The Complete A to Z of mortgages
A B C D E F G
H I J K L M N
O P Q R S T U
V W X Y Z
A
Annual Percentage Rate (APR)
The annual percentage rate of charge is a measurement of the total cost of borrowing money over the total time it is borrowed. This figure is helpful to show an accurate comparison between different mortgages. The APR is shown on all mortgage key fact illustrations (See KFI)
Arrears
Arrears are any amount of payments to your mortgage account, or any other credit account, which are late or missed altogether.
Lenders will usually charge interest and charges for these missed or late payments.
Lenders will usually help to clear arrears if you contact them as soon as any difficulties arise.
The existence of arrears on your mortgage account, or any other credit account, may affect your credit score, and could affect either the lenders or mortgage products available to you.
B
Brokers
There are several different types of brokers, offering differing levels of service and products.
Some use the whole market place, some a limited panel and some just a single lender.
Brokers may also specialise in one or more specific fields, i.e. buy-to-let, lifetime mortgages or right-to-buy.
All brokers will have an Initial Disclosure Document, which you should receive a copy of, detailing the level of service and panel of lenders whom they can use. Complete Mortgage Centre offer advice and recommendation from the whole of the market place.
Buy to Let
These are mortgages available for property which will not be used as primary residence by the borrower (or their family). Buy to let products are not regulated by the FSA
Buildings Insurance
Compulsory insurance to protect lenders security and your home. For more information visit www.assetplus.org
C
Cashback
This is an incentive, offered by some lenders, to promote their products. It involves the lender paying a cash sum back to the borrower on completion of their mortgage. This can be a fixed sum or a percentage of the loan. This sum is normally repayable if the loan is redeemed with in a set period.
County Court Judgment (CCJ)
This is a court order against a debtor to repay money owed, this could be for goods or services. A lender may seek a CCJ when the borrow has lapsed payments to them. This will only normally take place after the debt has defaulted.
Council of Mortgage Lenders (CML)
A trade body which represents banks, building societies and other mortgage lending organisations in the UK.
D
Discounted Rate
As the name suggests this is an initial reduction in the lenders Standard Variable Rate for a set period.
Having a loan which has a discounted rate means that if interest rates go up or down then so will your mortgage payments, but will always be lower than if they were on the standard variable rate.
The mortgage will usually revert to the standard variable rate after the prescribed discount period.
E
Early Repayment Charge (ERC)
Often previously referred to as a redemption penalty, the ERC is a charge often payable to a lender if full or part repayment of a mortgage is made during any fixed or discounted rate period. This fee is normally charged as a percentage of the loan, and is a way of lenders recouping the cost of borrowers leaving them sooner than expected.
Equity
This is the difference between any secured lending (including mortgages and secured loans) on a property and the value of the property. If the property was sold and all loans on it were paid off, this is te amount of money you would have left over.
Exchange of Contracts
This is when legal contracts are signed by the purchaser and the vendor involved in the sale of a house. From this point on both parties are legally committed to complete the sale of the property. This step should only be taken when both parties are advised to by their legal representatives (solicitor or licensed conveyancer). From this point it is the legal obligation of the purchaser to have buildings insurance in place for the property.
F
FixedRate
A fixed rate mortgage is one which has its rate of interest fixed at a specified rate for a certain time, most usually, 2, 3, 5 or 10 years.
During this fixed period the monthly mortgage payment will not change, regardless of any changes in interest rates, whether up or down.
Lenders will usually charge an arrangement fee for having a fixed rate, and will also have an Early Repayment Charge if you choose to repay your mortgage during the fixed period.
The mortgage will normally revert to the standard variable rate after the allotted fixed period.
Flexible Mortgages
Some lenders will offer mortgage producs which they call "flexible2.
This term means that you can make underpayments, overpayments, take payment breaks, and borrow-back against any overpayments made.
Some will also offer you the facility to link your mortgage to one or more bank accounts in order to offset interest accrued on any savings.
Freehold
This is a legal term which means that when you buy a property you are also buying the land on which it is built.
It is not usual for flats, even those on the ground floor, to be freehold. The freehold basis of the ownership will be identified in the Title Deeds.
Financial Services Authority (FSA)
The FSA is an independent organisation, set up by the UK government and given legal powers by the Financial Services and Markets Act (2002).
The FSA regulate financial services markets and firms in the UK by setting standards and rules which must be met and adhered to.
The FSA can take legal action against firms who do not meet with the required standards.
Residential mortgage lending is regulated by the FSA.
First Time Buyers (FTB's)
If you have never been party to a mortgage previously, or if you have not held a mortgage for several years, then you will be classed as a first time buyers. Some lenders offer specific rates and offers for FTB's.
G
Gifted deposit
Many builders when building new property developments will offer incentives to prospective buyers. These may be free fixtures and fittings, stamp duty being paid, or discount on the original purchase price. If the incentive is a discount, this can be called a gifted deposit.
