A ~ B ~ C ~ D ~ E ~ F ~ G ~ H ~ I ~ K ~ L ~ M ~ N ~ O ~ P ~ Q ~ R ~ S ~ T ~ U ~ V ~ W

A

Accident, Sickness and Unemployment Insurance - The policy pays a percentage of the usual monthly mortgage payment after a waiting period (with some plans an element of extra cover is allowed for household bills) if the borrower cannot work because of accident/sickness or unemployment/redundancy.

Payments are made for limited periods of time 6, 12 or 24 months or until the borrower returns to work.

N.B. The following would preclude the payment of benefit:

Voluntary redundancy, summary dismissal for misconduct (the sack), self injury and injury arising from the misuse of alcohol or drugs.

Added To Loan - This phrase relates to the costs borrowers face when arranging a mortgage. Often these costs are added to the mortgage amount being borrowed. The costs may include items such as mortgage indemnity fees, arrangement fees and administration fees as examples.

Additional Security Fee This is required when the mortgage exceeds a certain percentage of the value of the property (usually 75%). The form of additional security used is normally a Mortgage Indemnity Policy. Occasionally the lender may require a parent to be a guarantor or for other security such as shares or insurance policies to be pledged.

Administration Fee Some lenders charge this fee to cover their costs of administration and sourcing funds. This fee is not refundable if the mortgage application does not proceed. Often the administration fee will form part of the valuation fee and the lender will not refund this part if the valuation does not proceed.

Adverse Credit This is a term used to describe credit problems the borrower may have suffered in the past. Such problems will encompass County Court Judgements and arrears on loans.

Annual Percentage Rate (APR) This is a legal definition which is used to show what the cost of borrowing actually is. It is intended to be a standard definition to allow a potential borrower to compare the costs of various types of mortgage.

Every mortgage quotation must show an APR figure.

Annuity Mortgage A term used in other countries to describe a Capital and Interest repayment mortgage.

Applicant Someone who applies for a mortgage.

APR see annual percentage rate.

Arrangement Fee Whilst some lenders charge an administration fee others may charge an arrangement fee. Again this fee is charged to cover administration and primarily reserving the funds for fixed rate and/or discounted rate mortgages. This fee may be paid separately added to the mortgage or in rarer cases taken from the mortgage loan.

Arrears When mortgage payments have not been paid on time and/or are not made at the correct level. Borrowers with a history of mortgage arrears will find it harder to effect a further mortgage with their current lender or a new lender in the future. However, there are a number of lenders who will consider lending to credit impaired individuals.

B

Bank This is a financial institution authorised through the Bank of England. Banks now encompass the so-called traditional clearing banks, the converted building societies and the newer banks that have recognised brand names from the insurance and retail sectors, e.g. supermarkets.

Bankrupt This occurs when someone is unable to pay their debts and creditors move to secure what monies they can from any existing assets (property) held by that person. All property is then administered by the official receiver. A Bankrupt if able to still work will only receive an allowance to live on after payments are made to creditors.

Bankruptcy - Discharged From  After a period of time a Bankrupt Individual can be discharged from bankruptcy. This then releases them from their financial obligations. However, having been declared bankrupt, it will be many years before they may be able to borrow money or obtain a mortgage, if ever.

Basic Earned Income Usually this is an individual’s basic salary. This is the guaranteed element and does not include bonuses, overtime and shift allowance.

Booking Fee Another term to describe a fee which is payable upfront to either source or reserve funds for a mortgage. Usually applicable for fixed or capped rate mortgages.

Broker Fee Usually a fee charged by an adviser to a borrower for locating the most appropriate mortgage for the borrower.

Buildings Insurance All lenders require a property to be insured. It should be insured for the full rebuilding cost including professional fees and such insurance cover is normally a condition of the mortgage. N.B. The full rebuilding cost will normally differ from the mortgage valuation of the property.

Building Society Building Societies are mutual organisations regulated by the Building Societies Act. This means that their members actually own the organisation. Building Societies are only allowed to raise limited external funds and are generally have stricter criteria as to whom they lend compared with Banks and other organisations. There has been much interest in mutual building societies because of the so-called ‘windfall benefits.’ However, the window of opportunity to gain has largely been closed now.

Buy to Let This term describes where a property is purchased for the purpose of letting it out to tenants, which will generate an income for the purchaser. A number of lenders will consider granting a mortgage for such a purchase.

