Below are some of the most common terms used when buying a house or taking out insurance. If there is something you don’t understand then get in touch and we will be able to help.
Affordability is the calculation and assessment of your income and outgoings in order to evaluate whether you can comfortably afford and borrow the sum of lending you are looking for
ASU/Accident, sickness & unemployment insurance
An insurance cover to protect you should you be out of work due to redundancy or a medical issue
The fee payable to the lender confirming your willingness to proceed with the mortgage application
The annual percentage rate is an averaged measure of the overall interest you will pay over the year incorporating some of the fees and charges payable as part of the mortgage.
When the value of a property increases over time due to various reasons and market changes
The interest rate set by the Bank of England for lending to other banks and building societies. The base rate is often used as the benchmark for interest rates in general.
A short term lending option used for a variety of different reasons – see (insert link to page)
A mortgage raised on a property being let on a residential basis – see (insert link to page)
The insurance cover required to protect your property.
A building society is similar to a bank in the products that it offers; savings, mortgages and other financial services however where it differs is the way that it is owned and run. A building society is effectively owned by its members/customers rather than shareholders and is often referred to as a ‘mutual organisation’.
Capital & interest mortgage
Often referred to as ‘repayment’, a capital and interest mortgage basically refers to that fact that you are repaying both the capital (the amount borrowed) as well as the interest being charged by the lender.
A capped interest rate refers to a product where the interest rate itself may vary. The primary difference being that a ‘Capped’ interest rate will not allow the interest rate to rise above a particular amount.
Some mortgage lenders will offer a cashback incentive on some of their products. This will allow for the applicant to benefit from a set figure being paid back to them once the mortgage has completed.
A CHAPS fee is a lender fee payable on completion to allow for the same day transferal of the mortgage funds to your solicitor.
Almost identical to a ‘Capped’ interest rate, a collar refers to a variable product. This time around the limit is not on stopping the rate rising above a particular point but not allowing to drop below one.
The point at which the mortgage has been funded.
Consent to let
When an individual has a mortgage on their own property but wants to change this to a buy to let for whatever reason, they can apply to their existing lender for consent to convert the mortgage.
Conveyancing is the preparation of legal documents and transfer of title from one person or mortgage company to another.
The process of checking your credit file with particular credit agencies. This is used by lenders to assess your score and historic credit file to cross reference with their own criteria.
Raising funds to clear multiple credit cards and/or loans and incorporating this within your mortgage
Deed of Consent
Any person(s) over the age of 17 living at a property could claim legal right should a lender wish to repossess, whether the person is named on the mortgage or not. The deed suspends the legal right of the individual whilst the lender has a charge over the property.
Deed of Postponement
A deed of postponement essentially orders the right of charge should the funds raised against a property be called in. For example your mortgage will sit as ‘first charge’ meaning that should the property be repossessed the lender of this mortgage will be ‘paid back’ before any ‘second charge’ lender.
The first funds used as down payment on the property. Lenders require a minimum of a 5% deposit on a standard residential mortgage.
The reduction in property value due to a variety of difference market conditions
DIP/Decision in Principle
The lenders decision on the mortgage based on the initial information submitted and a credit check. Usually an ‘AIP’ submission is met with 3 answers;
Accept – agreement to proceed subject to application, verification of the information provided & a satisfactory valuation
Referred – the lender requires more information on a specific parts of the application
Decline – based on the information provided and the lenders criteria, they are unwilling to proceed.
Another form of a variable interest rate. This product offers the lenders ‘standard variable rate’ at a discount. For example the lenders ‘SVR’ is 5% however they offer a 1% reduction – the discounted rate would be 4%.
A drawdown mortgage offers you a cash flow facility rather than a lump sum like a regular mortgage would. This type of product enables you to take money from the facility as and when you may need it.
ERC/Early repayment charges
The vast majority of mortgage products have what are known as early repayment charges attached. These are usually a percentage of the figure you plan to repay and are payable should you intend on clearing the mortgage whilst tied in to a specific product at the time.
Equity is the difference between your mortgage balance and the value of the property. In principle this is share of the asset that you own completely.
The person or business that’s purpose is to sell property or land to a client or customer.
An applicant who has not had a mortgage in the past – see First Time Buyer Mortgage
A fixed rate is a product with a set level of interest for a specific period of time.
This is the tenure of which your property is owned. Freehold means that you own the property along with the land up to its boundaries in its entirety
The vast majority of lenders will allow for a further advance or ‘additional borrowing’. This means that you can approach your existing lender to borrow funds on top of what you already have mortgaged subject to lender approval, as long as they funds are used for what they deem to be a legal purpose.
This is the term used when a vendor, previously having accepted an offer from a would-be buyer, accepts a new higher offer, therefore withdrawing from the original agreement.
Quite the opposite to the above, gazundering occurs when the person purchasing the property, having had a higher offer accepted by the vendor decides to retract it and re-offers at a lower value. This usually occurs quite late in the process, just before exchange of contracts.
Ground rent is the rent paid on a leasehold property to freeholder
A guarantor is a separate party, usually a parent or very close relative that agrees to pay the mortgage should you be unable to.
HLC/Higher lending charge
A higher lending charge is a fee payable to the lender should you have a loan to value above a particular percentage, typically in excess of 90%.
IDD/Initial Disclosure Document
The document is given at the outset of the mortgage process. The IDD is responsible for providing you with regulatory and fee information.
An income multiple is used in the lenders affordability assessment. In essence an income multiple is a calculation used to multiply your income by a specific amount to determine how much you can borrow, for example: you earn £20,000 per annum and the lenders income multiplier is 5x income, therefore you can borrow 5 x £20,000 = £100,000.
