Jargon explained

Some of the terms you may encounter when buying or re-mortgaging property in the UK.
Agricultural Restriction

A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.

Apportionment

Dividing the liability for property tax, water charges etc between the seller and buyer of a property.

APR

Annual Percentage Rate. An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account other credit costs and fees. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Arrangement Fee

This is a fee you pay to the mortgage lender in return for providing you with a mortgage. Usually paid on completion or with application , these fees usually apply when you take out a fixed rate, discount or cashback mortgage.

Assignment

Document transferring rights of ownership from one person to another, such as an endowment policy to the building society in connection with a mortgage. Can also be the document transferring the lease on a property.

ASU

Accident, Sickness and Unemployment insurance (See also Income Protection plans and MPPI). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness and/or involuntary unemployment. Payable for either 12 or 24 months only. Annually renewable insurance that could be cancelled by the insurer at a policy anniversary in the event of too many claims.

Auction

Public sale of a property to the highest bidder. The purchaser must immediately sign a binding contract and should ensure that all valuations, searches etc are carried out prior to the sale.

Authority to Inspect The Register

Document from registered proprietor of land allowing another party, such as the purchasers’ solicitor, to be given information from the register of a property.

Bankers Draft

A guaranteed method of payment of funds, like a cheque, but is realy a cash payment.

Base Rate Tracker

A mortgage product where the interest rate is variable, and is set at a premium (above) the Bank of England Base Rate for a certain period of time.

Booking Fee

Arrangement fees charged by the mortgage lender in connection with some mortgage products. The fee is normally non-refundable if charged upfront, or sometimes it is added to the mortgage debt on completion.

Bridging Loan

A short term loan (from 1 day to 1 year) to facilitate the purchase of one property prior to the sale of another releasing funds that are required for the purchase. Can also be used to raise funds for business or other purposes, where there is a clear exit arrangement in place at commencement.

Broker Fee

A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.

BSA

Building Societies Association. Represents interests of member societies.

Building Societies Commission

Regulatory organisation for Building Societies.

Building Society

A Mutual organisation specialising in lending money to individuals to purchase or remortgage residential properties. Most of this money comes from individual saving members who are paid interest. A Building Society is owned by it’s customers, not shareholders.

Buy-to-Let

This is a mortgage designed to purchase a property to rent out to others, for investment purposes. The ability to repay this type of mortgage is often based on the projected rental income from the property, not the personal income of the borrower.

Capital and Interest

Monthly payments pay partly the interest on the amount borrowed,  and pay partly the outstanding capital amount borrowed. If all payments are made when due, you are guaranteed that the mortgage is repaid in full at the end of the mortgage term.

Capped Rate (and Collared rate)

An interest rate charged on a mortgage where there is a guarantee from the mortgagee that the rate will not exceed a certain interest rate for a set amount of time, but which will reduce if the standard variable rate falls below the capped rate. Sometime also available with a ‘Collar’, where the interest rate will not fall below a certain amount. Is a variable payment basis mortgage, and so repayments can vary during the Cap/Collar period.

Cashback

A payment received when you take out a mortgage. It may be a fixed amount, or a percentage of the amount of the mortgage.  This is not available on all mortgages, only certain types. It is potentially a taxable sum, and is repayable if the mortgage is repaid in part or full within a certain period of time.

CCJ

County Court Judgment. A decision reached in the County Court for not paying debts. If the debt is repaid, the CCJ is satisfied and a note is put on your records to say this. However, the record is on your credit report for the next 6 years, unless the debt is repaid in full within the first month of the CCJ being made.

Centralised Lender

Term used to describe a mortgage lender who does not rely on a branch network for distribution. Originally applied to specialist lenders who entered the mortgage market in the mid-late 1980’s. Several building societies now have “centralised lending” operations which operate separately from their branch networks and offer their products exclusively through mortgage brokers, such as 1st Call 4 Mortgages LLP.

Charge

Any right or interest, especially a mortgage, to which a freehold or leasehold property may be held. A mortgage is usually called the first charge. Additional secured borrowing is called the 2nd charge.

Charge Certificate

The certificate issued by HM Land Registry to the mortgagee of a property with registered title. Contains three parts – charges register, property register and proprietorship register. Contains details of restrictions, mortgages and other interests. Where there is no mortgage it is called the Land Certificate and issued to the registered proprietor.

Chattels

Moveable items such as furniture or personal possessions.

Chief Rent

A rent payable by the owner of a freehold property, similar to the ground rent payable by a leaseholder. Normally only found in the northern England. Can be bought out by freeholder.

CML

Council of Mortgage Lenders.

Completion

When the sale and purchase of the property are finalised and you become the legal owner of the new property.

