Mortgage and Property Glossary
No-one likes a three letter acronym. Or jargon. Here are some of the key mortgage terms explained. Just in case you need it.
A
Accident, Sickness & Unemployment Insurance (ASU)
It’s a form of income protection that pays you a tax-free proportion of your lost salary every month for 12 or 24 months to help you get back on your feet. With ASU you pay a modest premium each month and, if you fall ill, get hurt or lose your job through no fault of your own, you’ll be covered.
Actuary
The numbers people. Usually smart. Actuaries calculate, among other things, insurance premiums, annuity rates, dividends and risks, usually in relation to pensions, insurance and investments. In the mortgage world, an actuary will calculate what you need to pay for life assurance and any other insurance policies.
Administration Fee AKA Application Fee
A lender fee that covers the cost of processing your mortgage application. It’s worth noting that if, for any reason, you don’t complete your application, the fee may not be refunded.
Adverse Credit
If you have had problems with credit in the past you may well be classified as having adverse credit. This is normally caused by late payments, County Court Judgments (CCJs) or bankruptcy.
Amortisation
No-one likes a word that has mort in it but fear not. Amortisation is simply a term for the reduction in the amount you owe on your mortgage over time as you make regular payments.
Applicant
That could be you.
Application
The process of applying for a mortgage and supplying personal and financial details to the mortgage broker and/or lender.
Appraised Value
Simply a professional surveyor’s estimated value of a property.
Appreciation
If your property increases in value, that’s called appreciation. Depending on your circumstances you may or may not appreciate it.
Arrangement Fee
So many fees start with an A. Charged by a mortgage lender, they take care of the administration costs of a mortgage. For some mortgages, they don’t exist. Which is often nice.
Arrears
If you are behind on your payments, you are said to be in arrears.
Auction
Going once, going twice. You get it. Some properties are sold at auction.
B
Bank Rate
The interest rate set by the Bank of England’s Monetary Policy Committee.
Basic Income
Simply your basic salary.
Booking Fee
A fee that doesn’t begin with A. Another charge from the lender which usually secures your mortgage amount and/or a rate.
Bridging Finance
A short-term loan often borrowed to finance a new building or property or until permanent, long-term financing is secured.
Broker
That’s us. Hi there. We work on your behalf to secure a mortgage from a lender.
Broker’s Fee
We’re back. This is the fee we charge for finding and arranging the most suitable mortgage for borrowers.
Buildings Insurance
Buildings insurance protects your building. Funnily enough. It covers loss or damage to the physical structure of your home. Things like the roof, the walls and other fairly important parts.
Buy to Let
Buy to Let mortgages are for people who buy a property to rent out to tenants. It’s an investment mortgage.
C
Cap
A cap is effectively a ceiling on an interest rate. It normally lasts for a specific period of time, a bit like a fixed rate mortgage. So, if you secure a cap of, let’s say 4%, you will never pay more than that. Even if underlying interest rates rise above that.
Collar
A collar is the opposite of a cap. The ying to its yang. It is a rate that a mortgage cannot go below. So, if your mortgage has a 3% collar, you will not pay less than that, even if rates fall below that.
Cap and Collar
Take the above two and add them together.
Capital
Not the biggest city in a country. In the mortgage world, this refers to the difference between your outstanding mortgage amount and the value of your property. It is often called equity.
Chain
Let’s be honest, it’s not a nice word. In the world of property and mortgages it refers to a situation where a buyer is waiting on the completion of the sale of a property so they can complete on the purchase of a new property. They can often be long, with several people in the chain.
Commercial Mortgage
Financing designed for individuals or companies who are buying commercial property.
Commission
Payment made by a lender to a broker for arranging a mortgage for a client with them.
Completion Date AKA The Big Day
The date that your solicitor provides the money from your lender to the vendor’s solicitor. At this point you are the legal owner of the property (so make sure all those insurances are in place)
Contents Insurance
This insurance covers the stuff inside your home. Fixtures and fittings, TVs and all that good stuff. It is worth noting that some items may need specific additional insurance, or at least you need to ensure they are valued correctly as part of your policy.
Contract
A legal agreement between the buyer and seller of a property.
Conveyancing
A legal process that covers the transfer of ownership of a property from a seller to a buyer. It is, in most cases, carried out by a professional conveyancer or solicitor. AS such, you can expect to pay a fee for it.
County Court Judgement (CCJ)
CCJs are issued by a County Court in cases of bad debt. Made against individuals, they will show up during credit checks. We’ll be honest, they’re not great for securing a mortgage.