C

Capital This refers to either the deposit put down on a property or the amount over and above the mortgage which would be available if the property were sold. Also known as equity.

Capital and Interest Mortgage This is one of the most usual types of mortgage. The monthly repayment made by the borrower includes a repayment of capital borrowed and an amount for the interest charged. At the beginning of the mortgage most of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage. Over the term of the mortgage more and more of the monthly payment is comprised of paying back the capital borrowed. As long as the monthly payments are always made on time the mortgage is guaranteed to be paid off at the end of the term. This type of loan is often known as a repayment loan.

Capital Raising This refers to remortgages which are used to allow a borrower to release equity (capital) from the property. As a result the new mortgage is for a larger sum.

Capped This refers to a capped rate mortgage which is a cross between a fixed rate and a variable rate mortgage. The interest rate will never rise above a certain rate within what is known as the capped rate period. If the usual variable mortgage rate is less than the capped rate then the borrower is charged that variable rate. Such a mortgage is attractive as the borrower can benefit from falling interest rates but will not have to pay more than the capped rate.

Along with the term capped rate the phrase cap and collar mortgages is often encountered. The ‘collar’ is the minimum interest rate, whilst the maximum interest rate payable is known as the ‘cap’. As these mortgages involve the lender having to source funds it is usual for early redemption penalties to be imposed if the mortgage is redeemed within a capped rate period.

Cap and Collar see Capped.

Car Allowance This is a payment made by a company to an employee in lieu of a company car. Normally paid monthly through salary and is broadly equivalent to the leasing cost of the car. Some lenders will take this type of income into account.

Cash Back With these schemes once a mortgage is completed a lender will pay a percentage of the mortgage or a lump sum to the borrower. The higher the percentage of cash paid the greater the amount of strings attached. These may be reflected in higher redemption penalties if the mortgage is redeemed in the early years and/or reflected in a less favourable rate of interest on the mortgage. It should be noted that the cash back could result in a capital gains tax liability for the borrower, for clarification you should seek advice from your own tax office.

Centralised Lender This is a lender who does not have any branches and may operate from one location either through brokers or via the telephone.

Charge or Legal Charge When a borrower/s takes out a mortgage the bank take a charge or a legal charge over the property. This means that they are registering the interest in the property. In Scotland this charge is known as a standard security.

Completion This is the last stage in the purchase of a property. The legal documentation is finalised and the lender has sent the mortgage funds to the purchaser’s solicitor. Once the purchaser’s solicitor forwards the funds to the seller’s solicitor the property is now owned by the Purchaser

Completion Fees - Some lenders will collect their administration fees at the time of completion by deducting them from the advance.

Compulsory Insurance’s see Conditional Insurance’s.

Concrete Construction Mainly local authority properties (especially high rise blocks) built in the 1960s and 1970s, which are regarded by some lenders as not as mortgageable as some other properties.

Conditional Insurance’s This is where a lender insists that certain insurance products be taken out before a mortgage is granted. Very often a lender will insist that buildings and contents insurance is effected and/or accident, sickness and unemployment cover is in place before mortgage monies are released. This is usually encountered with capped, discounted or fixed rate products.

Contents Insurance This is insurance which should be considered by all householders whether or not they have a mortgage. It covers items such as furniture; carpets, curtains; electrical goods and many policies also cover personal possessions, which may be removed from the home. This is separate to buildings insurance.

Contract Work With the labour force becoming more flexible and employers having to meet different business needs, many workers are now employed on fixed term contracts. Fixed term contracts means that the individual is not employed directly by the company and is often not included in company benefit schemes, such as pensions and life assurance. As the company does not employ the individual they are not included in any redundancy schemes. Contract working has become popular as some individuals are paid a higher salary than those who are directly employed by companies to make up for the lack of company benefits. In some cases contract work is also suitable for those also who do not wish to be tied to one employer. Mortgage lenders will wish to see a consistent pattern of employment before they will lend.

Converted Flat This is a flat, which has been created out of a larger house or property.

Conveyancing Fee This is the fee charged by a solicitor or licensed conveyer after the legal paperwork for transferring a property has been completed. It should be remembered that as well as this fee, stamp duty, land registry fees and legal disbursement fees also require to be paid.

County Court Judgement (CCJ) This is a judgement for debt lodged in a County Court. Such judgements are recorded and will be shown when a credit check is run. Traditionally, an individual with CCJ’s will not easily be able to get a mortgage. Lenders will normally insist that such CCJ’s are satisfied or have been satisfied for some time before a mortgage will be granted.

