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Mortgage Glossary

If a term is not here and you want it explained, email us and we will add it and let you know.

Accident Insurance

Insurance that covers you if you suffer certain injuries, such as loss of a limb or vision.

Accident, Sickness And Unemployment Insurance

Insurance cover arranged by the borrower to protect against inability to meet mortgage payments. Unemployment cover is restricted to cover certain events only. Exclusions to this insurance include dismissal due to professional misconduct or taking voluntary redundancy. The accident and sickness cover does not cover any act of self-injury or any injury related to the use of alcohol or drugs.

Administration Charge

Some lenders will reserve a proportion of the fee charged for the valuation to cover their own costs. If an application does not proceed, this part of the valuation fee may not be refunded, even if the valuation has not taken place. See valuation fee.

Advance

Amount of your mortgage/loan.

Agreement In Principle

This means you have been accepted for a mortgage or other financial product, but it will depend on issues such as a valuation report and confirmation of employment.

Annualised Percentage Rate (A.P.R)

An explanation to identify the true cost of borrowing and a standard in order to provide a method of comparing costs of different loans. Initially mortgage lenders were not obliged to quote an APR due to its inappropriateness in comparing mortgage loans. APR was designed to reflect the cost of different types of hire-purchase contracts that were quoted on flat and fixed basis giving headline rates which were often half the APR. It is a legal requirement that a true APR figure be provided with any loan.

Application

The process of applying for credit, or other products. The vast majority of credit applications need to be made in writing, although it may be possible for some services, such as an overdraft extension, to be arranged over the phone. Even internet based credit applications will usually require you to sign documents before the application is finalised.

Application Fee

Any charges made for an application.

Arrangement Fee

A fee charged by a lender for setting up the loan. Normally payable upon completion but may sometimes be added to the loan. See fee, fees added to loan, booking fee, Conveyancing fee, land registry fees, IGP, stamp duty and valuation fee.

Basic Annual Income

The annual income earned that is guaranteed regardless of the individual's or his or her company's performance. This is important when establishing a borrower's ability to pay, especially for sales people, or other employees where a significant part of their salary package is made up of commissions, bonuses or share options.

Booking Fee

A fee charged by a lender to secure mortgage funds, payable at the time the loan application is submitted and normally applies only to special offer loans, such as fixed or capped rates. See fee, arrangement fee, fees added to loan, conveyancing fee and valuation fee.

Bridging Loan

Short term loan used as coverage when buying a new property before selling an existing one.

Broker

A third party individual who attempts to find the best available financial or other package. Brokers could be affiliated with a larger network in finance, or they may be independent.

Broker Fee

A fee charged by an intermediary to the applicant for negotiating a loan. If a loan has not completed within 6 months of the date of introduction to a lender, the maximum fee that a broker may retain is £300, under the Consumer Credit Act.

Building Society

Building societies are mutual organisations owned by their members and regulated by the Buildings Societies Act. The Building Societies Commission lays down restrictions on their lending criteria, so they are less able to help with certain categories of loans.

Buildings Insurance

An essential insurance policy which covers the structure of the building. Where the property is leasehold the buildings insurance will normally be arranged by the freeholder and the cost charged on to the leaseholder within the service charges payable. See uninsurable, contents insurance.

Buy To Let Mortgage

A mortgage for a property which the owner intends to let out to students or other tenants.

Capital Raising

The act of remortgaging a property based on a higher value compared to the original purchase price. The capital raised is the amount left over after repayment of the original loan is deducted from the new loan. Some lenders will also take into account home improvement projects as part of the remortgage, if they are likely to significantly raise the value of the property.

Capped Rates

The mortgage interest rate will not exceed a certain value during a certain period of time, although it will fluctuate above and below the current level. Some capped products will have a ceiling and a floor between which the rate payable may move; such loans may be known as cap and collar mortgages.

CAT Standard

These are a set of standards proposed by the government aimed at ensuring a certain level of standard amongst financial products. Whilst they are a sign that a lender or provider is a reputable business and offers products that are of a certain quality, a CAT mark does not ensure that a product is the most suitable one for you.