Credit Check
As part of the mortgage application process, credit checks are normally carried out on a person’s credit history.
Credit History
See above. Basically, the full and unabridged history of a person’s debt handling. This is used as a tool by lenders to decide whether they will lend money to an individual.
Credit Rating
Normally based on a person’s credit history, this is an assessment of whether or not they will be able to keep up repayments on a loan.
Credit Report
The combination of the previous two points, summed up in a handy report.
Critical Illness Cover (CIC)
No-one wants to think about the possibility of serious illness, but planning correctly can make all the difference. This cover pays out a lump sum to you if you are diagnosed with a number of specific conditions. These include cancer, heart attacks, Parkinson’s and other serious conditions. Usually, the lump sum is used to pay off your mortgage and other debts.
D
Deeds
Legal documents that prove ownership of a property. Deeds are, in most cases, held by the lender.
Deposit
In the world of mortgages, the money used as a down payment on a property.
Disbursements
More fees we’re afraid. Fees like stamp duty and a land registry fee. This are normally paid by a buyer’s solicitor on their behalf (after you’ve given the money to the solicitor of course).
Discount Rate
A special rate on a mortgage that offers a discount from a lender’s Standard Variable Rate for a set period of time.
E
Early Redemption Charge (ERC)
When a mortgage is set up, an end date is agreed. If a borrower decides to pay their mortgage off early, then some lenders will charge a fee for the privilege. These fees normally only apply when a borrower is within a fixed or discounted period of a loan. The good news is that many lenders allow overpayments up to a certain percentage on mortgages each year, without penalty.
Endowment
They are still about. Endowments are effectively a savings vehicle designed to produce sufficient money to pay off an interest-only mortgage at the end of its term.
Equity
Simply the difference between the outstanding mortgage amount and the value of the property. So, if you have a mortgage for £100,000 and your property is worth £300,000 you have £200,000 equity.
Equity Release
Equity release refers to a range of products that let property owners access the equity (cash) tied up in a home if they are older. They can take the money they release as a lump sum or, in several smaller amounts. Or as a combination of both. They require detailed and bespoke advice.
Exchange of Contracts
The last step before completion. An exchange of contracts happens when a buyer signs the contract for sale and sends it to the seller who also signs it. At this point, the buyer and the seller are legally bound to complete the transfer.
F
Fixed Rate Mortgage
These mortgages do what they say on the tin. A mortgage rate is fixed for a certain period of time (which can be anything from two to 25 years) so borrowers have certainty of payments and budgeting. They are incredibly popular because of this. Of course, should interest rates fall significantly then a fixed rate may look expensive. But, if they rise, they look really good.
Flexible Mortgage
Flexible mortgages give, well, flexibility. Borrowers can amend monthly repayments and even take payment holidays. They can also pay their mortgage off early without penalty. It should be note that because of this flexibility, flexible mortgages are normally more expensive than standard mortgages when it comes to the rate a borrower will pay.
Freehold
This means that borrowers not only own their property, they also own the land it is on.
G
Gazumping
Yuck. A hideous word that means when someone selling a property accepts an initial offer but then receives a higher offer from a different buyer that they accept prior to the exchange of contracts.
Gazundering
Double yuck. This happens when a buyer makes a lower offer than their previous one to a seller just before an exchange of contracts. Bad behaviour. To say the least.
Guarantor
A Guarantor is someone who is liable for the repayment of a mortgage if, for whatever reason, a borrower fails to keep up their mortgage repayments. Guarantors are usually parents or close family members.
H
Nothing to see here. Please move along.
I
Income Multiples
A system used by many mortgage lenders to calculate how much they will offer as a mortgage, There is no real generic rule, but most lenders offer around 4x a single income and 3x a joint income. But some offer more. So, if you are a single person buying a property and you have a salary of £60,000, you could hope to borrow around £240,000.
Income Reference
A checking mechanism where lenders will ask a borrowers employer to confirm how much they earn.
Interest
Simply the extra amount that a lender charges a borrower for borrowing money. Because, sadly, most things in life aren’t free.
Interest-Only Mortgage
An interest-only mortgage, means that borrowers only pay back the interest and are not paying off the capital. This means that the borrower must have an alternative way to pay off the capital at the end of the mortgage.
Intermediary
That’s us again. Another word for broker. Legends.
J
Joint Tenancy
An agreement between two people who own a property, If one of the owners dies, their share of the property will be automatically transferred to the other party.
K
As far as we know, there are no k's.
L
Land Registry Fee
The fee paid to the Land Registry to register the ownership of a specific area of land.
