Suitable for interest only loans as the amount owed on the loan remains the same throughout the life of the loan. Premium levels are subject to underwriting with final terms offered on conclusion of the underwriting process.
Title Deeds
Set of documents relevant to present and past ownership of a property. Details names of owners and details of institutions that have registered a charge against the property. Held by the first mortgagee lender whilst their charge remains in existence.
Tracker Rate
Usually tracks the Bank of England base lending rate at a premium, for example base +1% for a specific period.
Unsecured Loan
An unsecured loan is a loan that is issued and supported by the borrower's creditworthiness rather than by collateral. The maximum loan is usually £25,000.
Underwriting
The process by which the ability of a prospective borrower to repay a loan is assessed. The process takes into account various factors including employment history, financial status, previous credit history and current earnings and affordability.
Variable Rate
A rate of interest which may vary up or down during the lifetime of a loan in line with general interest rate movements.
Think carefully before securing other debts against your home. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Commercial mortgages and foreign mortgages are not regulated by the FSA or arranged via Sesame.
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