A brief list of some of the most common Mortgage terms.
Adverse Credit The term used if the borrower has a poor
credit history. This could include previous mortgage or loan
arrears, bankruptcy or CCJ's. Other terms used to describe an
adverse credit mortgage include:
Bad credit mortgage Poor credit mortgage Non status mortgage
Credit impaired mortgage No credit mortgage Low credit score
mortgage.
APR (Annual Percentage Rate) The interest rate reflecting
the cost of a mortgage as a yearly rate. The APR provides home
buyers with the ability to compare different types of mortgages
based on the annual cost of each.
Arrangement Fee The fee you pay your Lender in return for
them providing you with a mortgage. Usually paid on completion
or with your application, these fees usually apply when you take
out a fixed rate, discount or cashback mortgage.
AST (Assured Shorthold Tenancy) A form of tenancy that
gives the landlord the right to repossess their property after a
set amount of time laid out in the tenancy agreement. New
tenancies are automatically ASTs unless otherwise stated.
Assured tenancy The landlord can charge a market rent
(the current rate for similar property in that area) and take
back the property under certain conditions, as set out in the
Housing Acts of 1988 and 1996.
Bridging Loan/Finance Short term loan to enable the
purchase of one property before the sale of another essentially
releasing funds that are required for the purchase. You should
always consult a professional before considering any bridging
finance as it could be a solution that is worse than the problem.
Brokers Fee A fee charged by an intermediary or advisor
for locating the most appropriate mortgage for the borrower.
Buildings insurance Insurance you can take out when you
buy a property that will cover the cost of any damage to the
house and or contents.
Buy to Let A mortgage meant for those who wish to
purchase a property to rent out to others. The decision on
whether you are able to repay this type of mortgage is often
based up on the future rental income from the property rather
than the personal income of you the borrower.
CCJ (County Court Judgment) A judgement reached in the
County Court generally realted to non payment of a loan,
mortgage etc debt in general. If you pay off the debt, the CCJ
will be satisfied and a note is put on your records that states
this.
Chain A housing 'chain' made up of a number of buyers and
sellers, essentially the line of buyers and sellers involved in
each house move.
Charge Any right or interest, especially with a mortgage,
to which a freehold or leasehold property may be held. Basically
a charge is the claim the lender has on the property until the
mortgage or loan is satisfied.
Completion The term used when the seller and buyer
exchange the finances required to buy a property through their
respective solicitors. At exchange of contracts a deposit,
usually 10%, will have been paid. At this point the buyer
becomes legal owner of the property.
Conveyance The legal process in which ownership of the
property is transferred from the seller to the buyer. Generally
undertaken by a solicitor, or licensed conveyancer.
Early redemption fee If you decide that you want to sell
your property or remortgage then you will be redeeming you
mortgage early. Most lenders charge a penalty fee, especially
during any period of a fixed, capped or discounted rate. Be sure
you are clear about any potential penalties when you are about
to take on a mortgage.
Equity and negative equity The amount of value in a
property that isn't covered by a mortgage - simply take the
amount of the mortgage from the valuation to work out the
equity. vThis is where the money you owe on the mortgage is
greater than the value of your property.
Exchange of contracts The contract is a written agreement
that lays out the terms between the buyer and the seller. When
both parties exchange contracts, usually weeks before
completion, the deal becomes legally binding. Often a deposit of
around 10%, is paid at this stage.
Fixed Rate A set interest rate on a mortgage fixed for a
period of time. This varies from lender to lender.
Freehold If you are the property owner outright then your
property is freehold. Most houses are freehold wheres many flats
are leasehold, since you are not the owner of the whole building
containing the flats.
Gazumping If you are in the process of purchasing a
property and your offer has been accepted but the seller gets a
better offer, before you complete, and takes it then, you've
just been 'Gazumped'.
Interest Only Mortgage A mortgage whereby the borrower is
only required to pay inerest on the amount borrowed during the
mortgage term. It is the borrowers responsibility to ensure that
enough funds will exist (either through an investment policy or
other means) to repay the full mortgage at the end of the term.
Intermediary A mortgage broker or advisor who finds the
most suitable mortgage for a borrower and arranges the mortgage
on their behalf.