Contract

Legally binding agreement for sale. In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.

Conveyance

The deed by which freehold, unregistered title changes hands. If the property is leasehold and unregistered, it is called an assignment. If the title is registered, the deed is called a transfer.

Conveyancing

The legal process involved in buying and selling property.

Covenant

A promise contained in a deed.

Credit Scoring

This is a way in which a lenders assess whether you are a good risk to offer a mortgage to. Lenders have their own formula to determine their lending decision.

Credit Search

A check the lender makes to a credit reference agency to find out what the credit history has been. Statutory information is shown, such as records of County Court Judgements, electoral register history, address history, and current and previous credit commitments are shown from the previous 6 years. It also shows credit searches from credit  and mortgage providers for the last 12 months.

 

Debt Consolidation

This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage to benefit from lower interest rates and lower monthly payments.

Deed

A legal document which is ‘signed, sealed and delivered’ not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.

Deposit

The amount of money put towards buying a property.

Disbursements

A solicitors expenses for example: land registry fees, searches, faxes etc.

Discount Rate

An interest rate which is set at a margin below a lender’s standard variable rate for a certain amount of time, i.e. 1, 2 or 3 years. Used as an incentive to attract potential new borrowers. Payments could vary as the underlying mortgage is also variable.

Early Redemption/Repayment Charges

A fee charged by a lender if part or all of a mortgage is repaid before an agreed date, or you move your mortgage to another lender. These charges mainly apply to fixed rate, discounted rate and cashback mortgages.

Easement

A right, such as a right of way, which the owner of one property has rights over an adjoining property.

Endowment

A life assurance policy that is designed to produce a lump sum to pay off an interest-only mortgage, and provide life assurance (and optional critical illness cover) as well. There are different types of endowments. No longer popular since stock markets collapsed in the early 2000’s, which left policy-holders with shortfalls in the value of the policy which was to be used to repay their mortgage with.

Equity

The amount of value in a property above any mortgage secured against it. i.e. property value – mortgage = equity.

Equity release

(1) A new mortgage, larger than the previous mortgage, used to obtain some of the property equity. Can be used for for home improvements, holidays, debt consolidation, etc.

(2) An Equity Release Mortgage is specifically designed for people aged over 55 who want to obtain a cash sum, income, or both. Usually no repayments are made, and interest is rolled up into the mortgage, and repaid when the property is sold.

Exchange of Contracts

This is the point at which the buyer and the seller of the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold. It also states the Completion date when the ownership of the property is transfererred. When contracts are signed and exchanged, it becomes legally binding. If the buyer or seller pulls out after exchange of contracts but before completion, they may have to pay compensation to the other party.

Fixed Rate

The interest charged on a mortgage is set for an agreed period. Usually available at outset of a new mortgage or may be offered to an existing borrower at the end of the initial deal period.

Fixtures

Any item that is attached to a property and so legally is part of the property.

Flexible Mortgage

Has additional features to ‘standard’ mortgages, such as over-payments, under-payments, and payment holidays. The interest rate is usually calculated daily, not annually, which allows any over-payments to be reflected in a capital reduction of the balance. so reducing interest charges on the outstanding balance immediately. Regular over-payments can reduce interest charges over the term can be quite significantly.

Freehold

You own the property and the land that it is on.

Gazumping

This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.

Ground rent

A fee that a leaseholder has to pay the freeholder every year.

Guarantor

This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family relative.

Home Buyers Report

This is a property survey which is more comprehensive than a basic ‘mortgage-only valuation’,  but not as comprehensive as a full structural survey.

Income Multiples/multipliers

The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take, for example, 4 times the gross salary of the first applicant plus 1 times the income of the second applicant or 3.5 times the joint salaries. Some lenders will allow you to borrow more than this. More recently, lenders do not use income multiples to determine the amount they will lend, and have introduced ‘Affordability Calculators’ in which they use their own formula to determine their lending decision.

Income protection insurance

Provides a tax-free income in the event of accident or illness, but not unemployment. It provides a monthly payment if you cannot work for a determined period, up to retirement age if necessary. (see ASU and MPPI as well)

Income reference

This is confirmation from an employer that the stated income is really the amount you stated when you made your mortgage application. If you are self-employed, the lender may require confirmation from your accountant.

Interest Only Mortgage

With this type of mortgage, the borrower is only required to pay interest only on the amount borrowed during the mortgage term. The capital amount borrowed does not reduce over the term of the mortgage. It is the borrowers responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the mortgage at the end of the term.

Intermediary

A mortgage broker or adviser who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf. A fee is usually payable for their professional services.

ISA

Individual Savings Account. This is a tax-free way to save via cash, shares or unit trusts. You can also use ISAs as a way to repay an interest-only mortgage with some lenders.

