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Glossary of Terms

APR
The Annual Percentage Rate – the total cost of the credit to a consumer, shown as an annual percentage of the total amount of credit.

Base Rate
This is the rate set by The Bank of England.

Buildings Insurance
Insurance cover which protects the holder against damage to the property. The valuation will usually indicate a rebuild cost for insurance purposes. Sometimes it is bought in conjunction with contents insurance.

Business Buy to Let
Buying a property to rent out to tenants – usually as an investment, the costs of which are covered by the rental achieved and the increase in value over time.

Capital and interest
Also known as ‘repayment’ – where the payments cover the interest on the loan and reduces the capital loan at the same time.

Capped Rate
A mortgage which does not rise above an agreed ‘ceiling’ in the event of interest rate rises.

Cashback
A cash incentive paid back to the borrower when the mortgage starts.

Completion
This is the final stage of the mortgage process when funds are transferred to the sellers after the exchange of contracts and ownership passes to the buyer.

Consumer Buy to let:
Buy-to-let mortgages that are not bought as an investment for an experienced landlord but are dictated by personal circumstances. The government defines this as follows:
“There are some situations where borrowers do not seem to be acting in a business capacity. Examples of this may be where the property has been inherited or where a borrower has previously lived in a property, but is unable to sell it so resorts to a buy to let arrangement.

In these cases, the borrower is a landlord as a result of circumstance rather than through their own active business decision. The government’s view is that such borrowers are consumers and would need to be covered by an appropriate framework.”

Contents Insurance
Insurance cover which protects the personal belongings in your home.

Conveyancing
Normally carried out by a solicitor or licensed conveyancer on the buyer’s and/or lender’s behalf – the branch of law dealing with the transfer of ownership of property

County Court Judgement (CCJ)
A judgment made in the courts relating to the default on a debt which can affect your eligibility to obtain credit. The Scottish equivalent of an English CCJ is a Decree.

Credit Reference Agency
Organisations that hold records of your credit file – the lender will refer to these when assessing your loan application.

Current Account
An everyday bank account normally used for regular transactions such as paying salaries in, setting up Direct Debits, withdrawing cash etc.

Deeds
A legal documents regarding the ownership of property or legal rights. The lenders interest will be noted on the Deed so that their investment is protected in the event of a default on the loan.

Deposit
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property’s total purchase price. Commonly set at around 5% to 10%.

Discounted Rate
A mortgage which has an interest rate below the lender’s standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.

Early Repayment Charges (ERC’s)
Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges which make it expensive to switch your mortgage during a certain period, usually at the beginning of the fixed period.

Endowment Mortgage
Endowment mortgages are interest only mortgages linked to an endowment policy intended to cover the cost of the capital at the end of the term. They’re no longer popular vehicles to repay a mortgage with and although it’s still possible to buy an endowment policy, they are not widely sold anymore. Other investment products like ISAs are proving more attractive to customers because they are easier to access, offer lower charges and tax relief.

Exchange of Contracts
Once contracts are exchanged both parties are legally obliged to complete the transaction. Any insurance policies taken out must be put on risk from the time of exchange of contracts.

Execution-only/Non-advice
A service which offers no advice, but merely carries out the customer’s orders.

Fixed rate mortgage
A fixed rate mortgage charges a set interest rate for anything from 1 year, 3 years, 5 years, or occasionally even longer. At the end of the fixed rate, the mortgage will normally revert to the lender’s standard variable rate. Fixed rate mortgages often incur Early Repayment Charges (see above).
Fixed rates protect the borrower against interest rate rises but if the rates fall it could be a disadvantage.

Flexible Mortgage
A flexible mortgage can offer various benefits such as overpayment facilities, payment holidays and offset mortgages linked to savings.

Gross
Before tax or deductions.

Home and Contents Insurance
A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler – see both above.

Illustration
Also known as a KFI or ESIS, this document gives the buyer the information they need in relation to their mortgage eg rates being paid, monthly repayment, charges incurred etc.

Adverse Credit
Adverse credit mortgages are offered when the credit history is poor and the borrower cannot get a mainstream mortgage. Specialist lenders cater for this circumstance.

Interest
The premium which a borrower must pay a lender in return for use of the lender’s money.

Interest only mortgage
An interest only mortgage is one that pays interest on the capital amount borrowed but does not reduce the amount borrowed. This type of mortgage requires a repayment vehicle to ensure there is a means of paying off the loan at the end of the term.

Loan To Value or LTV
This is the amount you want to borrow divided by the purchase price and determines how much deposit you will pay and how much loan you will need. Lower LTVs attract lower interest rates as the risk the lender is lessened.

London Inter-Bank Offered Rate (LIBOR)
Libor is the benchmark interest rate that banks charge each other for overnight, one-month, three-month, six-month and one-year loans. It’s the benchmark for bank rates all over the world. Libor is an acronym for London InterBank Offered Rate.

Mortgage Adviser
A firm/ individual with permission for advising on regulated mortgage contracts.

Net
After tax or deductions have been deducted.

Offset Mortgages
An offset mortgage works by matching your savings to your mortgage. You then only pay interest on the slice of debt above your savings balance. This reduces the amount of interest you are charged, allowing you to pay off your mortgage sooner.

Overpayment
This is repaying more than the required amount off your mortgage. It can reduce the amount of interest you pay in the long term but not all mortgages have this facility whilst some limit the amount of overpayments you can make without incurring a penalty.

Payment Holiday
A mortgage payment holiday is an agreement you might be able to make with your lender that allows you temporarily to stop or reduce your monthly mortgage repayments.
For example, depending on your circumstances and previous payment history, it could be that you’re able to take a break for a month, six months, or even a year from paying your mortgage.
Not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.

Procurement Fee
The total amount paid by the mortgage lender to a mortgage adviser/ intermediary in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.

Remortgaging
The process of switching your mortgage loan from one lender to another without moving house.

Repayment Mortgage
A mortgage loan that pays off the capital loan as well as the interest on the loan, over an agreed period of time.

Repayment vehicle
The method by which the borrower pays off the capital loan at the end of the term eg pensions, investments.

Search
In the United Kingdom, a local authority search (also known as local land charges search or local search) refers to the provision of specific information about a particular property and the surrounding area for buyers and sellers.

Secured
A secured mortgage is money you borrow that is secured against the home you are buying. If you default on your mortgage your home can be repossessed by the lender.

Self certification mortgage
A self certification (sometimes called self-cert) mortgage was a mortgage for self-employed people who did not have pay slips or a regular income to confirm their earnings to a lender. This type of mortgage is no longer available in the UK.

Stamp Duty
Stamp Duty is the tax you pay when you buy property. Currently there is no Stamp Duty payable on properties below £125,000. Above this amount the duty is paid on a scale linked to property value.

Standard Variable Rate (SVR)
A mortgage lender’s main interest rate. When a fixed rate ends it usually reverts to the lenders SVR and borrowers usually aim to find a new fixed deal as the SVR is usually higher.

Survey

An inspection carried out by a qualified surveyor to determine the value of the property and to report on any defects or issues that may affect the lenders decision to offer a loan.

Tracker
Tracker mortgages are basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate. Most commonly, the rate that is tracked is the Bank of England Base Rate.

Term
A mortgage term is the length of time, usually in years, over which the mortgage lasts.

Underpayment
A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.

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