Italics
denote a cross-referenced entry
Accident,
Sickness and Unemployment Insurance (ASU):
In the event of an accident,
sickness or involuntary
unemployment befalling a borrower, this insurance will
cover their mortgage repayments. Some Lenders attach mandatory
insurance cover to their most attractive rates, although
this is increasingly uncommon. Also known as: Mortgage
Payment Protection Insurance (MPPI).
Additional Security
Fee: See Higher Lending
Charge.
Adverse
Credit: This is an
umbrella term used of applicants with poor credit history.
This may include mortgage arrears, defaults. County Court
Judgements (CCJs), bankruptcy. Individual Voluntary Agreements
(IVAs) and house repossession. Borrowers with elements
of adverse credit are offered higher rates than standard
Full Status applicants
are, usually with terms and conditions relating to the
extent of their adverse credit history. Often, adverse
credit mortgages are Libor-linked
rates.
Annual
Percentage Rate (APR): The
APR is a rate calculated using a generic formula applicable
to all Lenders, which includes all the costs associated
with a mortgage. This allows for easy comparisons to be
made between the different mortgage products offered by
each Lender.
Arrangement
fee: This fee may be charged on specific products
and is either payable in advance, added to the loan or
deducted from the advance on completion.
It covers the administrative expenses incurred whilst
processing an application.
Base
Rate: Every month the Monetary Policy Committee
sets the Bank of England Base Rate, to which all mortgage
rates are linked either directly, as Tracker
mortgages, or indirectly, in all other cases.
Booking fee: This
fee may be charged on specific products and is either
payable in advance, added to the loan or deducted from
the advance on completion.
It is normally payable in order to reserve funds when
a product is likely to sell out quickly.
Buildings
and Contents Insurance: This insurance covers damage
to the mortgaged property and/or its contents in a variety
of specified scenarios. It is compulsory for all Lenders,
and if the Lender's own insurance is not taken they will
often charge an administration fee. Some Lenders attach
mandatory insurance cover to their most attractive rates,
although this is increasingly uncommon.
Buy-to-Let
mortgage (BTL): This is a mortgage for property
that will be let by the borrower to other tenants. When
Lenders calculate how large a loan the borrower can afford
to repay on BTL they do so primarily on the basis of projected
rental income, rather than salary income
multiples.
Capital
and Interest mortgages: With this method the monthly
mortgage repayments pay off both the initial loan amount
and the interest that is charged upon it. At the end of
the loan term the entire debt will be repaid. Also known
as: Repayment mortgage.
Capital Rest Period:
This is the regularity with which a Lender calculates
the outstanding balance on mortgages, and hence the size
of monthly repayments. It is usually annually, monthly
or daily. With Capital
and Interest mortgages
this can be important; an annual interest calculation
means that the borrower will pay interest on capital repayments
that have been made in the course of that year. In contrast
a daily or monthly interest calculation
means that the balance, and consequently the interest
charged, will reduce with every capital repayment made.
Capped rate mortgage:
This is a mortgage that is guaranteed not to rise above
a specific rate (the 'cap') within a set period. Unless
this is combined with another rate, such as a Discount
or Tracker, the Lender's
SVR will be charged if it is lower than the capped rate;
if it rises above this ceiling the rate charged will remain
at the capped level. There are often early
repayment charges applicable if the loan is repaid
within the capped period.
Cashback
mortgage: This is a mortgage in which the Lender
refunds a sum of money, either as a percentage of the
loan or a flat figure, to the borrower upon completion.
With this type of offer the borrower will typically be
tied to the Lender's SVR by
early repayment charges necessitating repayment
of the cashback if the loan is repaid within a set period.
Completion: This
is the moment when a transfer of property has legally
taken place, after all legal documentation has been completed
and funds have been transferred from the buyer's solicitor
to the seller's solicitor.
Contents
Insurance: See Buildings
and Contents Insurance.
Conveyancing: This is the legal process whereby ownership
of a property is transferred.
Current
Account mortgage: This is a
fully Flexible mortgage combined with a current
account. Money in the current account is automatically
set against the mortgage balance and interest is only
charged on the outstanding amount, meaning interest payments
are reduced.
Discounted
rate mortgage: This is a variable mortgage that
is discounted from a Lender's SVR
by a set percentage within a set period. There are often
early repayment charges
applicable if the loan is repaid within the discounted
period.