Credit Check This is where the mortgage lender evaluates the credit history of an applicant by referring to one of the major credit agencies. This is also known as a credit reference.

Credit Scoring Assessing the ability of borrowers to be able to meet the mortgage payments from answers entered on a mortgage application form.

Criteria (Mortgage) These are the standard terms and conditions of a lender.

Current Standard Variable Rate This is the usual mortgage rate charged by a lender. This rate moves up and down in line with interest rates and the general movement in mortgage rates.

D

Debt Consolidation Borrowers with a number of different loans usually which are unsecured (not secured on the property) may find that they can replace these loans with a single loan secured on the property. This can often reduce the borrowers monthly outgoings by paying only one loan which is secured on the property sometimes over a longer term. As the loan is secured, the interest rate may be considerably lower.

Decree - This is a Scottish equivalent of a CCJ.

Deeds Release Fee This is the fee charged by a lender when it has released its charge over the property deeds and returned them to the solicitor. It covers the administration carried out.

Deferred Interest Mortgage This is a mortgage where not all of the interest due is paid in the early years. The interest not paid is added to the mortgage. As a result a borrower will end up owing more than the initial mortgage amount and the interest payments will be higher over the rest of the mortgage term. This type of mortgage is usually marketed to professionals whose salaries are expected to increase rapidly in order that they can meet the later interest payments over the rest of the mortgage term.

Deposit This is another term for the equity put into a property by borrowers. The phrase may also refer to the amount paid upon exchange of contracts.

Disbursements These are costs related to the conveyancing of a property. These costs usually encompass photocopying, postage, couriers and legal documentation.

Discharge Fee Lenders charge this fee when releasing the charge over a property after a mortgage has been repaid.

Discharged Bankrupt see Bankrupt and Bankruptcy discharged from.

Discounted Rate This phrase refers to mortgages which have an interest rate lower than normal variable rate. The discounted rate is a fixed discount off the normal variable rate for a set period of time. It should be remembered that a discounted rate will move up and down with the normal variable rate but the rate paid will always be at a fixed percentage less for the discounted rate period, e.g. a rate may be 3% below the variable rate for 3 years. If a Discounted Rate mortgage is redeemed during the early years it is likely that there will be early redemption penalties.

Draw Down Facility This refers to mortgages, which have a facility allowing additional funds to be borrowed later on during the mortgage term. A borrower then knows that they have got the facility to access future funds without having to go through all the normal paperwork.

E

Early Redemption Fees This refers to any redemption fees that a lender will charge if a mortgage is redeemed before the end of the term.

Endowment Mortgage This is a mortgage where interest only is paid and the proceeds of the endowment policy when it matures will repay the mortgage. The most popular type of endowment is the low cost endowment, which is designed to repay the mortgage as long as certain investment assumptions are met. The endowment does not guarantee to repay the mortgage. As well as being an investment vehicle the endowment policy will also include life assurance and may include critical illness and other benefits for the policyholder.

Equity see Capital.

Equity Appreciation See Capital. This is the increase in capital available in the property over and above the mortgage amount.

Exchange of Contracts (England only) At this stage of property purchase legally binding contracts are exchanged between the buyer and the seller. After contracts have been exchanged the vendor must sell and the purchaser must buy on the terms agreed.

Existing Liabilities This phrase simply refers to all the other financial commitments apart from the existing or proposed mortgage. Liabilities will include credit cards, bank loans, maintenance payments to ex-spouse and school fees, etc. Lenders will take these items into account when evaluating the mortgage amount they are prepared to lend.

Expatriate This is someone who is working or what is known as domiciled (living in) in a country which is not the place of his or her birth or nationality

F

Fee A lender, mortgage broker or adviser may charge this for arranging a property purchase.

Feuhold This is found in Scotland and is similar to freehold.

First Charge A lender will always use this to secure the main mortgage therefore a lender who has a first legal charge over a property will have the first call on any funds raised from the property sale.

First Time Buyers (FTB) The lending market is very competitive for first time buyers. Mortgage lenders want to be the first to lend to such borrowers in order to keep them as customers for subsequent mortgages. Generally this phrase is used for those borrowers who are buying a property for the first time. Some lenders will also consider someone who has owned a property before but maybe currently renting. First time buyers may be able to access particularly attractive mortgage packages such as fixed rates and discounted rates.