H
Higher Lending Charge
The higher lending charge is a one of premium, paid by the borrower, to protect the lender should the mortgage default and not be paid.
The premium is typically a percentage of the loan and is charged, by some lenders, over 75% LTV.
Should the loan default and the lender has to sell the house in order to recoup there money, this will cover any shortfall on the resale value.
The Higher lending charge may be used to buy a Mortgage Indemnity Guarantee (MIG) to help cover any shortfall.
I
Initial Disclosure Document (IDD)
This document is given by all mortgage lenders and intermediaries to their clients to explain levels of service, any fees which will be charged, whom they represent, and other details. These documents have a standard format, set out by the FSA, so that clients can easily compare them.
Insurance
For a comparison on your existing policies, or details of personal, family and property insurance visit www.assetplus.org
Individual Savings Accounts (ISA's)
A tax efficient savings account which can be used as a repayment vehicle alongside an interest only mortgage. Although ISA's are currently tax free, there are limits on the amount which can be invested each year, and they are to be reviewed in 2010. There are several different types available, offered by many financial institutions, including cash ISA's and stocks & shares ISA's.
Interest Only Mortgage
A mortgage where by the monthly payments pay off only interest during the term of the loan, therefore meaning that at the end of the term of the loan, the initial amount borrowed is still outstanding. If taking out an interest only mortgage it is important to ensure that you have a vehicle with which to pay off the loan at the end of the term. There are several options available, including ISA's, endowments and pensions. The monthly payments of an interest only mortgage are lower than those of a repayment mortgage, but consideration must be made of the money which should be put aside for a vehicle with which to pay off the loan.
J
Joint Tenancy / Tenancy in Common
These are the different ways for two people to own one property.
Joint tenancy means that both parties jointly own all of the property, where as tenants in common both own a percentage of the property.
Joint tenancy is the normal way for a husband and wife to own a property, where as two friends buying together would usually be tenants in common. The reason for the two types of tenancy is with regard to probate. A property which is owned under a joint tenancy will pass into the living partners estate, where as with tenancy in common the deceased share of the property will pass into there estate following normal rules of probate.
K
Key Facts Illustration (KFI)
A KFI is a personal illustration, given to all clients by all mortgage lenders and intermediaries, showing a detailed quotation of your mortgage. These are only compulsory for regulated mortgage products. The information on every KFI is set out in a manner specified by the FSA, they all hold the same information in the same format, and so are easy to compare. Clients should be issued with a KFI before a mortgage application proceeds, to ensure that they are aware of the mortgage product chosen, and the risks involved.
L
Land Registry
This is where information pertaining to the owners of all registered land in England and Wales is held. When purchasing a property your solicitor or licensed conveyancer will check the land registry to ensure that all details of the property are accurate, any information regarding third party rights on the land, or legal obligations which must be taken on when purchasing the land.
Leasehold
This is a legal term for a property which is owned, but the land on which it is built is owned by another party. Normally a nominal ground rent will have to be paid to the freehold annually. It is an important check for your solicitor or licensed conveyancer to make to find out what the unexpired term of the lease is on the property you are buying. Most lenders will not offer a mortgage on a property with much less than 70 years to run on the lease, many will look for more.
Licensed Conveyancer
A professional used as an alternative to a solicitor to deal with the legal work involved in buying, selling or remortgaging a house
Loan to Value (LTV)
This is the amount of a mortgage, shown as a percentage, in comparison to the value of the property, i.e. if you buy a property for £100,000 and your mortgage is £90,000, this would be 90% LTV.
There are maximum LTV's for different lenders and types of mortgage deal, these are mainly dependant upon the risk associated to the loan, e.g. clients with very bad credit will normally be restricted to a lower LTV than those with good credit, or those who can prove their income can usually gain a higher LTV than those who must self-certify their income.
M
Mortgage Indemnity Guarantee (MIG)
Also known as Mortgage Guarantee Insurance (MGI)
See Higher Lending Charge
Mortgage
A mortgage is a loan where property has been used as security by the lender taking a legal charge over the property until the loan has been repaid.
Mortgage Broker
This is an intermediary (person or company) who provides advice on mortgage borrowing.
Some brokers deal with a small panel of lenders and some, like Complete Mortgage Centre, deal with the whole market.
Mortgage brokers are regulated by the FSA, either directly or through a mortgage network.
The panel of lenders which a broker advises will be documented in their Initial Disclosure Document.
Mortgage Offer
The mortgage offer details the terms and conditions under which a lender is prepared to lend money. The offer papers must be signed and returned to the lender accepting the proposed terms.
N
Negative Equity
This is a situation where the mortgage on a property is higher than the value of that property. This can cause problems if the borrower wishes to sell the property, and the sale proceeds are not adequate to repay the loan.
O
Offer of Advance
See Mortgage Offer
Ombudsman
The financial ombudsman were set up by law to help settle individual disputes between consumers and financial firms.
