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Mortgage A-Z

Whether you are a first-time buyer or simply looking to purchase a new home, the process can be daunting and confusing - especially in the UK mortgage market, which is one of the most complex in the World. To help you make sense of things, we've put together a Mortgage A-Z using the terminology you can expect to come across during the process of purchasing your home. For more information, or if you are still unsure, please contact us.


Mortgage terminology

 

A

APR:
APR is the Annual Percentage Rate of the total charge for credit: this is the accepted means of working out the ‘true’ interest rate. All lenders are legally obliged to show the APR alongside quoted interest rates for each mortgage term, this enables you to accurately compare mortgages from different lenders to work out exactly how much you will repay on your loan each month.  This identifies the true cost of borrowing over the full term and provides the consumer with a method of comparing the cost of different types of loan.  It assumes you will have the mortgage for the whole term, so may not be a useful way to compare deals.

Agricultural Restriction:
A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.

Apportionment:
Dividing the liability for property tax, water charges, etc, between the seller and buyer of a property.

Arrangement Fee:
This is a fee a mortgage lender may charge for providing you with a mortgage. They are usually paid on completion (although some lenders may let you pay this upfront) and tend to apply when you take out a fixed rate, tracker or discount mortgage. Similar fees may also be called 'completion fees'.

Assignment:
Document transferring rights of ownership from one person to another, such as an endowment policy to the building society in connection with a mortgage. Can also be the document transferring the lease on a property.

ASU:
Accident, Sickness and Unemployment insurance. This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.

Auction:
Public sale of a property to the highest bidder. The purchaser must immediately sign a binding contract and should ensure that all valuations, searches etc are carried out prior to the sale.

Authority to Inspect the Register:
Document from registered proprietor of land allowing another party, such as the purchasers' solicitor, to be given information from the register of a property.

Arrears:
Mortgage payments that have not been made by the due dates. If you go into arrears it means you have 'defaulted' at least once on your mortgage repayments, i.e. you have missed a month's payment. Contact your lender as soon as possible if you think you may go into arrears.

APRC
Mortgage APRC – or Annual Percentage Rate of Charge – is a representative interest rate designed to help you compare mortgages. It takes into account not only the introductory rate of interest you pay, but also the rate you pay when you finish your initial fixed, tracker or discount period, as well as any fees you are required to pay to get the mortgage.

Agreement in principle (AIP):
A document from a mortgage lender confirming that you will be able to borrow a certain amount. You can use this to prove to a seller that you can afford to buy their property. Also, see Decision in Principle (DIP).

B

Bank of England Base Rate:
The Bank of England Monetary Policy Committee currently reviews this monthly. If the rate changes, the standard variable rate charged by lenders may change soon afterwards. The Bank of England Base Rate determines how much other banks and building societies pay for the loans that they take out from the Bank of England. These base rates will in turn affect the interest rate paid for loans including the loan on your mortgage.

Bankers Draft:
A method of payment of funds which has all the appearances of a cheque, but in effect is a cash payment.

Base Rate Tracker:
A mortgage where the interest rate is variable but set at a premium above the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that, usually there is little or no early repayment charge. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant.

Bridging Loan:
Short term loan to facilitate the purchase of one property prior to the sale of another releasing funds that are required for the purchase. This is a short-term loan that 'bridges' the time period between two property transactions. It is used to cover shortfalls between buying one property and selling another. Professional advice should always be taken prior to considering any bridging finance as it can be a solution which is worse than the problem.

Brokers Fee:
A fee charged by an intermediary or adviser for locating the most appropriate mortgage for the borrower. (This is also known as an Intermediary Fee)

BSA:

Building Societies Association. Represents interests of member societies. Address 3 Savile Row, London W1X 1AF.

Building Societies Commission:

Regulatory organisation for Building Societies. Reporting to Treasury Ministers.

Buildings Survey:
This is the most wide ranging check of the outside and inside of a property. This is carried out by professional surveyor and it should pick up all but the most hidden faults.

