Terminology

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.

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.

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.

Conveyancing: This is the legal process whereby ownership of a property is transferred.

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.

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.

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.

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 semi-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: This is commission paid by Lenders to intermediaries for introducing business to them. The rules for display of the procuration fee in the KFI are set out in section 5, of the FSA rules on mortgage advice (MCOB). 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.

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.

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 stringent the valuation, the higher the fee.




 
** IMPORTANT NOTES **

Authorised & Regulated by The Financial Services Authority. A Buy to Let Mortgage is not regulated by The Financial Services Authority unless the tenant is a member of the borrower's immediate family, or borrower intends to occupy the property as some stage. Written quotations are available on request. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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