Charge

Security the lender relies on when granting credit.

Completion

The moment at which all the legal formalities of the purchase or mortgage are finalised and the funds are drawn down from the lender, and usually into the solicitors account.

Completion Date

The official date for completion of a sale of a house, when keys are actually transferred.

Consumer Credit Act (CCA)

This is the main legislation covering the provision of loans to individuals. A regulated loan is one that does not exceed £15,000 and would not include a mortgage loan of over £15,000 and so the lenders set a minimum loan of £15,001 to ensure it is not treated as a regulated loan.

Contents Insurance

This is the insurance of property within your home i.e. furniture, clothing, personal possessions etc. Whilst lenders will be keen to offer contents insurance to borrowers, it is not essential that you should have it from them, or at all. Some policies offer a wider, all-risks wording, whereas others offer much lower premiums for more basic cover. Make sure you are aware of whether your contents policy includes items in your cars, on student property, or when you are traveling; and ensure you do not end up paying twice. Contents cover is a separate type of insurance to buildings insurance, which covers the structure of your property.

Conveyancing

The legal documentation relating to the transfer of ownership of a property.

Conveyancing Fee

A fee charge by a solicitor or licensed conveyancer for arranging the necessary legal work in transferring the ownership of a property. The total cost of the legal work also includes profit cost, stamp duty, land registry fees and disbursements. See fee, arrangement fee, fees added to loan, booking fee, land registry fees, IGP, stamp duty and valuation fee.

County Court judgement (CCJ)

A county court judgement is a judgement for debt in the county court. This debt does not appear in the credit register if this debt is settled within 30 days of the date of the judgement. Very few lenders are willing to offer loans to anyone with an outstanding or unsettled judgement, and even if the judgement has been settled many lenders are likely to refuse a mortgage or other credit application.

Credit Check

Where an enquiry is made on the credit history of an applicant, normally by reference to one of the major credit agencies such as Equifax, CCN or Westcott Data.

Credit Checking Agency

A service used by lenders to establish a level of risk involved in leading money.

Credit File

A record held by a credit reference agency on an individual or a company. You can inspect your own credit file by writing to the agencies.

Credit History

The history of a borrowers financial record.

Credit Reference Agency

Companies that hold credit information one file.

Credit Scoring

A generalised way of assessing the credit application, carried out by scoring the answers given on an application. It is important that there are no missing answers on an application otherwise the result for the question becomes a negative.

Critical Illness Insurance

Insurance cover for major illness, diseases and other potentially fatal medical conditions. Generally advisable for couples and people with children. Ideally cover should be to the same level as the mortgage amount, or greater.

Daily Interest

Where interest is applied on a daily basis instead of the usual monthly time frame.

Data Protection Act (1988)

Regulations introduced to protect the transfer of personal data within and between different organisations. Remember that every time you apply for a store loyalty card, credit facility or magazine subscription, you are handing over substantial amounts of personal data for organisations to trade in. Whilst this data may enable them to make special offers which "may be of use to you", it also means more opportunity to sell you products or services you would not otherwise have bought. If you are not the kind of person to say no easily, make sure you always tick the "no marketing material" box.

Debt

Funds owed to lender.

Debt Consolidation

Replacing a number of existing loans with a single loan from a new lender which may reduce your monthly payments by spreading out a larger loan over a longer period of time, and reducing the interest rate being paid.

Deed

The document that proves you own the property. It will also show any land boundaries.

Deed Of Covenant

The document expressing the terms of a covenant (a binding agreement), which may typically be imposed by a lender to restrict certain activities, such as use of a house for commercial purposes, or sub-letting.

Deeds Release Fee

This fee is charged by the lender for releasing the deeds of the mortgaged property and returning them to the owner or his solicitor, usually when the mortgage has been repaid.

Default

When a payment or a series of payments are missed.

Deferred Interest

A type of loan where some or all of the interest owed by the borrower is added to the amount outstanding which therefore causes the borrower to owe much more than originally borrowed.