Fixed Rate Mortgage These are mortgages where the interest rates are set for a number of months or years. After the fixed rate period the interest rate will revert to the normal variable mortgage rate. If the mortgage is redeemed during the fixed rate period there are usually redemption penalties.

Flat over shop This is a private flat which is located above a retail outlet. Some lenders do not view this type of property as favourably as those flats found in blocks, which are completely residential.

Flexible Drawdown/Repayment Features This refers to mortgages, which permit additional funds to be borrowed later on during the mortgage term and/or flexible repayments to be made. Flexible repayment mortgages may allow payment holidays and/or the amount of monthly payments to be varied.

Foreign Currency Mortgage These are mortgages where the loan has been drawn down in another currency that is not sterling. Such loans require careful consideration, as they can be beneficial however the opposite also applies and in some cases borrowers have found the mortgage debt has increased because of currency movements. Financial advice should be sought if considering such a mortgage.

Freehold (England only) This refers to land or property which is owned indefinitely. Leasehold property only gives the owner a right to hold for a limited period of time.

Full Status This refers to a mortgage where full credit checks and information has been soured on the borrower.

Further Advance This describes when the current mortgage lender has granted a further loan. This loan is also secured by the first charge on the property. Further advances are generally used for debt consolidation or home improvements.

G

General Conditions These are the standard conditions applicable to a mortgage. These will be found in the paperwork given to a borrower.

Geographical Restrictions These are areas where mortgage lenders wish to lend or operate in. This may simply be because they have no branches in this area or a lower awareness of the area. This is usually applicable to smaller lenders.

Gross Monthly Payment This refers to the monthly mortgage payment.

Gross Profit This is the profit of a company before allowing for expenses.

Guarantor This is a person who will guarantee that the mortgage repayments are made in the event of default by the borrower. Usually this will be a parent or relative of a borrower. It should be remembered that a guarantor would be fully liable for repayment of the mortgage amount if a borrower defaults. The guarantor should therefore be confident that the borrower would meet all the necessary monthly payments.

H

Higher Early Redemption Fee This phrase will usually be found in conjunction with fixed rate, capped and discounted mortgages. As the lender has given the borrower an attractive mortgage package they will impose a penalty over and above the normal redemption fees if the mortgage is paid off within the period of the special terms.

Holiday Home This refers to a property, which is purchased for use at weekends and for holidays only. As the borrower is not living in the property all the time, mortgage lenders have stricter lending criteria and borrowers may find that they have to put down larger deposits.

HomeBuyers Report This is a property survey report that has more information than a mortgage valuation but is not as detailed as a full structural survey report. This report is used by the lender in place of the mortgage valuation report and gives more information that will enable a borrower to reach a decision on whether or not to purchase. A detailed structural survey report may be more suitable for some types of property, e.g. older. It is essential that professional advice be sought in this area.

Home Buyers Valuation Fee see HomeBuyers Report. This is the fee payable for the report.

I

Illustration This is a quotation given to a potential borrower to show the monthly cost of a mortgage and any other expenses incurred with the loan.

Impaired Credit This refers to the credit rating of an individual who may have CCJs or maybe behind with payments to personal loans or a mortgage. This phrase is also applicable to someone who has been declared bankrupt.

Income Multiplier Lenders use income multipliers in calculating how much they can lend on a mortgage. Usually a single income has a multiplier of three times and a joint income has a multiplier of two and a half times. Some lenders will give higher multiplies.

Indemnity Premium - See Mortgage Indemnity Fee

Initial Fees This figure includes an assumption of expenses which include the solicitor’s fees, valuation fees and any arrangement, reservation, booking and application fees applicable. This is only an estimate and the costs are likely to differ dependent on the type of survey carried out and property purchased.

Initial Interest This often catches borrowers unaware. Initial interest is a payment, which covers the period between completion, and the normal date when the mortgage payment is due, e.g. a mortgage maybe completed on the 15th October and the first payment due is on the 28th. A borrower will have to pay interest for the period between the 15th and the 28th, 13 days interest. This is an extra cost not always pointed out to borrowers until they have completed.

Initial Rate This is the interest rate that is paid from the beginning of the mortgage to the end of the initial rate period. This usually relates to fixed and discount mortgages, which may have an initial rate of interest, lower than the normal variable rate. At the end of the initial period the normal variable rate will be payable.

Insurance Guarantee Premium see Mortgage Indemnity Fee.