Buy-to-Let:
This is a mortgage designed for people who wish to purchase a property to rent out to others normally on an Assured Shorthold Tenancy agreement basis. A buy-to-let property is bought with the sole intention of letting it to tenants. Most mortgage lenders offer special buy-to-let mortgage deals for this purpose.  They are very similar to a mortgage on your own home, except the mortgage lender will usually assess whether you can afford the mortgage based on the projected rental income rather than what you earn. Buy-to-let mortgages are not regulated by the Financial Conduct Authority unless specific criteria apply to the borrower.

Bankruptcy:
This is a person’s legal declaration that they cannot pay their debts. Creditors can attempt to obtain as much money as possible from any existing assets held by the person.

Booking Fee:

Sometimes known as an Application Fee A fee charged by a lender, payable at the time you apply for the mortgage. Normally applies only to special loan offers, such as fixed or capped rates.

Base Rate:

Base rate usually refers to the Bank of England Base Rate. It is this rate that is most commonly tracked by tracker mortgages. Some Standard Variable Rates may also be affected by changes to base rate, although this will be down to the individual mortgage lender's discretion.

Booking Fee:

This is a fee that a mortgage lender may charge for reserving the money you wish to borrow. It's normally paid upfront when you make your mortgage application and is typically around the £99 mark.

Buildings Insurance:
Insurance which covers you for damage to the structure of your home.  Your mortgage lender will require you to have buildings insurance for your property. This protects you both against risks such as your house burning down, being flooded or suffering from a landslip or subsidence.

Building Society:

A building society is a mutual organisation specialising in lending money that provides mortgages and savings accounts to its customers (as well as other banking services). A proportion of building society funds is also raised on the commercial money markets.  Many of a building society's customers are also members – the society is run for the benefit of members rather than shareholders. Building societies are also limited by law as to how much they can borrow from other financial institutions. This has traditionally seen them regarded as more stable and sustainable than banks.

Broker:
An adviser who can help you arrange a mortgage. Be aware that some brokers will get paid more commission for recommending certain deals than others; also, some of the best mortgage deals are only available if you apply directly. On the flip side of this though, brokers such as Fairview Financial, will also have exclusive deals that you cannot obtain directly.

C

Capital and Interest:

Your monthly payments are partly to pay the interest on the amount you borrowed and partly to pay the outstanding mortgage and ongoing costs involved in a mortgage.

Capped Rate Mortgage:
An interest rate charged on a mortgage where there is a guarantee from the mortgagee that the rate will not exceed a certain amount usually for a set period of 1 - 5 years but which will reduce if the standard variable rate falls below the capped rate.

CCJ:
County Court Judgment. 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. After 6 years, this will fall off your credit report, unless it is settled within 28 days of issue (and then it will be removed immediately).

Charge:

Any right or interest, especially a mortgage, to which a freehold or leasehold property may be held.

Certificate:
The certificate issued by HM Land Registry to the mortgagee of a property with registered title. Contains three parts - charges register, property register and proprietorship register. Contains details of restrictions, mortgages and other interests. Where there is no mortgage it is called the Land Certificate and issued to the registered proprietor.

Chattels:

Moveable items such as furniture or personal possessions.

Chief Rent:
A rent payable by the owner of a freehold property similar to the ground rent payable by a leaseholder. Normally only found in the North of England. Can be bought out by freeholder.

CML:
Council of Mortgage Lenders

Completion:
When the sale and purchase of the property are finalised and you become the owner of your new house.

Contract:
Legally binding agreement for sale. In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.

Conveyance:
The deed by which freehold, unregistered title changes hands. If the property is leasehold and unregistered, it is called an assignment. If the title is registered the deed is called a transfer

Covenant:
A promise contained in a deed.

Credit Scoring
Method of assessment carried out by a lender which ‘scores’ the various answers given on a mortgage application. The total ‘scores’ provides the basis for the lending decision.