Dependant

An individual who depends financially on another person.

Disbursements

Search fees, land registration, stamp duties are all examples of disbursement.

Discount Period

Time period in which reduced payments are offered.

Discount Purchase Price

The price of a property which has been reduced below the open-market value, such as in the case of a right-to-buy purchase or a builder's discount. Under right to buy legislation, properties are not offered at the open market value, but at a discount, and if the property is resold within a three-year period, some or all of the discount will have to be repaid.

Discount Rate

The mortgage interest rate is lower than the current normal standard variable rate, but only for a certain period of time. Usually shown as a fixed percentage reduction to the lender's normal variable rate e.g. 2.00% discount for 2 years.

Early Redemption Payment

Penalty charged by a lender for withdrawing from a mortgage before the date specified in the mortgage conditions. These penalties are usually associated with fixed or discounted loans.

Early Repayment Period

Period in which charges are levied by the lender when the mortgage loan is repaid before the end of the full term.

Employer's Reference

A written statement from an employer confirming the borrower's employment, giving details of salary and length of service. This is essential in assessing an employee's ability to repay the mortgage.

Endowment Policy

A  life assurance investment policy into which you pay monthly premiums, which can provide both life cover and investment. The proceeds are free from all taxes as long as the policy conforms to all the qualifying rules.

Equity

The share that you own in your home, i.e. The property value less the mortgage loan outstanding.

Extended Redemption Penalty

When a redemption penalty continues beyond capped and fixed rates.

Fee

The amount charged by a lender, broker or other middleman for arranging a mortgage or property purchase. See arrangement fee, booking fee, Conveyancing fee, land registry fees, fees added to loan, IGP, stamp duty and valuation fee.

Financial Adviser

A person who helps individuals with their financial situation.

First Charge

A legal charge used to secure the main mortgage. A lender with a first legal charge over a property has a first call on any funds available from the sale of the property. See also: second charge.

First Time Buyer

A person that is purchasing a property for the first time. Some lenders offer preferential lending terms to first time buyers. A borrower who has owned a property before but has sold this prior to buying again may be offered first time buyer terms by some lenders but this is dependent on the lender.

Fixed Rate Loans

Offer a fixed rate of interest for a set time frame.

Fixed Rates

A loan where the initial payments, for a certain period of time, are based on a specific interest rate. The rate payable will not change during that period regardless of changes in the lender's standard variable rate.    

Fixtures And Fittings

There may be bits in the house that you want included in the sale like carpets door handles light fittings etc.

Freehold

Land or property which is owned outright, as opposed to leasehold where the owner has the right to occupy the land or property for a given period of years only. See also: Feuhold.

FSA

Financial Services Authority.

FTB

First time buyer

Full Status

A loan where complete checks are made on the borrower's credit history and income.

Full Structural Survey

This is very important as it will tell you if there is any problem or faults with the property you are buying.

Gazumping

The seller's agent takes a higher bid after accepting yours.

Ground Rent

When you are a leaseholder you will probably have to pay ground rent to the person that owns the land you property stands on.

Guaranteed Earned Income

Is income that you receive along with your basic salary that is not part of your normal basic pay under the terms and conditions of your employment but which you are guaranteed to receive.

Guarantor

Is a person who agrees to guarantee that a loan will be paid. The guarantor is therefore fully liable for the repayment of the borrowed amount should the borrower default.

High Loan To Value Fee

An insurance premium which insures the lender against any loss of money, should you default on your loan or get repossessed. This only usually applies if you borrow more than 75 per cent of the price asked for the property you are buying. You are not covered by the insurance premium, even though you have to pay for it, the lender is. This is also known as indemnity guarantee premium.

Home Equity Loan

A method releasing capital from people's homes.

Homebuyer's Report

A less stringent report than a full structural survey.

IFA

Independent financial advisor is an advisor who has no affiliation with other financial companies.

nterest Only

Mortgages where you pay off the interest only.

