Jargon Buster
Agreement In Principle / Decision in Principle
This is an indication as to whether the mortgage is likely to be approved. Usually this means that the company has assessed your personal information and done a credit check on you and therefore based on that information will agree to lend you the money. The agreement in principle usually will have certain conditions that need to be met such as the property being valued at the indicated amount, confirmation of identity and income, fees, and possibly other things too.
Adverse Credit
This means you have poor or bad credit. This can be caused by having problems in the past repaying debts or keeping up with repayments. It includes late payments, defaults, arrears and CCJs.
APR (annual percentage rate)
This is the rate of interest charged over a year, however, it will include some of the fees as well as the interest charged. It is calculated in a specific way so that you can compare different products and lenders.
Arrangement Fee
This is a fee which is charged by the lender for your mortgage. It can vary greatly depending on the type of mortgage and the lender. Some lenders do not always charge a fee; some have fixed fees and some charge a percentage of how much you are borrowing.
Arrears
This is when you fall behind with your payments. If you have got arrears or had arrears with anything such as a credit card, loan, catalogue, etc then it may show on your credit search and could have an effect on which mortgage you can have. If your mortgage is in arrears or gets into arrears then your home could be repossessed.
ASU (Accident, Sickness & Unemployment)
This is a type of protection policy which is designed to provide a set payment each month for a specified time in the event of being unable to work due to an accident, sickness or redundancy.
Bank of England Rate
This is the interest rate set by the Bank of England which will determine the interest rate mortgage providers charge.
Buildings Insurance
This is required to be in place for the property you are purchasing by ‘exchange of contracts’. This is so that in the event of damage to the buildings it is insured to be repaired or rebuilt.
Buy To Let
This is when you purchase a property not to live in yourself, but to rent out. Often these mortgages are not based on your income, but based on the expected rental income which is usually estimated by an independent valuer. Usually the mortgage lender will want to ensure that the rent covers at least 125% of the mortgage payments. For instance, if the rent was £450 per month the maximum mortgage payment would be £360 per month (450/125 = 360).
Capital Repayment
This is the type of repayment method which means each month you are paying back both the interest you are being charged and part of the capital (the loan ) you originally borrowed. With this type of repayment by the end of the mortgage term you will have repaid the mortgage in full providing you have kept up with your monthly payments. This can be called ‘Capital and Interest’ or ‘repayment’ also.
Capped Interest Rate
This is a type of interest rate when a lender will guarantee that your rate will not go above a set interest rate so you will know what the maximum payment each month could be if interest rates changed.
Cash Back
This is when a lender will give you a specified amount of money back when your mortgage completes, this can be handy to help pay towards costs such as solicitor fees, moving costs etc. The amount will vary depending on the mortgage and will often have a clause attached to it where by you will have to repay the cash back if you change your mortgage before a certain date.
CCJ (County Court Judgement)
This is when a court will register a debt against you that you have failed to pay back. This will be registered against your ‘credit check’ and can effect you being able to obtain credit in the future such as loans, credit cards and mortgages. Once the debt has been repaid the court will register the debt as being ‘satisfied’ but can still have an impact on what future credit you can get.
Completion
This is when everything is in place and the day you can move into your new home. Your solicitors will let you know when you are due to complete. Be aware that in some cases completion dates can change through no fault of your own, especially if you are relying on a chain of 2 or 3 other people all moving house on the same date!
Contracts
This is a legally binding document that you will sign agreeing to buy or sell a house. Once you have exchanged contracts with the other persons solicitors if you changed your mind you could incur very hefty legal fees. So see this bit of the process as the ‘no going back’ stage!
Conveyancing
This is what your solicitor will do. It is the legal documents that are required to buy and sell property in the UK. Your solicitor will carry out several tasks including searches, land registry, liasing with the other solicitor(s) involved, receiving the money to buy the new house, repaying old mortgages, receiving your deposit, drawing up the contracts, exchanging contracts and so on.
Credit Search
This is carried out by all lenders to check your credit history. This will detail things such as if you are registered on the electoral roll, existing credit you have such as loans, credit cards, mortgages, car finance etc, it will show if you have kept up to date with payments and if payments have been made on time and also if you have any credit registered which is not satisfactory.
Critical Illness Cover
This is a type of protection which is designed to pay out a lump sum in the event that you are diagnosed with a specified critical illness such as cancer, multiple sclerosis, heart attack, stroke etc. It is paid as a tax free lump sum and is payable even if you make a full recovery from your illness.