Credit Search:
A check the lender makes with a specialist company to find out whether you have any CCJs or a bad credit record.

Capital Repayment:

There are two ways of repaying a mortgage either by the capital repayment or interest only route. With a capital repayment mortgage, the capital and interest elements of the loan are paid off with each monthly instalment, with the balance reducing over the length of the loan term and being repaid in full at the end of the mortgage term. Interest Only is where you pay the monthly interest only and must have a suitable repayment vehicle in place to repay the loan at the end of the term.

Conveyancing:

This is the legal process involved when buying or selling property. Most people use a solicitor or a licensed conveyancer when buying or selling a property because there’s quite a lot of detailed work to do when transferring ownership of a property. Lenders will only use certain solicitors from a panel, we know which solicitors are on the panel and can recommend cost effective solicitors.


Cashback Mortgage:

This gives you a cash rebate on completion of the mortgage. The sum is either a percentage of the amount you borrow, or a fixed sum. Cashback could help you to cover some of the expenses of setting up home, but this bonus often comes at the expense of a higher interest rate, or is subject to a penalty if you repay the mortgage early.

CHAPS Fee:
This is a fee you pay on completion of the mortgage to cover the cost of the mortgage lender sending the funds to your solicitor. The CHAPS fee is normally between £25 and £50 and is paid either by being added to your mortgage balance, or by being deducted from the balance you receive on completion.

Collar Rate:
A collar rate basically means that your monthly repayment can't go below a certain, minimum level. If your mortgage deal has a collar, your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you'll miss out on the savings this lower rate will bring.  Collar rates are often put on tracker mortgages by lenders, to make sure that the rate doesn't fall to an amount that's too low (as happened to some fortunate mortgage borrowers when rates fell in the wake of the financial crisis of 2008).

Completion:
Once the purchase or remortgage of a property is complete and you are legally the new owner, or the new mortgage has formally begun. The buyer cannot take possession before completion.

Consent to Let:
If you already have a mortgage on your property and you wish to rent it out, you must get a "consent to let" from your mortgage lender. You will be charged a fee for getting this permission and it may mean your interest rate changes. However, if you fail to notify your mortgage lender, you will be in breach of your mortgage conditions.

Conveyancing Fee:

The fee that your solicitor or licensed conveyancer will charge for undertaking the legal work involved in buying, selling or remortgaging your property.

Current Account Mortgage:
A current account mortgage allows you to link your current account to your mortgage. This method enables you to save mortgage interest as your normal cash flow can reduce the outstanding debt. However, you will probably be required to pay your salary into the current account.

Capital Gains Tax:
This is a tax on any profit made on the increase in the value of an asset since it was purchased. Capital gains tax isn't payable on any profit you make on your own home; however, it may be payable for profit you make after selling a buy-to-let property.

Capital:
The amount of money you borrow to buy a property.

Capped Rate:
If your mortgage deal has a capped rate, the interest rate charged by your lender will never exceed the upper 'capped' limit, regardless of increases to the Bank of England base rate.

D

Debt Consolidation:
This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage.

Deed:
A legal document which is 'signed, sealed and delivered' not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.

Deposit:
The amount of money that you can put down towards the purchase of a property. Typically, you'd need at least 10% of the property's value as a deposit, although there are a growing number of lenders that will let you have a mortgage for a deposit of less than 10% but the cheapest deals are available to people who can pay a deposit of at least 40%.

Deeds Release Fee:
A charge by the lender for release of the property deeds to the borrower or their solicitor on repayment of the mortgage.

Deed of Consent:
When you mortgage or remortgage a property, anyone who lives in your home other than you (over the age of 17) could claim squatter's rights if the mortgage lender has to repossess the property. To protect against this, mortgage lenders will ask for all people over the age of 17, such as your children, to sign a Deed of Consent to say that they will not be able to claim squatter's rights in the event of repossession.