Interest Calculated This is a figure for guidance purposes only and shows the interest only which is payable on a typical mortgage. You should be aware that to get an exact costing an illustration would be required from a lender. This is particularly the case if your circumstances do not meet standard mortgage lending criteria.

Interest Only Mortgage This is a mortgage where only the interest is paid to the lender. A borrower should be aware that any capital repayment is an extra amount, which will be over and above the interest paid. The capital will be repaid from an endowment policy, pension plan or PEP or ISA. It is the responsibility of the borrower to ensure that the repayment vehicle will pay off the mortgage at the end of the term. Remember that Life Assurance will also be costed separately.

Introducer A mortgage broker or adviser who introduces a borrower to a potential lender.

ISA Mortgage A mortgage, which will be repaid from the proceeds of an ISA.

L

Land Registry Fee This is the fee paid to the Land Registry to record a change in the records following a transaction involving land registered with them. The borrower’s solicitor usually notifies the change to them.

Landlord’s Reference This is a reference from the borrowers previous landlord stating whether the rent and conduct would make him or her suitable lending risk.

Large Town Allowance This is a part of salary paid to an employee because of extra expense incurred from working in a more expensive area of the country. This payment is usually taken into account by mortgage lenders when calculating the amount that can be borrowed.

Leasehold (England only) If a property has a tenure which is Leasehold then the land is not owned by the property purchaser, and is only leased to them for a certain fixed period.

Legal Charge see Charge or Legal Charge.

Lender The organisation offering the mortgage loan.

LIBOR is the London Interbank Offered Rate. This is the rate at which banks buy and sell money to each other. It changes daily and is linked to base rates set by the Bank of England. LIBOR usually changes daily and a LIBOR linked mortgage may be adjusted at fixed intervals, e.g. every three or six months. Studying the movements of LIBOR compared to the base rate can indicate the direction of bank base rates. If bank base rates are significantly below LIBOR then the money markets think that interest rates are about to fall. Conversely if LIBOR is significantly more than the base rates this indicates that the markets believe interest rates are about to rise. Most analysts follow the three-month LIBOR rate, however, there are also rates quoted for one, six and twelve months periods.

LIBOR Linked Mortgage This is linked to LIBOR and the lender adds a fixed margin over this rate which is reset usually quarterly. The margin dependent on type of mortgage will vary but for a normal borrower is around 1-1.5%. LIBOR mortgages tend to have more interest rate changes than a normal mortgage. They may be beneficial where interest rates are relatively low and more expensive when interest rates are high.

Life Company This is the term used for a life assurance company. Life companies are authorised and supervised by The Financial Sevices Authority .

Life Insurance Term used to describe a policy, which pays out benefits if the policyholder dies.

Loan to Value (LTV) This term explains the relationship between the value of the property and the amount of mortgage, e.g. a mortgage of £75,000 on a property valued at £100,000 would have an LTV of 75%. The higher the LTV required (i.e. the more of the property value being borrowed), the fewer lenders willing to lend.

Loan Consolidation see Debt Consolidation.

Local Authority Search This is carried out by the purchaser’s solicitor to check the status of the property. This search reveals whether any proposed changes in the area are taking place, details of planning permission for the property and whether the Local Authority on the property has served enforcement notices.

Local Authority Search Fee This is the fee payable to the Local Authority for the search.

Low Cost Endowment This is the most usual form of endowment used to repay a mortgage. It provides life cover, which would pay off the mortgage, if the policyholder dies. As long as investment assumptions are met the endowment should provide a lump sum sufficient to repay the mortgage at the end of the term. If the assumptions were exceeded then there would be a lump sum over and above the mortgage amount for the borrower to enjoy.

Low Start Low Cost Endowment also known as Low Start. This is a low cost endowment where the premiums are lower to start with and build up gradually, usually over the first five years. As the premiums are initially lower the total paid over the term is greater than a low cost endowment to make up for the loss of growth.

M

Main Residence Sometimes referred to as the principal private residence. This is the normal home where someone lives.

Maintenance Payments Normally paid or received under a Court Order for a child or to make up income.

Maisonette Usually a flat, which may have, more than one floor or has its own entrance at street level.

Mortgage Deed This is the legal document, which establishes the loan on a property.