Deposit
This is the amount of money you are paying towards your new house. This may be in the form of savings that you have or could be equity from your existing house.
Discounted Rate
This is an interest rate that is usually a set amount above or below a specified interest rate such as the Bank of England Rate. Usually you will have a discounted period of perhaps 2 or 3 years which means your payments are lower for this time and then your payments would go up to a higher rate if you do not negotiate a new mortgage or shop around for a better deal elsewhere.
Equity
The value of your home less the amount of mortgage or other secured loans you have secured against it, or the amount of deposit you are putting towards the purchase of your new property which will become the equity once you have purchased it. For example if you have a house worth £150,000 and you have a mortgage of £100,000 you would have £50,000 of equity.
Equity Release
This is a type of mortgage for people aged 60 or over. It is designed to release equity from the property and will not necessarily require any repayments until death. The interest and charges can be added to the loan until death also. This can also be known as a Home Reversion Scheme, Home Income plan or Lifetime Mortgage. This is often an area where specialist advice is required as it can be more complicated and have an impact on a persons estate and what is left to any children, relatives or friends in their will. If no repayments are made during the persons life the amount on death could be significantly more than the original amount borrowed.
ERC (Early Repayment Charge)
This is a charge that a mortgage lender may charge you if you repay all or some of your mortgage other than your monthly payments within a set time. Often this would be charged during a ‘discounted’ or ‘fixed’ period.
Endowment
This is a type of investment which has built in life cover. This type of investment is designed to help repay all or some of your mortgage if you have an ‘interest only’ mortgage. Many endowments do not guarantee the amount they will be at the end of the investment period as it depends on how the investment performs. This type of policy can cause a short fall at the end of the mortgage term meaning the mortgage will not be fully repaid.
Exchange of Contracts
This is when your solicitor and the other solicitors exchange your contracts. This is when it is now legally binding to buy or sell the property – ‘no going back’ point! When you have exchanged contracts you are responsible for the buildings insurance to be in place for the property you are purchasing.
First Time Buyer
This is someone who is buying a property for the first time.
Fixed Rate
This is when your monthly mortgage payments will stay the same for a specified time. The interest rate is fixed, meaning if interest rates go up or down yours will stay the same. This can help people who wish to budget, or simply like to know exactly what their monthly bills are.
Flexible Mortgage
This is a type of mortgage which offers extra flexibility. You may be able to make over payments, underpayments, payment holidays, borrow extra and such like.
Further Advance
This is when someone wishes to increase there existing mortgage, usually with the same mortgage lender.
Guarantor
This is someone who takes legal responsibility for the repayment of your mortgage. If you have a low income or are a student and wish to purchase a property you may require a guarantor. The mortgage amount would then be based also on their income and age, and they are taking full responsibility for the mortgage to be repaid satisfactorily.
Freehold
This is a form of ownership of property. If the property is freehold it means you own the property and land it is on outright.
Gazumping
This is when after accepting your offer to buy the property the seller then accepts a higher offer from someone else – not very nice!
Homebuyers Report
This is a report which is carried out by a qualified surveyor. It will go into more depth than a basic valuation report asses the current state of the property as well as detailing any necessary repair work or recommendations for further investigation to be carried out.
Higher Lending Charge
This is a charge that the mortgage lender will charge if there is little or no equity in the property. This is usually calculated on a sliding scale depending on how much equity there is in the property. Some lenders will charge more than others. It is a way of safeguarding the money they lend as it is generally the case that the risk is higher to the lender if there is little or no equity.
Income Multipliers
This is the way most lenders determine how much they will lend you. Many lenders will lend based on your gross annual income, some will include bonuses and overtime. Typically now a lender will lend 4 times your annual income. This will vary if it is a joint application and some lenders will lend more than this or less than this.
Independent Financial Adviser
This is someone who can offer independent advise about the products available from all providers. They can provide advise on all aspects of financial services such as mortgages, protection, investments and pensions. Usually they will charge a fee for the services they provide.
Interest
This is what a mortgage lender will charge you to borrow money and is usually paid to the lender on a monthly basis.
Interest Only Mortgage
This is when you pay only the interest each month to the mortgage lender. Most lenders will want some kind of confirmation how you plan to repay the mortgage at the end of the term.
ISA (Individual Savings Account)
This is a type of tax efficient savings plan. They can be used to repay an interest only mortgage, however there is no guarantee that the value will be sufficient to repay your mortgage and ISAs are subject to current tax rules which could change in the future.