Deed of Postponement:
If you want to remortgage and have both a mortgage and a secured loan on the property, your new mortgage lender will insist on you getting a Deed of Postponement from your existing secured loan provider. This is because your mortgage lender wants to have first legal charge (or claim) on your property in the event you can't repay your debts and your house has to be repossessed. Because financial charges or claims normally take precedence in order of the date they are registered, the secured loan provider will need to postpone their claim until after the new mortgage lender – that's what a Deed of Postponement does.

Disbursements: 
These are the fees your solicitor has to pay on your behalf (e.g. Stamp Duty, Land Registry fees and search fees) which will be added to your conveyancing bill from the solicitor on completion of the buying or selling of a property.

Drawdown:
Drawdown refers to when you actually physically borrow the money from your mortgage lender. Sometimes you may not want all of the money you borrow at the outset of your mortgage, for example if you intend to use £30,000 to build an extension to your property. Instead, you keep a portion of the loan in your mortgage account where you can later withdraw it, or draw it down. Although this extra money is in your mortgage account you don't pay interest on it, which will mean lower monthly repayments.

Droplock:
Droplock is where a lender offers you an option to later change from a tracker rate to a fixed rate without having to pay an Early Repayment Charge (although you may have to pay other fees). This gives you the flexibility to make the most of low interest rates, while having the option to fix later if rates go up.

E

Equity:
This is the positive difference between the value of your property and the amount of any outstanding loans secured against it. For example, if your home was worth £300,000 and the mortgage on your property was £100,000 your equity would be £200,000.

Exchange of Contracts:
This is the stage in England, Wales and Northern Ireland when both you and the person selling the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold, as well as the date on which everything is to be completed. You are then legally bound to complete the transfer. When contracts are signed, everything becomes legally binding and if you or the seller pull out before completion you or they will have to pay compensation.

Early Repayment Charges:
If you repay (redeem) your mortgage at any time before the end of the mortgage term, you may have to pay certain fees and an early repayment charge. This charge is usually a percentage of the amount remaining on the mortgage, or the original amount you borrowed. Early repayment charges often begin to reduce the further you are into a mortgage and most of the time they aren't payable after an introductory fixed, tracker or discount period ends.

Easement:
A right, such as a right of way, which the owner of one property has over an adjoining property.

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.

Equity Release:
An equity release scheme allows older homeowners to release the cash tied up in their property. There are two types: lifetime mortgages and home-reversion schemes. These schemes should only be taken out after getting independent financial advice.  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.

EPC:
All homes that are sold need to have an EPC or Energy Performance Certificate. This certificate tells prospective buyers how energy efficient a home is currently, as well as what can be done to improve energy efficiency in the future.

Equity:
The amount (or percentage) of the property that you actually own. For example, if you have a £90,000 mortgage on a property worth £100,000, the amount of the property you actually own is £10,000 or 10%.

Estate Agent:
You'd employ an estate agent to help you sell your property. They advertise your property, show people around and act as a go-between for you when communicating with a buyer. Fees can vary so you'd be wise to look around before choosing.

F

Fixed Mortgage
A fixed mortgage is where your mortgage payments stay exactly the same for an initial period. They're great if you have a tight budget and want to know what you'll be paying, or if you're worried about interest rates going up.

Freehold:

When you have the freehold on a property this means that you solely own the property and the land it is situated on.

Fixtures:
Any item that is attached to a property and so legally is part of the property.

Flexible Mortgage:
The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. The main feature of a flexible mortgage is the facility to make extra payments when you have the money. You may also be able to reduce monthly repayments or even take payment holidays, although you will normally have to build up a reserve through making overpayments before this arrangement is allowed.

Freehold:
This is where you own the property and the land that it is on.

Financial Conduct Authority (FCA):
The independent body that regulates the financial services industry in the UK

First Charge:
Standard legal charge used to secure the main (first) mortgage property. It gives the lender the first call on any funds available from the sale of the property.

First-Time Buyer:
A first-time buyer is someone who has never bought a property before.