Interest Only Mortgage

A loan where only payments of interest are paid to the lender during the term of the loan. All mortgages other than capital and interest repayment loans are a form of interest only loan. Some lenders will allow loans to be set up without any specific provision to repay the capital at the end of the period this is known as a pure interest only loan.

Interest Rate

Percentage of your loan that a lender charges each year for lending you money.

Intermediaries

Broker or person who attempts to sort and arrange financial packages for you.

Introducer

Person who introduces a loan to a lender.

IPT

Insurance premium tax.

Joint Application

A mortgage application that involves more than one person as the borrower.

Key Features Illustration (KFI)

Customer specific illustration, illustrating the key information relating to a mortgage and any charges inherent to it and the application process. All KFIs for UK residential mortgages will be presented in the same format for easy comparison. When looking at protection policies, a KFI consists of a customer specific illustration (CSI) and key features document together.

Key Features Document (KFD)

A document summarising the key features, terms and procedures of a protection policy, such as cover details, information on how to make a claim and contact details.

Land Registry

A record of property, ownership and the mortgage is registered in a central register at HM land registry.

Land Registry Fees

A fee payable to the land registry to change an entry in their records following a transaction involving registered land. This can be following a change of ownership or just a change of mortgage. See fee, arrangement fee, fees added to loan, booking fee, conveyancing fee, IGP, stamp duty and valuation fee.

Leasehold

The land on which the property is built is not owned directly by the property purchaser and is held under a lease for a fixed period.

Legal Charge

The means by which lenders enforce their rights to a property, and is recorded at the land registry. There are various different types of legal charge and the type used will vary from lender to lender. Building societies tend to use a charge for the specific amount that they have lent. Banks tend to use an all monies charge, allowing them to free equity in a property if it is owned by them. This may allow them to recover overdrafts and other loans if they have granted more than just a mortgage. A primary mortgage will normally be secured by a first charge. Building societies are allowed to lend only if they have a first charge on a property. Second or subsequent charges may be granted on a property if additional money has been borrowed against it.    

Lender

An organisation which offers mortgage products.

Lessee

Person to whom the lease is granted.

Lessor

An individual or company who grant a lease.

Liabilities

Debts and outgoing payments that you are legally responsible to pay.

Life Insurance

A policy payable upon the death of the insured, usually referred to as assurance.

Local Authority Search Fee

This is the fee payable for the local authority search.

Loan To Value Ratio

Is the ratio of the loan amount to the property valuation expressed as a percentage. E.g. If a borrower is seeking a loan of £20,000 on a property worth £40,000 it has a 50% loan to value rate. If the loan were £30,000, the LTV would be 75%. The higher the loan to value the greater the lender's perceived risk. Lenders will be more cautious in underwriting high loan to value loans. Loans above normal lending LTV ratios may require additional security.

Local Authority Search

A search of local authority records to confirm the status of the property. Local authority searches should reveal any proposed changes in the area, the details of the planning permission for the subject property and whether any enforcement notices have been served by the local authority.    

Low Cost Endowment

Is the most common form of endowment policy used to repay a home loan. It is a mix of full endowment and term assurance designed to provide full life cover in the event of death during the loan period. If investment returns are high enough it should also provide sufficient funds to repay the loan at the end of the term and ideally provide the borrower with a tax free cash surplus. It is not guaranteed to pay off the loan and that any shortfall will have to be made up by the borrower.

Loan To Value Ratio (LTV)

This is the ratio of the loan amount to the property valuation expressed as a percentage. E.g. If a borrower is seeking a loan of £20,000 on a property worth £40,000 it has a 50% loan to value rate. If the loan were £30,000, the LTV would be 75%. The higher the loan to value the greater the lender's perceived risk. Lenders will be more cautious in underwriting high loan to value loans. Loans above normal lending LTV ratios may require additional security.

Main Residence

The normal place of residence. See also: holiday home and second home.

Monthly Repayment

This is the amount you pay our lender each month toward the cost of the credit they have given you.

Mortgage

The name given to credit used to buy property or loan secured by land.