Mortgage Indemnity Fee If a ‘high percentage loan to value’ mortgage is required, then this fee is payable. The lender uses the mortgage indemnity fee to purchase insurance, which covers against, a borrower defaulting on the mortgage and a loss on repossession if the property has to be sold. It should be noted that the borrower receives no benefit and no protection from the policy. If a lender does have to claim on a mortgage indemnity policy then the insurance company who paid the claim to the lender can pursue the borrower for repayment of the amount. The mortgage indemnity fee varies from lender to lender and generally this fee is levied on loans of more than 75% of the property value. The fee is calculated as a percentage of the amount borrowed over 75% of the property value. Some lenders do not charge mortgage indemnity fees or have higher or lower property value limits.

Mortgage Indemnity Guarantee - See Mortgage Indemnity Fee.

Mortgage Indemnity Premium See Mortgage Indemnity Fee.

Mortgage Subsidy This is a payment made by an employer to help an employee purchase a home. The way in which the subsidy is calculated and paid can vary substantially from employer to employer. In recent times many employers have either phased out the subsidy or frozen the mortgage amount it is based on.

Mortgage Term The length of time the borrower has a mortgage.

Mortgage Valuation This is the cheapest and most basic type of property survey. It is the minimum required survey by lenders in order that they can evaluate the suitability of the property for mortgage purposes. The borrower normally receives a copy of this report; however, it is not a comprehensive report on the condition of the property. The borrower should consider a home buyer’s report or structural survey if they require more detailed information before deciding to purchase.

Multiplier (Income) see Income Multiplier.

Mutual Membership Terms This refers to whether or not taking out a mortgage with this lender will enable the borrower to become a mutual member of the organisation or society. Such membership usually confers voting rights and perhaps an entitlement to any so called windfall benefits if the society or organisation demutualises.

N

Negative Equity A phrase now quite well known although its affects have more recently, largely disappeared. This occurs when the property value has fallen below the amount of mortgage still owing. There are a number of lenders who have products, which can help such borrowers.

Net Profit This is the income of a company or self-employed person after the expenses of running the business have been deducted. In the case of a limited company, corporation tax will also have been deducted. With regard to the self-employed, the net profit figure is the one that can be used to calculate their ability to repay a mortgage.

New Build Newly built housing on either a brown field or green field site.

No Capital Raising This refers to a mortgage, which replaces an existing mortgage for exactly the same amount.

Non-contributory Pension A company pension scheme which does not require employees to make any contributions.

Non-Status Mortgage Mortgages offered by lenders without any proof of previous mortgage history, proof of income. The usual maximum loan to value is around 70% and a credit check is still carried out.

O

Obligatory Insurance Referred to as compulsory insurance’s or conditional insurances. See Conditional Insurances.

Occupational Pension Pension scheme provided by an employer. The pension may be based on years of service or on contributions made.

Open Market Value The normal value of a property assuming usual market conditions.

Other Income Income over and above the basic salary.

Outgoings see Existing Liabilities.

P

Part Capital and Interest Mortgage This refers to a mortgage, which is partly repaid on a capital and interest basis and also repaid by another method, hence the term ‘part capital and interest mortgage’. Sometimes a mortgage may be part capital and interest and also repaid from the proceeds of an endowment.

Part Endowment Mortgage This refers to a mortgage, which is partly repaid on a part endowment basis and also repaid by another method, hence the term ‘part endowment mortgage’. Sometimes a mortgage may be part endowment and also part capital and interest.

Part ISA Mortgage This refers to a mortgage which will be repaid from the fund built up through an ISA and also from repayments made to perhaps a capital and interest mortgage.

Part PEP Mortgage This refers to a mortgage, which will be repaid from the fund built up through a PEP and also from repayments made to perhaps a capital and interest mortgage. Note that it has not been possible to pay further contributions to a PEP with effect from 6/4/2000.

Payment Method This is the way in which the mortgage is repaid at the end of the term. The repayment may be from an ISA, endowment or from a tax-free cash sum from a personal pension.

Payment Protection Insurance see Accident, Sickness and Unemployment Insurance.

Pension Mortgage This is an interest only mortgage and it is paid off from the proceeds of the tax-free cash sum at maturity.

Permanent Health Insurance (PHI) This is a policy which pays out regular sums of money to the insured after specified period during disability through sickness or accident and injury. The benefit is payable until the policy holder returns to work, dies, or the policy term expires, whichever is earlier. Such a policy is used to replace a percentage of full income and not just the monthly mortgage repayment. PHI is not an accident, sickness and unemployment and insurance policy which usually only gives cover for up to two years. PHI pays an income until a return to work or normal retirement age. N.B. PHI does not cover unemployment.