Land Registry Fee

This is the fee paid to the Land Registry to register ownership of an area of land. It is paid via the solicitor.

Leasehold

If you buy a leasehold property, you own the property for a set number of years but not the land on which the property is built. Rent may be payable to the land-owner by the leaseholder in the form of Ground Rent.

Licensed conveyancer

An alternative to using a solicitor. This people specialise in the legal side of buying and selling property.

Local Authority Search

A check carried out by the buyer’s solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other developments. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service, payable via the solicitor upfront.

LTV

Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A £90,000 mortgage on a house valued at £100,000 would mean that the LTV would be 90%.

MIG

Mortgage Indemnity Guarantee. This is insurance that covers the lender in case your property is repossessed and the lender cannot get back their money. Although this insurance protects the lender, the borrower pays the premium. Some lenders will add the MIG on completion of the mortgage, whilst others will deduct the relevant amount at completion. This usually applies to high percentage mortgages of over 75% loan to value, but usually only charged if the loan is above 90% LTV. Most lenders do not currently impose MIG on new borrowers.

MIRAS

Mortgage interest relief at source. This was tax relief on your mortgage which was abolished by HM Government with effect from April 2000.

Mortgage

A loan to buy a property, where the property is used as security for the loan.

Mortgagee

The Company or Organisation that lends you the money.

Mortgagor

The person taking out the mortgage (i.e. the borrower).

MPPI

Mortgage Payment Protection Insurance (See also ASU). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment. The benefit is usually payable for 12 or 24 months only.

Negative Equity

When you owe more on the mortgage than the value of your property.

Non-Status

This is where a lender may not require income details from you or may accept some previous poor credit history i.e. CCJs or previous mortgage arrears. Not generally available since the ‘credit crunch’.

Overpayment

When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.

Payment Holiday

A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Personal Pension

This is a structured savings and investment plan to provide for your financial needs after you retire. You can use some or all of the tax-free cash portion of the pension fund to pay off an interest-only mortgage.

Portability

A term used to describe a mortgage that can be transferred between properties when you move house.

Redemption

The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term.

Redemption Penalties

Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed redemption period. These are often charged on fixed, capped or discounted rate mortgages.

Remittance Fee

A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed.

Re-mortgage

The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.

Repayment

Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.

Repossession

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Right to Buy

As scheme for tenants in a council owned property who may purchase the property at a discount depending on length of their tenancy.

Sealing Fee

This is a charge made by lenders when you repay a mortgage.

Searches

These are checks carried out during the conveyancing process by the solicitor. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and it’s saleability in the future before making a loan.

Shared Equity

A scheme operated by a developer where the developer retains a share of the property’s value (e.g. 10%), secured by a second charge over the property. Their share may be interest-free or may incur interest and be added to the total amount owing on the property. It is usually repayable within a certain amount of years or when the property is sold.

Shared Ownership

A scheme operated by a housing association where a person owns part of the property (with or without a mortgage), and the housing association owns the rest of the property and the person pays rent on this.

Stamp Duty

This is a tax payable on the purchase of a property by the purchaser via their solicitor. The Stamp Duty rates for 2017/18 are:

Stamp Duty 2017-2018

Percentage is for whole purchase price, not per band.

Structural survey

This is the most wide ranging check of the outside and inside of a property. This is carried out by professional surveyor and it should pick up all but the most hidden faults.

SVR

Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly. It is not always linked to the Bank of England base rate, and morgtage lenders can change their SVR at any time.

Term

The period of years over which you take the mortgage and when you have to repay it.

Term Assurance

This is a life insurance policy,  in place for a pre-determined number of years,  designed to provide a single lump sum which can be used to repay a mortgage on the death of the insured person. Level Term Assurance provides the same amount throughout the policy term and pays out that amount on death during the term of the policy. Reducing Term Assurance is designed to repay the balance outstanding on a capital and interest repayment mortgage upon death. Term Assurance may also pay out early on the diagnosis of a terminal illness, where life expectancy is less than 12 months.

Tie-in period

As a condition of a particular mortgage product, you may have to agree to stay with the lender for a period of months or years after the initial deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early repayment charge.

Title Deeds

Documents that show proof of who owns the freehold and leasehold property.

Transfer deed

The document that, once signed by all parties, transfers the ownership of a property to you.

Unencumbered

A property owned outright with no mortgages or loans secured against it.

Valuation

A simple check of the property for the lender’s purposes only in order to find out how much it is worth and whether it is suitable to lend a mortgage on.

Valuation Fee

A fee paid upfront by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.

Variable Rate

The interest rate the lender charges. it goes up and down and your repayments change accordingly.

Vendor

The person/people selling the property.