Full Structural Survey:
A full structural survey is the most in-depth form of property survey. It should be thorough enough to uncover any major structural problems with a property and is particularly useful when purchasing an older house or flat. If you subsequently find that the property has major problems not unearthed by the survey, you may be able to claim compensation from the surveyor. A full structural survey is the most expensive form of survey. However, it does not include a mortgage valuation - so you'll also need to have one of these if you're buying a property with a mortgage or if you're remortgaging.

Further Advance:
This is where you borrow additional money from your mortgage lender. The extra money you borrow will also form part of the mortgage balance.

Family Offset Mortgage:
Used by family members (usually parents) who want to help first-time buyers get onto the property ladder. Your savings are balanced against your child (or family member)'s debt, so the amount they owe and pay in interest is reduced.

G

Gazumping:
This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.

Ground Rent:
A fee that a leaseholder has to pay the freeholder every year.

Guarantor:
A guarantor is someone who guarantees that the payments will be made on someone else's mortgage. Usually a guarantor is the parent or guardian of the mortgage holder. If the mortgage holder can't repay, the guarantor is then responsible for making the payments.

Gazundering:
Gazundering is where the prospective buyer of a property makes a lower purchase offer after they have already made a higher offer previously. This is normally done later on in the property buying process, when the seller is committed and it would take a long time for them to get to the same stage with a new buyer.

H

Higher Lending Charge:
Sometimes known as Mortgage Indemnity Guarantee (MIG). A Higher Lending Charge is paid to take out an insurance policy designed to indemnify the mortgagee (lender) against loss in the event of default on the mortgage repayment. It is normally taken out by the lender at the start of the mortgage and the mortgagor (borrower) is made to pay the premium. The premium is normally calculated as a percentage (5.8% is typical) of that part of the loan above a certain percentage of the property value, normally 70 - 75%. It is charged as a lump sum to the borrower and can usually be added to the mortgage advance. It should be understood that such policies are for the protection of the lender and NOT the borrower.

Homebuyer's Survey:
A homebuyer's survey is a little more in-depth than a mortgage valuation, but not as extensive as a full structural survey. Because of this, a homebuyer's survey is priced between the two. The survey will uncover any problems with the property that are visible to the surveyor, although they will not make a more detailed investigation to find out if there are any hidden problems – that would be something for a full structural survey.

Help to Buy:
The government has launched a number of different Help to Buy schemes, including equity loans, mortgage guarantees, Isas and specific schemes for Scotland and Wales. They all aim to make home-buying easier.

Help To Buy ISA:
A tax-free savings account, into which the government pays first-time buyers a cash bonus towards the purchase of a property. For every £200 saved, the government will deposit an additional £50, up to a maximum of £3,000.

I

Interest Charges:

These are the charges made on a loan, calculated as a percentage of the total amount that you borrowed on your mortgage.

Interest Only:

An interest-only loan is a mortgage on which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged. If you do choose an interest only mortgage you are responsible for ensuring that you have sufficient funds available to repay your mortgage at the end of the term.

Income Multiples/Multipliers:

The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 times the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this, however, lenders now base this on your ability to make repayments, taking into account your income and outgoings.

Income Protection Insurance:
Income Protection Benefit provides a monthly benefit should you to be unable to work due to incapacity caused by accident or illness, resulting in a loss of earnings.

Income Reference:
This is confirmation from your employer that you earn the amount you stated when you made your mortgage application. If you are self-employed, the lender may require confirmation from your accountant.

Intermediary:
A mortgage broker or adviser who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf.

J

Joint Application:
Mortgage application with more than one borrower, up to a maximum of four. This might be used if you buy a house with a partner or friend, and can also be used by parents who want to help their children buy a property.

Joint Tenants:
This is where you hold property ownership rights equally with another person or persons. If one of the joint tenants dies, ownership reverts entirely to the surviving tenants. This legal agreement supersedes any Will the deceased may have made.