Discounted
Tracker rate mortgage: This is a variable mortgage
that is discounted from the Bank of England's Base
Rate by a set percentage within a set period. There
are often early repayment charges
applicable if the loan is repaid within the discounted
period.
Early Repayment
Charge (ERC): This is a penalty charged on traditional
(i.e. non-Flexible) mortgages
when the loan is repaid in full within a set period. Usually
it applies on a pro rata
basis when capital repayments are made outside of the
agreed monthly payments. Many Early Repayment Charge periods
are linked to those of offers, such as Capped,
Discounted or Fixed
rate periods. However, some mortgage rate have extended
Early Repayment
Charges which tie-in borrowers even while they are paying
the Lender's SVR. Also known as: Early
Redemption Penalty (ERP); Redemption Penalty.
Early Redemption Penalty
(ERP): See Early Repayment
Charge (ERC).
Endowment:
A repayment vehicle associated with Interest
Only mortgages.
Exchange
of Contracts: This is the stage in England, Wales
and Northern Ireland that the deposit money is paid and
both parties are legally bound to fulfil the agreed conditions
of sale and purchase.
Exclusive
mortgage: This is a mortgage only available to
intermediaries through a specific packager, in conjunction
with a Lender who provides the funding.
Fixed
rate mortgage: This
is a mortgage that is charged at a fixed rate within a
set period. There are often early
repayment charges applicable
if the loan is repaid within the fixed period.
Flexible mortgage: As
its name suggests, this is a type of mortgage that offers
considerably more flexibility than
traditional mortgages. Although specific details vary
between Lenders, the core features of Flexible mortgages
are:
| • |
Daily or monthly
capital rest |
| • |
Ability to make
overpayments at
any point of the loan term without an early
repayment charge In addition, many Flexible
mortgages allow borrowers to: |
| • |
Defer payment
by taking payment holidays |
| • |
Drawback overpayments |
| • |
Drawdown further
advances |
| • |
Underpay without
penalty (often only to the amount of any previous
overpayments) |
Freehold: The
buyer of a Freehold property owns both the property and
the land it stands on indefinitely. See also Leasehold.
Full Status: This
term describes borrowers with a good credit history who
are not self-certifying
their income.
Gazumping: This
is when a prospective purchaser has an offer for a property
accepted, before another potential buyer puts in a higher
offer for the same property.
|
|
Higher
Lending Charge: This
is a premium charged by Lenders in order to indemnify
themselves, and NOT the borrower, against any financial
shortfall they may incur in the event of repossessing
a property which must then be sold at a loss. It is applicable
if the amount required is higher than a certain percentage
of the property value, usually 75% LTV; often the Lender
will pay the cost of this insurance themselves between
75% and 90% LTV. The charge may either be added to the
loan or deducted from the advance on completion. Also
known as: Additional
Security Fee; Indemnity;
Mortgage Indemnity Guarantee (MIG).
Homebuyers'
Report: See
Valuation Fee.
Income
Multiples: These are
the multiples that Lenders apply to borrowers' income
in order to determine the maximum loan they will offer
them.
Indemnity:
See Higher
Lending Charge.
Individual Savings Account
(ISA): A repayment
vehicle associated with Interest
Only mortgages.
Interest Only mortgages:
With this method the initial
loan amount remains the same throughout the term of the
loan, while the monthly mortgage repayments only pay off
the interest being charged on this amount. For this reason.
Interest Only mortgages are tied to investment in one
of a number of different repayment vehicles, which, ideally,
should cover the initial loan amount at the end of the
loan term. These repayment vehicles include endowment
policies, personal pensions,
ISAs etc.
Introducer fee:
See Procuration
Fees.
Leasehold: The
buyer of a Leasehold property owns the property for a
set number of years, but doesn't own the land on which
it stands. See also Freehold.
Let to Buy mortgage (LTB):
This is a mortgage where the
borrower's current property is let to other tenants and
the rental income is used to cover the mortgage repayments
on a new property, bought as the borrower's main residence.
When Lenders calculate how large a loan the borrower can
afford to repay on LTB they do so primarily on the basis
of projected rental income, rather than salary income
multiples.