Personal Pension Plan Such plans are suitable for those who are self employed or employed in non-pensionable employment. Contributions made to a personal pension plan are exempt from tax at the individual’s highest rate. This means that a higher rate tax payer can receive 40% relief on contributions made. Retirement age may be between the ages of 50 to 75. Importantly up to 25% of the pension fund at retirement can be taken as a tax-free cash sum. It is a percentage of this tax-free cash sum which is used to repay a mortgage if a pension mortgage is the repayment vehicle.

Portable This is an important area for borrowers to be aware of. It describes the facility to move a particular type of mortgage from one property to another if a property move is required. This would be important if a capped, cash back, discounted or fixed product has been used by a borrower and early redemption fees would be incurred if the mortgage was not portable.

Previous Lenders Reference Often a new mortgage lender will ask for a reference from a previous lender to check that the borrower did make all due payments.

Principal Other word for capital or the amount of mortgage.

Professional This is a person who is a recognised professional. An accountant, actuary, doctor, solicitor, vet, etc., are all recognised as being members of a profession. In recent years the term has widened and takes in some senior managerial positions. Not all lenders go as far as this. Therefore, some high earners will be able to borrow more from certain lenders than others.

Q

.

Quotations see Illustration.

R

Rate Type This refers to the type of mortgage you are enquiring about. It may be fixed, discounted or capped and if you require further information just tab through this Glossary.

Redemption This refers to repaying the mortgage when moving to another property or at the end of the mortgage term.

Redemption Charges see also Early Redemption Fees and Higher Early Redemption Fee.

This is a charge made by a lender if the mortgage is repaid within a set time period, normally in the early years of a mortgage these are now quite usual as many borrowers are opting for fixed rate and discounted rate mortgages. The penalties are usually in the form of a set number of months interest within the agreed early redemption period. As an example, if a borrower repays a mortgage within three years they may have to pay four months interest. When taking out a mortgage, borrowers should be aware of these penalties.

Regional Lenders These are usually smaller local building societies that only lend within the regional location. There are also lenders who will not lend in Scotland or Northern Ireland because they do not have a branch presence in these countries.

Remortgage When a borrower moves a mortgage from one lender to another this is known as a re-mortgage. The new mortgage will pay off the existing lender and sometimes the borrower may raise additional funds over and above the old mortgage amount. With a competitive mortgage market, re-mortgaging has greatly increased in popularity and many borrowers usually re-mortgage to secure a competitive interest rate. It should be noted that re-mortgages carry costs and the borrower should also be wary of any redemption charges when considering a re-mortgage.

Repayment Mortgage see Capital and Interest Mortgage.

Retention In some cases lenders will hold back monies until certain conditions of the mortgage have been met. Normally these are essential repairs or improvements that need to be made.

Right to Buy Sitting council tenants have an option to purchase the property in which they live in. Usually the property can be purchased at a discount based on the length of time they have been a tenant.

S

Sealing Fee see Discharge Fee.

Second Charge This is a legal charge that is used usually to secure a second mortgage or other borrowings. It will always rank behind a first charge.

Self Build Property which has been constructed by the borrower. Mortgage loans on self-build properties will usually only be paid in stages and are subject to lower loan to value limits. The lender will insist on a qualified architect drawing up plans and often for the builder to give an NHBC guarantee.

Self-Certification With this mortgage the borrower provides a statement of his or her income and the lender may or may not check the accuracy of the information provided.

Self-employed An individual who works for himself/herself. This will include partners in businesses and professional practices such as lawyers.

Shared Equity This allows a borrower to purchase a new property in partnership with the builder. Often the builder will allow the borrower to purchase say 90 or 95% of the property now and pay the balance off say in 5 years time. The builder will register a second charge on the property until this balance has been paid. The 5 or 10% owing maybe interest free or interest may be allowed to roll up and added to the debt. Obviously this can benefit some borrowers but the consequences of not being able to take on the additional debt in the future are serious. Financial advice must be undertaken before proceeding with this type of mortgage.

Shared Ownership A housing association tenant may have the opportunity to purchase a property. The scheme works by allowing the borrower to purchase part of the property and rent the other part from the housing association. This subsidises home ownership for people who would otherwise not be able to become home owners.

Sitting Tenant This is someone who has the right to occupy a property. This right remains even if the property changes hands. Properties with sitting tenants are much less marketable than those with vacant possession.

Sole Occupancy This is a property occupied by the borrower and his or her family only. It contains no tenants.