Leasehold If you buy a leasehold property you don't own
the property rather the right to live there for a specified
period of time, however much time remains on the lease. The
owner of the property is called the freeholder or landlord.
Liability This relates more to commercial mortgages. With
a commercial mortgage liability for the repayment of the loan
depends on the legal structure of the business:
A sole trader will be personally liable for the mortgage debt.
Personal assets could be seized if the business defaults.
Partners are jointly liable for the debts of the partnership and
their personal assets are at risk With a limited-liability
partnership and a limited company, the liability falls firstly
on the business rather than on the individual partners and
directors. The lender may take a floating charge on business
assets in general, rather than simply on the current property
being purchased. The lender may also insist on personal
guarantees as a condition of granting the loan, in which case
the partners and directors may be held personally liable anyway.
Life insurance If you have a joint mortgage, life
insurance can be acquired that will see the mortgage paid of
should one of you pass on.
LTV (Loan to Value) The size of the mortgage as a
percentage of the value of the property i.e. A £90k mortgage on
a house valued at £100k would mean an LTV of 90%.
MIG (Mortgage Indemnity Guarantee) A one off payment made
when you set up a mortgage a kind of insurance policy for the
lender. This offers them protection against the value of the
home falling to less than the mortgage. It is generally only
charged to borrowers with a less than 10% deposit, but this can
vary.
Mortgage A loan to buy a property where the property is
used 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.
Non-Status Where a lender may not require income details
from you or may accept some previous poor credit history i.e.
CCJ's or previous mortgage arrears.
Payment Holiday A period during which the borrower makes
no mortgage payments.
Regulated tenancy A legal right to live in your
accommodation for a period of time. Your tenancy might be for a
set period such as a year (this is known as a fixed term
tenancy) or it might roll on a week-to-week or month-to-month
basis (this is known as a periodic tenancy).You are a regulated
tenant if you moved in before 15 January 1989, you pay rent to a
private landlord and your landlord does not live in the same
building as you.
Remortgage The taking on of a second mortgage to pay off
the first. The most common reasons for doing this are that
another mortgage is available at a better rate or that the value
of the property has gone up allowing for the opportunity to
borrow more money against the property.
Right to Buy For example, a tenant in a council owned
property may purchase the property at a discount depending on
length of their tenancy.
Self Certified Generally when a borrower applies for a
mortgage he or she will be asked to provide pay slips or company
accounts to prove their income. If it is difficult or
inconvenient for you to provide this evidence, you can choose to
self-certify your income. This involves signing a declaration
which states your income sources and amounts. Lenders will
charge you higher rates than average and offer you a more
limited range of mortgages if you choose to self-certify your
income, in general it's not a good idea to self-certify just to
avoid some paperwork.
Stamp Duty Tax paid by the buyer of a property set at 1%
for properties over £60k, 3% for properties over £250k and 4%
for properties over £500k.
Structural survey The most wide ranging check of the
structure of a property. This is carried out by professional
surveyor and should uncover any defects or faults with the
building.
Tenancy A legal written agreement between a landlord and
tenant that sets out the terms of the rental.
Term The period of years over which you take the mortgage
and repay it.
Term Assurance An insurance policy designed to repay the
mortgage on the death of the insured person. Level Term
Assurance covers a principal sum throughout the policy term and
pays out the full amount on death. Reducing Term Assurance is
designed to repay the balance outstanding on a repayment type
mortgage upon death. Term Assurance may also pay out early on
the diagnosis of a terminal illness.
Underwriting The process of evaluating a loan application
to determine the risk involved for the lender. This involves an
analysis of the borrower's creditworthiness and the quality of
the property itself.
Unencumbered Where the property is owned outright and no
mortgages or loans are secured against it.
Valuation A simple check of the property in order to find
out how much it is worth and whether it is suitable to secure a
mortgage against.
Valuation Fee The fee paid by a borrower to cover the
cost of the lender checking that the property is suitable
security for the mortgage.
Variable Rate A type of interest rate the lender can
charge. It goes up and down and your repayments change
accordingly.
Vendor The person selling the property.