Libor-Linked mortgage:
This is a variable
mortgage that is either above or below the London Inter-Bank
Offered Rate by a set percentage within a set period.
The Libor rate is set independently every 3 months. It
is often associated with Lenders that offer loans to borrowers
with elements of adverse
credit.
Life
Policy: See Term Assurance.
Loan to Value (LTV):
This is a percentage figure
of the loan amount in relation to the property value.
For instance a £100,000 property bought with a mortgage
of £70,000 has an LTV of 70%. The higher the LTV,
the higher the interest rate charged will be; above certain
LTVs a Higher Lending
Charge comes into effect.
Mortgage Indemnity Guarantee
(MIG): See Higher
Lending Charge.
Mortgage Payment
Protection Insurance (MPPI):
See Accident,
Sickness and Unemployment Insurance (ASU).
Non-Conforming:
See Adverse
Credit.
Offset mortgage:
This is a fully Flexible
mortgage which allows
a borrower to keep balances (such as mortgage debt, savings
account and current account) in separate accounts, but,
for the purposes of interest calculation, all balances
are aggregated. Money in savings or current accounts is
set against the mortgage balance and interest is only
charged on the outstanding amount, meaning interest payments
are reduced.
Overpayment:
This is when an unscheduled
capital repayment is made or when monthly payments are
increased, in order that the mortgage is repaid before
the end of the mortgage term, saving considerable sums
in interest. Many traditional (i.e. non-Flexible)
mortgages include early
repayment charges if
overpayments are made within a set period. In contrast.
Flexible mortgages allow unlimited overpayments without
penalty and, increasingly,
mortgages are sem'i-Flexible,
allowing borrowers to overpay a certain percentage of
their loan each year without incurring early
repayment charges.
Pension: A
repayment vehicle associated with Interest
Only mortgages.
Personal
Equity Plan (PEP): A
repayment vehicle associated with Interest Only mortgages.
Portability: A
portable mortgage is one that can be transferred to another
property without penalty if the borrower moves house within
an early repayment charge
period. The new interest rate that the Lender will be
prepared to offer depends on whether the loan amount increases
or decreases. If the latter, early
repayment charges may
apply.
Procuration
Fee: his is the commission paid by lenders to intermediaries
for introducing business to them. Also known as ‘introducer
fee’.
Redemption
Penalty: See Early
Repayment Charge (ERC).
Repayment
mortgage: See Capital
and Interest mortgages.
Right to Buy (RTB):
This is when a tenant living
in a council-owned property purchases it at a discount,
the size of which depends on the length of their tenancy.
Self Build: This
is a mortgage for property under construction. The loan
is paid out in stages as the property is completed, in
order to ensure the LTV
does not rise too high at any point.
Self
Certification mortgage (S/C): This
is a mortgage where a borrower states their income and
signs a Confirmation of their ability to repay a loan,
without having to provide evidence such as accounts, payslips
or bank statements. Consequently, S/C rates are often
higher than standard Full
Status mortgages.
Shared Ownership:
This is a scheme operated by a Housing Association where
the borrower owns part of a property, and pays the mortgage
on this, while a Housing Association owns the rest of
the property, and the borrower pays rent on this.
Split Loan: This
is a mortgage that is taken partly on a Capital
and Interest basis
and partly on an Interest
Only basis.
Stamp Duty: This
is a government tax charged on properties with a purchase
price in excess of certain amounts. It is not usually
payable on remortgages. Please ask us for more details.
Standard Variable Rate
(SVR): This is a variable
rate determined entirely at each Lender's discretion.
Unless linked to Libor
or the Bank of England Base Rate, the SVR is the reverting
rate at the end of any special offer period, such as a
Capped, Discounted or
Fixed rate.
Term Assurance:
This insurance repays the
mortgage in the event of the insured person's death. Also
known as: Life Policy.
Tracker mortgage:
This is a variable mortgage that is either above or below
the Bank of England's Base Rate b) set percentage within
a set period.
Valuation
Fee: Whether purchasing
or remortgaging the Lender undertakes a valuation of the
property to ensure it provides adequate security. The
charge is borne by the borrower and increases exponentially
with the valuation/purchase price. There are 3 levels
of valuation: in order of increasing detail these are
Basic, Homebuyers Report,
and Structural survey. The more detailed the valuation,
the higher the fee. |