Leasehold
The opposite of freehold. A borrower purchases a house or flat, but the land remains the property of the freeholder. When the leasehold period ends, the freeholder becomes the owner of the property again.
Life Assurance
Life insurance is designed to pay out either a lump sum or a series of payments should someone die during the term of the policy. Normally, the pay-out is tax free. Payments are used for a number of reasons, the most notable of which are to pay off a mortgage or to provide an income for others.
Listed Building
A special building, often because of historic or architectural significance, which cannot be altered in any way without official consent.
Local Authority Search
A search that, as an example, checks are no proposed developments close to a property that could make it less attractive. I will also highlight the various planning permissions for the property and whether any enforcement notices have been served upon it.
LTV (loan to value)
A common mortgage term that details what percentage of the total value of the property a lender will lend to a borrower. So, if a borrower is offered an 80% LTV, that means that they need to fund 20% of the total purchase price (or remortgage value).
M
Mortgage
Okay, a little obvious seeing as you are already here. A mortgage is a loan on a property. Obvs.
N
Negative Equity
This describes a situation where a mortgage amount is higher than the market value of a property. It’s not a cool situation to be in that often happens if house prices fall significantly.
Non-Status Mortgage
With a non-status mortgage, the lender may not require income details from the borrower. Taken by people who, for whatever reason, cannot prove their income. As you would expect, the rates are significantly higher than a standard mortgage.
O
Offer
The amount a buyer offers to a seller for a property.
Offshore Mortgage
They are complex. Usually arranged for foreign nationals who want to buy a UK home.
Overpayment
Simply when a borrower makes a payment that is over their contractually obliged payment terms. Oh, and they can result in good savings throughout the course of a loan.
Overseas Mortgage
For those that want to buy a holiday home or investors in properties outside of the UK. They can be arranged in sterling or foreign currencies.
P
Payment Holiday/Break
For those with flexible mortgages, they are the ability to take a break from paying the mortgage for a specified period. They don’t normally come with a kit kat.
Permanent Health Insurance (PHI)
These policies offer a regular tax-free income for policy holders if they are unable to work due to accident or sickness.
Portable
Some mortgages can be transferred between properties if, for example, a borrower moves house.
Product Transfer
The act of changing products at the end of a fixed or discounted period, but remaining with the same mortgage lender.
Purchaser
We don’t need to explain this.
Q
You weren't expecting any Q's were you?
R
Redemption
Simply a flash word for paying off a mortgage. Often results in a small party.
Redemption Penalties
Redemption penalties cover when a borrower pays off their mortgage before the end of the agreed redemption period.
Remortgage
Very common these days. Simply means changing a mortgage lender while remaining at the same property. Usually happens at the end of a fixed rate or discount period. Carried out to secure a better rate.
Repayment Mortgage
Repayment mortgages are set up so borrowers make monthly repayments the pay both the interest on the loan and also a proportion of the capital borrowed.
Repossession
If a borrower can no longer keep up their mortgage repayments, their property is legally repossessed by the lender.
S
Self-Certified Mortgage
Mortgages that are generally for self-employed people and those with more complex income situations. They tend to cost more because of higher interest rates.
Stamp Duty Land Tax
Argh, tax. You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland. The bands are below:
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1.5m 10%
Over £1.5m 12%
First time buyers get a discount (relief) that means they pay less or no tax if both the following apply:
-
they, and anyone else they’re buying with, are first-time buyers
-
the purchase price is £500,000 or less
Standard Variable Rate (SVR)
The vast majority of lenders have a standard variable. It often moves in line with the Bank of England base rate, but not always. Ultimately, that is at the lender’s discretion.
Structural Survey
A detailed structural analysis of the inside and outside of a property that is designed to reveal any issues. It is performed by a chartered surveyor who compiles an extensive report.
T
Term
The time period of your mortgage. 25 years is the standard, but they can be for any number of periods.
Term Insurance
A policy that pays a lump sum if the policyholder dies at during the term of a policy.
U
Under Offer
A property is under offer when a seller has accepted an offer from a buyer.
Unencumbered
If a property is owned outright and no mortgage is secured against it. Happy days.
V
Valuation
A check carried out by the lender to establish how much a property is worth. And also whether it is suitable for a mortgage.
Vendor
Someone who is selling a property.
W
Surprisingly, there's nothing to see here.
X
Guess what?
Y
Yield
Used as a term in investment/buy to let mortgages. It is the income generated from a property and is displayed as a percentage of its value.
Z
Zebra Mortgage
Alright, there's no such thing.