Key Features Illustration
This is a document that must be provided by the mortgage adviser BEFORE you complete the mortgage application. It details the interest and charges and such like.
Leasehold
This is a form of ownership of property. If the property is leasehold it means someone else has rights over the land for a specific time. Usually a lease will be for 99 years which means it is unlikely to effect your residence in the property.
Legal Fees
This is the fees charged by your solicitor to cover the costs of the legal work necessary to purchase a property.
Life Assurance
This is a type of protection which is designed to pay out a lump sum in the event that you die during the policy term. It is usually for the same amount of your mortgage so that in the event of death the mortgage can be repaid and your family can keep the property.
LTV (Loan To Value)
This is how much you are borrowing compared to the value of the property explained as a percentage. An example would be if you bought a property for £100,000 and had a mortgage for £85,000 the LTV would be 85%. Often the LTV can effect the charges and interest rate of the mortgage, the lower the LTV the lower risk to the mortgage provider.
Mortgage
A loan which is secured against a property. Property is used as security due the amount of money being lent and to protect the lender in the event of failure to make mortgage payments.
Offer of Mortgage
This is when the lender is happy to lend you the money and they have carried out all the necessary checks and received all the necessary fees and documents. The Offer letter will detail any conditions that still need to be met and any conditions that apply.
Part and Part
This is the term used to describe a mortgage if some of it is a repayment mortgage and some of it is interest only. This may be because you have some savings and investments that will repay part of the mortgage.
Payment Break / Holiday
This is when a lender agrees to allow you to not make mortgage payments for a certain time. This may be useful if you are having a family, are made redundant or decide to have a career change, or even if you want to save for something specific like a marriage or special holiday etc. The lender may then increase your payments afterwards to make up for the payments missed, or increase the term of your mortgage. This would not effect your credit or be classed as missed payments.
Personal Pension
This is another way of repaying an interest only mortgage. Again, there may not be a guarantee that the mortgage will be repaid if the pension fund isn’t big enough. This way of repaying a mortgage does have restrictions as most pensions can not be accesses until you reach the age of 55, and it means that you will have less income when you retire.
Portable
This means that you can move your mortgage from one property to another.
Remortgage
This is when you change from one lender to another but do not move house. It is usually a good idea to consider remortgageing when a discounted or fixed period ends and you are going to be charged a higher rate. You may also want to remortgage to raise extra money.
Repossession
If you do not keep up with repayments on your mortgage your lender may repossess your house and evict you from it.
Right To Buy
People who live in council accommodation, after renting it for a certain time may be offered the ‘right to buy’. This means that they can purchase the house they currently rent at discounted price.
Sealing Fee
This is paid when you mortgage is paid off in full, either when you get to the end of your mortgage, move house or remortgage. Sometimes it is called a ‘Discharge Fee’ or ‘Deeds Release Fee’.
Searches
This is what your solicitor will carry out as part of the conveyancing. It is to highlight anything that may affect the purchase of the property. Types of searches include bankruptcy searches, water searches, mining searches and so on.
Self Certification
This is when a person declares their income on a mortgage application which the lender will presume to be correct without checking. People may need to self certify their income for various reasons such as if the receive income from various different sources, or if they are self employed.
Stamp Duty
This is a tax charged by the government when you purchase a property valued at £125,000 or more. It is a percentage of the value of the property starting at 1%. It rises to 3% at a property value of £250,000 and then rises to 4% for properties valued at £500,000 or more.
Structural Survey
This is a detailed survey which will look very closely at the structure of the property.
Term
The number of years that your mortgage is over. This can typically run up until retirement, sometimes even beyond retirement. The longer the term is the lower the monthly payments are on a repayment mortgage but more interest will be charged overall.
Title Deeds
These are the documents that contain the details of ownership. Often your solicitor will go through the title deeds with you and then they are sent to the mortgage lender to keep whilst you have a mortgage with them.
Tracker Rate
This is when an interest rate follows a specified interest rate, often the Bank of England Rate, and therefore will move in line with that interest rate.
Valuation
An independent assessment of the value of the property you are purchasing or already own. This is to ensure that the property is worth what is stated on the application and is required by the lender. A basic valuation may not highlight any problems with the property, so other types of valuation to consider are a homebuyers report or a structural survey.
Vendor
The person selling a property.
NICE ONE!
Thanks for all your help with my first life assurance policy. You made it all very easy to understand and painless...more testimonials
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