Jointly and Severally Liable:

When you take a joint mortgage you will usually be "jointly and severally liable" for making the repayments. This means that if one of you does not pay or is unable to pay (due to death, illness, unemployment or abandonment), the other person is still fully responsible for paying the mortgage.

K

Key Facts Illustration (KFI):
A detailed illustration provided by your lender or mortgage adviser before you apply for a mortgage. It sets out the key facts including the repayments, fees and terms loan. A Key Facts Illustration should be given to you by your lender or mortgage broker before you make a mortgage application.

L

Leasehold:
Leasehold means that someone else owns the land the building is on. So with leasehold you are only buying the right to live in the property for a certain length of time. Many leasehold properties will be subject to "ground rent", which is basically a maintenance charge for the upkeep of any communal areas. Ground rent can sometimes include buildings insurance as well. Sometimes the rent due is a nominal amount, for instance £50 per year. When a property is leasehold your solicitor may make an additional charge to deal with the conveyancing.

Legal Fees:

These are the fees charged by a solicitor or other qualified individual to carry out the legal work associated with buying a property.

Land Registry Fee:
This is the fee paid to the Land Registry to register ownership of an area of land.

Licensed Conveyancer:
An alternative to using a solicitor. This people specialise in the legal side of buying and selling property.

Local Authority Search:
A check carried out by the buyer's solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.

LTV:
Loan to Value. This is the ratio of the loan amount of the property value expressed as a percentage. For example, if a borrower is seeking a loan of £100,000 on a property with £200,000, it has a 50% loan-to-value. The higher the LTV, the greater the risk to the lender, which can have an impact on the lender’s decision to lend as well as the mortgage rate.

Land Registration:
The Land Registry keeps a record of who owns plots of land. The register also contains details of any legal charges on the property. Your mortgage lender will put a legal charge on your property when you complete the mortgage. It is this charge that allows them to repossess the property if you later can't meet your monthly repayments.

Landlord insurance:
Landlords need to have a different kind of insurance to normal buildings insurance. This specialist cover is called Landlord insurance.

Let-to-Buy Mortgages:
Let-to-buy mortgages allow a landlord to borrow some money on their rental property to help them buy their own home.

LIBOR:
LIBOR stands for London Inter-Bank Offered Rate – the rate that banks charge each other for lending to them. This rate is sometimes linked to some tracker mortgages.

Life Insurance:
A type of insurance that pays either a lump sum or an income if you die within a set term. You can set up life insurance to repay the mortgage if you die, so that your family aren't forced to move out of their home if they can't afford the repayments.

M

Mortgage:

A loan to buy a property where you put up the property as security against you paying back the loan.

Mortgagee:
The Company or Organisation that lends you the money.

Mortgagor:

The person taking out the mortgage.

Mortgage Offer:

A written formal offer from the lender to the borrower, setting out details of the mortgage with a list of conditions. The Mortgage Offer is usually valid for 3 to 6 months.

Mortgage Term:
The period over which you repay the mortgage

Mortgage Account Fee:
This fee can be charged by the mortgage lender for setting up, maintaining and closing your mortgage account.

Mortgage Deed:
This is the legal document that you sign to formalise the mortgage agreement.

Mortgage Payment Protection Insurance:

This insurance covers you if you can't work due to an accident or sickness, or are made redundant. It works by making a monthly payment to you to cover your mortgage and essential bills. This is a short-term insurance that normally only pays out for a maximum of 24 months per claim.

Mortgage Valuation:
A mortgage valuation is the most basic form of survey undertaken by a surveyor. Some mortgage lenders will not even physically visit a property to perform a valuation for low loan-to-value mortgage applications, relying on an automated system or a "drive by" valuation instead. The basic mortgage valuation will value your property as well as giving a rebuild value (the amount your home would need to be insured for to cover if it needed to be completely rebuilt). The valuation will uncover any obvious defects with the property, although it is not as thorough as a homebuyer's or full structural survey.

Monthly Repayment:
The amount you pay your mortgage lender each month. If you're on a repayment mortgage (the most common kind), the payment will cover a percentage of your mortgage plus interest.