They can consider complaints about a wide range of financial matters - from insurance and mortgages to savings and investments.
Their service is free to consumers. They are not a regulator or trade body, they only help to resolve complaints.
P
Purchaser
The individual or company buying a property. Property can be purchase in sole, joint or multiple names, usually up to four separate individuals. Property can also be purchased by a company, either a partnership, Ltd. Company or PLC, to provide premises from which to work or to purchase investment property. There are specialist lenders who deal with company purchases, and the terms of these loans differ from personal purchases.
Portability
It is possible with some lenders and some mortgage products to "port" your mortgage if you move home. This means the transfer of your outstanding mortgage from the property you currently own to the new property you are purchasing. If the new property has a higher value then the excess which you must borrow will be charged at whatever rates the lender currently has available, not your existing rate. The portability of a product will be detailed in the extra features area of your personal KFI.
Pre-emption Period
When purchasing your council property, there is a set period during which you will be penalised for selling your property. Depending upon when your property was purchased and how long you have owned it will ascertain what the per-emption penalty will be. The pre-emption penalty is a percentage of the discount which you received from the local authority whom you purchased from. The penalty is on a sliding scale, so the penalty reduces the longer you have owned the property. Some lenders will not allow you to remortgage during your pre-emption period.
Q
R
Redemption Penalties
This is a charge made by a lender if a borrower wants to redeem there mortgage, in part or in full, outside of the agreed terms of the original mortgage contract, i.e. paying off the mortgage during a fixed rate period. The redemption figures which are relevant to each mortgage are detailed in the Key Facts Illustration provided when you apply for the mortgage, and also in the Mortgage Offer. The redemption penalty is usually shown as a percentage of the mortgage. These are commonly known as Early Repayment Charges(ERC).
Remortgage
This is a borrow taking out a new mortgage to replace an existing mortgage on the same property. The usual reasons for this are to achieve a better interest rate, or to raise capital for home improvements or debt consolidation.
Repayment Mortgage
A mortgage where the capital borrowed as gradually paid of during the whole term of the loan. The monthly mortgage payments are made up of part capital and part interest payments. Having a repayment mortgage will ensure that the loan is repaid at the end of the mortgage term. As a repayment mortgage pays the capital and interest of the loan, it is important when comparing this with an interest only mortgage the money which should be put aside as savings to pay off the interest only mortgage.
Repossession
If a borrower does not keep up repayments on a mortgage or other loan secured on there property, the lender does have the right to take possession of the property to recover the unpaid debt. Repossession will only take place when all other avenues have been explored and the borrower has no way of repaying the debt. Repossession will affect a borrowers credit file.
Retention
A retention is a sum of money which is held back by the lender until certain repairs or improvements have been completed. The valuation which is carried out by the lender when the mortgage application is being processed will detail any necessary works which must be carried out. This necessary work must be carried out before the retained money is released to the borrower. Any retention will be detailed in the Mortgage Offer.
Right to Buy (RTB)
Please go to our RTB page
S
Self-Certification
If a borrower is unable to provide the lender with evidence of their income, then a self-certification mortgage is required. This is a specialised market, and not all lenders will offer this product. Self-certification is normally only available to self-employed people, although some specialist lenders will allow employed self-certification. The borrower will be required to sign a self-certification declaration to confirm their income and ability to afford the loan.
Standard Variable Rate
This is a variable rate of interest with a defined set of circumstances which causes the rate to change. Each lender chooses their own criteria on which to base their standard variable rate.
Stamp Duty
This as a tax payable on all new property purchase in the UK over a value of £125,000. There are differing levels of stamp duty payable dependant upon the value of the property to be purchase. Currently the stamp duty rate are as follows: -
£125,000 up to £249,999 - 1% of the purchase price
£250,000 up to £499,999 - 3% of the purchase price
£500,000 and over - 4% of the purchase price.
There are a small number of exceptions to the above rates, but most UK residential property is charged at these rates. This tax is payable on completion of the purchase of the property.
T
Term
The Term is the length of your mortgage loan from inception until the day it is paid of. Most lenders will have a minimum and maximum term over which they will allow a mortgage to be taken out. The term available to a borrower is also dependant upon their age and other circumstances.
Tracker Rate Mortgage
A type of mortgage product where by the pay rate tracks a certain rate, i.e. Bank of England Base Rate. This tracker rate may be applied to the full term of the loan or a set period. Having a tracker rate means that the borrowers monthly payments can go up and down as the rate that it tracks goes up and down.
U
Underwriting
This is the process by which a lender decides on the suitability of a prospective borrower. The underwriter will asses the borrowers ability to service the loan by several means, these include the borrowers credit history, current earnings and financial status.
V
Variable Rate
A variable rate of interest can go up or down. Rate changes are usually cause by a fluctuation in the Bank of England Base Rate. The circumstances for these changes will be detailed in the mortgage offer.
W
Wills
It is important to have a will in order to protect your family and assets. Please visit www.assetplus.org
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