Special Conditions These are special terms or specific terms outlined on the mortgage offer letter. These maybe where the lender requires the borrower’s solicitor to confirm that special conditions have been met or that areas of concern have been resolved.

Stamp duty This is a Government tax which is levied when a property is purchased. The tax is paid by a property purchaser and is currently charged at the following rates:

1% - £60,000-£250,000

3% - £250,001-£500,000

4% - £500,001 and above

It should be noted that the rate is paid on the whole purchase price and not just on the slice, e.g. £500,001 requires stamp duty of £20,000 to be paid. This is 4% of £500,001.

Standard Construction This refers to houses which are also known as traditionally built. These are constructed of brick with a tile or slate roof. Lenders will give lower loan to value mortgages on non-standard constructed properties.

Standard Property This is the normal semi-detached, terraced house, bungalow or detached property.

Start Up Business This is a business which does not have a set of accounts.

Structural Survey This is the most expensive and detailed type of survey report carried out by a chartered surveyor. If the borrower requests a structural survey the lender will still need to have a mortgage valuation carried out. The borrower will then have to cover the costs of both. If the property has movement or is of unusual construction a lender may ask for a structural engineer’s report. Such a survey is undertaken by a chartered building engineer and is a further step on from a structural survey. This survey will only be asked for on more rare occasions.

Studio Flat This is a flat comprising of one room. It will usually have a bathroom and may have a separate kitchen. Lenders will only consider those in more desirable locations.

Survey Fee The fee payable for a structural survey, home buyers report, or mortgage valuation.

T

Tax Free Cash Sum This is the part of a pension mortgage which is used to repay the mortgage loan at retirement. Usually lenders will set a ceiling on the amount of tax-free cash that is used to repay the mortgage of no more than 70 or 80%. Alternatively, the lender may base repayment of the mortgage amount on the full tax-free cash sum, and in this case, a lower rate of growth is assumed in the pension fund.

Term Assurance This is the simplest form of life assurance. It pays out the sum assured on the death of the policyholder as long as it occurs within the term of the policy. This is mainly used in conjunction with capital and interest mortgages. In particular the policy is known as a mortgage protection assurance. This version of term assurance has cover which reduces in tandem with the reduction in the mortgage amount owing. Some borrowers prefer to use level term assurance which does not reduce. The means that there would be a capital sum left over if they died in the later years of the mortgage.

If the borrower lives to the end of the mortgage term the term assurance cover simply expires and has no value. As this is a protection only contract premiums are relatively inexpensive.

Timber Framed A method of building where no inner cavity wall is constructed. In the past timber framed properties suffered from damp and accordingly some lenders did not view them as secure as other types of property to lend on. More recent building techniques have eradicated such concerns and most lenders find such properties as acceptable for lending purposes.

Typical APR Mortgage quotations and advertisements will usually show a typical APR figure in order to comply with the Consumer Credit Act.

U

Unencumbered This is a property without any loans or borrowings secured on it.

Unit Linked This phrase refers to the type of life assurance product where the premiums are invested into an asset backed fund. Therefore a unit linked UK equity fund will invest in UK shares either directly through the fund or through the life company’s unit trust/OEIC.

Unitised with Profits Is a modern version of the traditional with profit policy which seeks to smooth the peaks and troughs of the stock market and other asset backed investments. Bonuses are allocated in a form more akin to annual interest payments. Such contracts are easier for investors to understand. See With Profit Policy.

V

Variable Rate Many mortgages are still arranged in this manner. Such mortgages have interest rates which fluctuate up and down often in tandem with bank base rates. In more recent years many variable rate mortgages are marketed with an initial discounted rate or fixed rate period.

W

With Profit Policy At one time such policies were the most popular method of repaying mortgages, particularly low cost versions.

A conventional With Profit Policy is designed to smooth the returns from different investments. Under such a policy the insurance company will declare annual bonuses usually known as reversionary bonuses. Once declared, these bonuses are guaranteed. At the end of the policy term if the insurance company has managed investments well and market conditions allow, a final or terminal bonus would be paid. Under a unitised With Profit Policy the annual bonuses are declared by a method more akin to interest payments. The units grow at a predetermined rate during the year and if the Actuary is comfortable with the performance of the investments the rate may be increased or maintained. Terminal bonus maybe paid as a lump sum at the end of the policy term or as further increases in the rate of bonus on units after a period of time, e.g. five years. With Unitised With Profits an Actuary may level what is known as a market value adjuster if a policyholder surrenders the plan early.