Mortgage Term

Is the length of time before the mortgage loan must be repaid.

Negative Equity

A situation that occurs when the amount loaned against a property is in excess of the market value of the property.

Non Status

A loan granted without making enquiries as to the borrower's income or credit history.

Notice Of Default

A lender's initial contact when you have fallen behind on your credit repayments.

Part Endowment

A mortgage that is arranged partly on an endowment basis, the balance of the loan most commonly being arranged on a capital and interest (repayment) basis.

Payment Method

A means by which the mortgage capital is eventually repaid.

Portable

Describes a mortgage that can be transferred from one property to another.

Principal

The amount of credit still outstanding - the amount on which interest is calculated.

Redemption

This is paying off the mortgage, either to move to another property or at the end of the mortgage term.

Redemption Charges

These are any charge levied by the lender when the mortgage loan is repaid before the end of the full term. See also early redemption penalty.

Redemption Statement

The outstanding amount to be repaid on an existing credit arrangement.

Redundancy Insurance

This is also known as accident, sickness and unemployment insurance this insurance cover that is arranged by the borrower to protect against the inability to meet mortgage payments. This cover is generally restricted to pay out only on events that are entirely beyond the control of the insured person. Typical exclusions include dismissal following professional misconduct and any act of voluntary redundancy.

Refinancing

This is where borrowings are rearranged with a different lender, usually to receive more attractive terms or to raise fresh capital.

Remortgage

The arranging of a loan on a property in which the borrower already resides. Normally this involves redeeming an existing loan on the property.

Right To Buy

This is an option for council tenants to purchase the property in which they live in. The property price is often at a discount, proportional to the length of occupancy.

Second Charge

A legal charge that ranks behind a first charge, possibly to secure a second mortgage, or a guarantee given to secure other borrowings.

Second Home

An alternative to your main residence which is subject to capital gains tax!  See also: holiday home.

Second Job

A source of income other than an individual's main employment.

Second Mortgage

A further loan on a property which ranks after the first charge mortgage.

Secured Loan

A loan that is secured using your property.

Self Certification

A mortgage loan where the borrower makes a statement of his or her income and the lender makes fewer checks than normal on the accuracy of this statement.

Shared Ownership

A method of property purchase in partnership with a housing association. The borrower purchases part of the property and rents the remainder from the housing association. Also known as co-ownership, this arrangement is designed for people who could not otherwise become homeowners. Under most arrangements, the minimum purchase amount is 25% of the property value with the remainder available to be purchased in blocks of 25%.

Stamp Duty

All property purchased over £125,000 is taxed 1% by the government. (The limit for property in designated disadvantaged areas is £150,000.)

Standard Variable Rate

The standard interest rate (SVR) set by lenders, and which is subject to increasing or decreasing at the discretion of the lender. The standard variable rate often applies at the end of any fixed, capped or discounted period.

Structural Survey

The widest form of inspection that can be undertaken by a chartered surveyor. In the case of properties with movement, lenders may require a structural engineer's report. This is a different type of survey carried out by a chartered building engineer and should not be confused with a structural survey.

Telegraphic Transfer

The electronic transfer of money.

Term Assurance

This is the simplest form of life assurance. The insured person is covered against death within a fixed period depending up on the payment of the premiums. If an insured person dies within the policy term the sum assured is paid out. If the insured person survives the term the premium has been spent and the insurance ends with nothing being paid to the policyholders.

Tracker

A type of mortgage where any changes in the rate of interest charged follow exactly ('track') another, specified, interest rate or index. Typically a tracker mortgage will track the Bank of England base rate.

Valuation Fee

A fee paid by the borrower for the lender's inspection of the property. This is normally paid on application. See fee, arrangement fee, fees added to loan, booking fee, conveyancing fee, land registry fees, IGP, and stamp duty.

Variable Rate

An interest rate that will vary over the term of the loan, normally in line with the general cost of borrowing.

Verification Of Employment

Most lenders will contact your employer to confirm you work there and your paid regularly.