Another way of repaying your mortgage. Interest only refers to payments you are making toward you mortgage and that you are only paying the interest element rather than the capital borrowed.
Joint tenancy is the legal agreement between the 2 or more individual that own any particular property. Joint tenants own the property equally between them and therefore each applicant has an equal right and share to the property and its value.
KFI/Key Facts Illustration
The key facts illustration is an important lender document that will be provided to you by your advisor. The document is there to confirm the necessary facts and figures that have been discussed verbally with the advisor in order for you to make an informed decision.
The land registry is where information regarding ownership and rights to the property in question are recorded
Landlord insurance is almost identical to buildings cover however with the subtle differences of what you would want to cover. Tenants are responsible for insuring their own contents however the landlord will require insurance for the property itself, any other damages they may want to cover along with rental voids.
The leasehold refers to the ownership of the property itself. Fundamentally the outright ownership of the property and the land belongs to another party, however an individual can purchase the lease and therefore the rights to the property for a period of time.
The cost of the legal work required to purchase a property or amend the title details.
The term lender is used to describe the company the individual is borrowing is from.
Similar to a buy to let, a let to buy mortgage allows you to raise funds to purchase a new residential property that you intend on living in, whilst letting out your existing home.
The London Interbank Offered Rate is an average of interest rates set as the benchmark estimated by the leading banks in London. It is used to assess what would be charged should banks borrow from other banks.
An insurance policy to pay out a lump sum in the event of death.
The term used to confirm the debt to value ratio of the property purchased. For example, a £75,000 mortgage on a property valued £100,000 would equate to a 75% LTV.
A property used as security for the raising of finance – see Mortgages
The mortgage deed is a legal document that gives and confirms the lenders interest in the property that it is on. It is a lender requirement that a mortgage deed be signed by the applicant
Negative equity is the when the balance of the mortgage or any secured lending on the property surpasses the actual value of the property.
Offsetting is a facility offered by some lenders that allows you to reduce the overall amount of interest you pay on the mortgage. In short, an offset mortgage allows for a savings account to be placed alongside the mortgage account, the more savings you have in the account the less interest you pay. For example, you have a mortgage of £100,000 & an offset savings account of £10,000 – you only pay interest on the remaining £90,000.
A payment on top of your regular monthly mortgage payment. Typically lenders will allow for an overpayment allowance of 10% of the mortgage balance at the beginning of that year.
Payment holidays are at lenders discretion. They allow for the individual to stop monthly mortgage payments for a specific period of time as long as this is agreed with the lender.
Portability or porting a mortgage occurs when an individual already has a mortgage with a particular lender but wants to move house. Porting allows you to simply lift the mortgage from the current residence and drop it on to the new one.
Purchasing is leaving your existing residence to buy a new one – see Purchase
A product transfer occurs when you wish to stick with the same lender and the same property. This allows you to reassess and tie your mortgage in to a new interest rate for a set period of time.
Remortgaging is keeping the same property but moving lenders – see Remortgage
The final point of which the mortgage has been repaid in full.
The lender fee payable at the end of the mortgage deal. Usually this is considered an administration fee however it can also be used to deter short term lending on a product that should be long term.
The legal process by which the lender takes ownership of the property due to individual circumstance. This is the absolute last resort.
Right to buy
A scheme set up by the government to enable the purchasing of local authority housing – see Right to buy
Usually a task created by the solicitors within the mortgage process, searches refer to the viewing of the land registry to make sure there are no issues with the property ownership & rights.
Secured Loan/Second charge mortgage
Finance secured on top of your existing mortgage – see Second Charge Mortgages
Finance raised to fund the building of your own residential property rather than the purchasing of one already built. The primary difference is the way in which the funds are released. With a standard mortgage a lump sum is paid out to fund the purchase whereas with a self-build mortgage the funds are released in stages so that they are used as and when they are required.
Another scheme set up by the government to allow for you to purchase a share of a property – see Shared Ownership
The tax levied on the legal documents due to the transferal of property
SVR/Standard Variable Rate
This is the lenders own variable rate. The SVR is not tied to the bank of England and varies completely lender to lender. Once they have come to an end, the vast majority of products will revert to this variable rate until a different product has been put in place.
A surveyor is the person that will come to the property and give his/her verdict on the value/mortgageability of said property.
Telegraphic transfer fee
The fee charged to electronically transfer the mortgage funds.
Tenants in common
Tenants in common refers to the ownership of the property and the share split between 2 or more individuals. This form of ownership enables an uneven split of ownership and can even be brought to the point where one applicant owns 99% of the property where the other owns 1%.
The length of time remaining for the mortgage to be repaid
The legal document showing the chain of ownership along with any secured lender with an interest due to secured lending
Tracker products are another form of variable interest rate. Where they differ is that a tracker rate will follow the movements of either the LIBOR or BOE (dependant on which it is tracking) and therefore if they go up or down, so does your rate.
Transfer of equity
The addition or removal of a person from the title deeds
This term is used to describe a property with no debts outstanding on it
A valuation is always required for mortgage purposes. There are 3 primary valuations available with mortgaging, these are:
Mortgage valuation – the most basic option available. This is purely for the benefit of the lender to make sure that the property it mortgageable and that they have adequate security for their money.
Home Buyers Survey – incorporating the above, the home buyer’s survey will also allow for the borrower to see if there are any structural problems.
Full Structural Survey – the most expensive option however this does give the applicant a full comprehensive breakdown of the fabric and condition of the property in its entirety.
The cost of the valuation required. The fee will be dependent on the type of valuation opted for.
If you want to discuss any questions of your own in more depth, by all means get in touch and let us do the best thing for you – 0161 660 4588