Mortgage Deed:
A formal contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.

Mortgage Term:
The amount of time you are taking the mortgage out for; 25 years, for example.

N

Negative Equity:
This is where the money you owe on the mortgage is greater than the value of your property.

O

Offer of Loan:

This is the formal document approving the mortgage you have requested. This document details the terms and conditions that will apply during the whole term of your mortgage.

Overpayment:
This is when you pay extra, over and above your monthly mortgage payment. You could choose to make a one-off lump sum overpayment or overpay a regular amount with your normal mortgage payment. Overpayments save you interest and will shorten your mortgage term.
Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.

Offset Mortgage:

An offset mortgage links your mortgage with your savings and, sometimes, your current account. savings to reduce the amount of interest you pay on your mortgage. The effect is that you can either finish your mortgage earlier by having a shorter term, or make lower monthly payments.

Own Buildings Insurance Fee:
If you choose to arrange your buildings insurance through a provider other than your mortgage lender, they may charge you an administration fee of around £25. It's charged for the work involved in checking that your buildings insurance is sufficient.

P

Payment Holiday:
A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Portability:

A term used to describe a mortgage that can be transferred between properties when you move house. A portable mortgage will allow you to move your borrowing from one property to another if you move, without paying arrangement fees.

Payment Holiday:
This is a period during which you make no payments on your mortgage. Interest will continue to be charged during this time. This feature is usually only available on a flexible mortgage. 

R

Remortgaging:

This is the term used when moving your mortgage from one lender to another without actually moving house. You may do this to save money. This might be possible by switching to another mortgage product with the same lender or by switching your mortgage to a competitor.

Repayment:

The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term. Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.

Repayment Penalties:
Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed repayment period. These are often charged on fixed, capped or discounted rate mortgages.

Remittance Fee:
A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed.

Repossession:
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Right to Buy:
A tenant in a council owned property may purchase the property at a discount depending on length of their tenancy. Originally intended to enable tenants of council houses to buy the homes they lived in, this is now being opened up to housing association tenants too.

Redemption Administration Fee:

A mortgage lender charges this fee for closing your mortgage account when you have repaid your mortgage.

Repossession:
This is the legal process by which a borrower who has been unable to make mortgage repayments has the property taken away from them. This usually involves a forced sale of the property at public auction. Repossession is only ever used as a last resort by mortgage lenders.

Rebuild Cost:
For insurance purposes: the cost of rebuilding your home if it is destroyed.

S

Searches:
These are the enquiries made, usually by your solicitor, at the Land Registry, the Land Charges Register and Local Authorities to ensure there is nothing to cause concern about title to the land and the property you intend to buy. The most common search is with the Land Registry, but this can also include mining searches or, if the property is near an old church, a chancel repair search (some older properties are obliged to maintain the local church!). 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 its saleability in the future before making a loan.

Stamp Duty:

Stamp Duty Land Tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction. Stamp Duty is charged as a percentage of the purchase price. Depending on which banding your property falls in, the percentage you pay can vary.

Stamp Duty Land Tax Rates:
Up to £125,000 0%
Over £125,001 up to £250,000 2%
Over £250,001 up to £925,000
5%
Over £925,001 up to £1,500,000          
10%
Over £1,500,000 12%

Stamp Duty rates are charged on the relevant portion of the purchase price. So for a house purchased for £280,000, stamp duty is charged as follows:

• First £125,000 = Nil
• Next £125,000 @ 2% = £2,500
• Next £30,000 @ 5% = £1,500
• Total = £4,000

Sealing Fee:
This is a charge made by lenders when you repay a mortgage.

Shared Equity:

A scheme operated by a developer where the developer retains a percentage equity of around 10% in the property. Thus the developer holds a second charge over the property. The 10% owing may be interest free or may incur interest and be added to the total amount owing on the property.

Shared Ownership:
A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this.

SVR:
Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly.

