Credit jargon

A

Accident, Sickness and Redundancy Insurance -

See Accident, Sickness, and Unemployment Insurance

Accident, Sickness and Unemployment Insurance -

The policy pays a percentage of the usual monthly mortgage

payment including any insurance (occasionally 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 hence the term. The costs may include

items such as mortgage indemnity fees and/or arrangement

fees and/or 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 this part

will not be refunded by the lender 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. As it is a standard definition it enables 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 and the newer banks which 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. We currently have lenders that will provide mortgages for ex-bankrupts and you should apply for a decision in principle for your mortgage or loan now.

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 (those

with an account or a mortgage which confers membership

rights) actually own the organisation. Building Societies are only

allowed to raise limited external funds and are generally stricter

to whom they lend than 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 of repayments are

always made on time the mortgage is guaranteed to be paid off

at the end of the term.

Capital Raising -

This refers to re mortgages 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.

Cash Back -

With these schemes once a mortgage is completed a lender

will pay a percentage of the mortgage as 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 if the cash back is large

then this could result in a capital gains tax liability for the

borrower.

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 an individual 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.

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.

Compulsory Insurances -

see Conditional Insurances.

Concrete Construction -

Mainly local authority high rise blocks built in the 1960s and

1970s, which are regarded by some lenders as not as

mortgageable as some properties.

"We have lenders who will consider lending on concrete construction, high rise blocks of flats, orlit pre-fabricated type construction and other non-standard construction. Apply now for a decision in principle"

Conditional Insurances -

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 Judgements (CCJ) -

This is a judgment for debt lodged in a County Court. Such

judgements are recorded and will be shown when a credit

check is run. An individual with CCJ's will not easily be able to

get a "High Street" mortgage and some Lenders will normally insist that such CCJ's are satisfied or have been satisfied for some time before a mortgage will be granted.

However, we at CCC Financial have Lenders that will lend in these circumstances and you should apply now to get a quotation for your mortgage, no matter what your current credit circumstances are.

Credit Check -

This is where the mortgage lender evaluates the credit history of

an applicant by referring to one of the major credit agencies.

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.

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 mortgage -

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 which 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 sourced on

the borrower.

Further Advance -

This describes when a further loan has been granted by the

current mortgage lender. 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 before the

deduction for MIRAS tax relief.

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 will

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.

Home Buyers Report -

This is a property survey report which 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 a structural survey report may be more

suitable for some types of property, e.g. older. It is essential that

professional advice is sought in this area.

Home Buyers Valuation Fee -

see Home Buyers 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 of

income if a borrower is a professional.

Indemnity Premium -

See Mortgage Indemnity Fee.

Initial Fees -

This figure includes an assumption of expenses which include

the solicitors 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 will 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/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 change is usually notified to them by the borrower's

solicitor.

Landlords Reference -

This is a reference from the borrowers previous landlord stating

whether the rent and conduct would make him or her a 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 rate 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 various

Government bodies.

Life Insurance -

Term used to describe a policy which pays out benefits if the

policy holder 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 enforcement

notices have been served by the Local Authority on the

property.

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 policy holder 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 are 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.

MIRAS -

Mortgage interest relief at source. This is tax relief allowed on

mortgage payments. The tax relief is usually allowed at source.

MIRAS is now at a relatively low 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 insurances 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.

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.

PEP Mortgage -

This is an interest only mortgage and it is paid off from the

proceeds of the PEP at the end of the mortgage term.

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 give 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

maybe 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

Qualifying Loan -

This is a loan which is eligible for MIRAS. The interest on the

first £30,000 borrowed to purchase the principal private

residence is currently eligible for relief at 10%. As the years

move on the MIRAS payment is now relatively small.

Qualifying Part -

This is the part of a mortgage loan which is eligible for MIRAS..

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 who 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 remortgage. 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, remortgaging has greatly

increased in popularity and many borrowers usually

re-mortgage to secure a competitive interest rate. It should be

noted that remortgages 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 which require 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 which 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

2% - £250,001-£500,000 3% - £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

£15,000 to be paid. This is 3% 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 policy holder 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 policy holder

surrenders the plan early.

Actuaries prefer Unitised With Profits to conventional With

Profits Plans as the Insurance Company does not have to set

aside as much in the way of reserves to cover their liability.

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