Second Charge Mortgage:
Also referred to as a secured loan that you take in addition to your mortgage. It's called a second charge mortgage because the secured loan lender must wait until after your mortgage lender is repaid in the event that you can't make payments and the property has to be repossessed.

Self-Build Mortgages:

This is a specialist type of mortgage designed for people who are building their own home. The mortgage is normally released in stages to coincide with important points in the build.

Stage Payment:

A stage payment is where the mortgage is released to you in parts, to help with a self-build. Typically, the mortgage lender will release the stage payments at important points in the build and will inspect the property before releasing each payment.

Support for Mortgage Interest:
This scheme is aimed at homeowners who are on certain income-based benefits, such as Income Support or income-based Jobseeker's Allowance. It is paid to the mortgage lender by the Government 13 weeks after the initial claim and covers interest due on the first £200,000 of the mortgage at the Bank of England's published monthly average mortgage interest rate. It is paid for the first two years for those claiming income-based Jobseeker's Allowance. Find out more by contacting Jobcentre Plus or the Pension Service.

Surveyor:
A surveyor is a person who is qualified to carry out valuations and surveys of properties.

Service Charge:

The fee paid to a managing agent for the ongoing maintenance of a leasehold property.

Starter Homes Initiative:
A government scheme which promises to build 200,000 new homes for first-time buyers aged under 40. Buyers will be given a minimum discount of 40%.

Sub-Prime/Non-Conforming Mortgage:
A sub-prime, or non-conforming, mortgage is geared towards people who have had credit problems. It is now much harder to get a sub-prime mortgage than before the credit crunch.

T

 

Title: This is the legal right to the ownership of your property

Tracker Mortgage: This is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Therefore, when the Base Rate changes, the rate on your tracker mortgage changes by the same amount.

Term: The period of years over which you take the mortgage and when you have to repay it.

Term Assurance: This is an insurance policy designed to help repay the mortgage on the death of the insured person during the policy term. Level Term Assurance covers a lump sum throughout the policy term and pays out the full amount on death. Mortgage Decreasing Term Assurance is designed to help repay the balance outstanding upon death during the policy term. Term Assurance may also pay out early on the diagnosis of a terminal illness.

Tie-In Period: As a condition of a special mortgage deal, 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 repayment charge

Title Deeds: Documents that show proof of who owns the freehold and leasehold property.

Transfer Deed: This is a document that, once you sign it, transfers the ownership of a property to you.

Tenants in Common: Tenants in common is where each party owns a percentage of a property. In contrast to joint tenants, when you are a tenant in common you can pass on your portion of the property on death. This option is good if several friends are buying a home together, or if you wish to protect yourself if you are making the lion's share of the mortgage payment or deposit.

Transfer of Equity: This means when you transfer part of the property ownership. For instance, you may wish to add/remove a spouse or partner from your mortgage. A transfer of equity is the legal document that confirms the switch.

U

UK Mortgage Broker:
Mortgage broker based in the United Kingdom

Unencumbered Property:
This is where the property is owned outright and no mortgages or loans are secured against it.

V

Valuation:
This is an independent assessment of the value of a property carried out by an approved surveyor and paid for by you the customer. All lenders insist that a valuation is carried out on a property. The valuation is used by the bank or building society to decide how much they are willing to lend you.

Vendor:
The person selling the property.

Valuation Administration Fee:

This fee is charged by a mortgage lender for them to deal with the administrative costs of processing the mortgage valuation.

Valuation Fee:
A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.

Valuation Survey:

Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you're paying for it. You should always have your own survey done too, to check for structural problems.

Variable-Rate Mortgage:

The interest rate on your mortgage can go up or down according to your lender’s standard variable rate. We recommend taking advice from Fairview Financial before choosing a mortgage. If you'd like a free chat about the best options for your individual circumstances.

Variable Rate:
This rate can go down as well as up during the course of your mortgage and is usually based on the lenders variable rate.

Fairview Financial can review your current mortgage at no cost. We have access to thousands of remortgage deals.

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