Glossary of Terms

Additional Security Fee.
An Additional Security Fee (Mortgage Indemnity Guarantee policy) is paid to take out an insurance policy designed to indemnify the mortgagee (lender) against loss in the event of default on the mortgage repayment. It is normally taken out by the lender at the start of the mortgage and the mortgagor (borrower) is made to pay the premium! The premium is normally calculated as a percentage (7.5is typical) of that part of the loan above a certain percentage of the property value, normally 75 It is charged as a lump sum to the borrower and can usually be added to the mortgage advance. It should be understood that such policies are for the protection of the lender and NOT the borrower. In recent times many lenders will pay this for you if you have a 10deposit, but this varies and needs to be checked out before making an application, as this can be very expensive.

Advance
The mortgage loan

Adverse Credit
This is the term used if the borrower has suffered a poor credit history. This could include previous mortgage or loan arrears, County Court Judgement’s (CCJ’s), or bankruptcy.

Agricultural Restriction
A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.

Apportionment
The division of liability for property tax, water charges etc between the buyer and seller of a property.

APR
Annual percentage rate. A term defined in consumer credit legislation with the intention of providing a standard basis for comparing different forms of credit. It has had limited success and can be confusing. For example, case law has established that a lender can quote a mortgage APR based on a short-term fixed rate without including in the calculation the fact that, at the end of the fixed rate period, the rate will change. The allowable assumption is that the rate will continue throughout the mortgage term. The calculation must however include the 'total charge for credit' which includes such things as arrangement fees, valuation fees etc and so does have some merit. The concept is overdue for overhaul and redefinition.

Arrangement Fee
This is a fee you pay to your Lender in return for providing you with a mortgage. Usually paid on completion or with application , these fees usually apply when you take out a fixed rate, discount or cashback mortgage.

Assignment
Document transferring rights of ownership from one person to another, such as an endowment policy to the building society in connection with a mortgage. Can also be the document transferring the lease on a property.

ASU
Accident, Sickness and Unemployment insurance (See also MPPI). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.

Auction
Public sale of a property to the highest bidder. The purchaser must immediately sign a binding contract and should ensure that all valuations, searches etc are carried out prior to the sale. Completion must usually take place 28 days after the date of auction.

Authority to Inspect The Register
Document from registered proprietor of land allowing another party, such as the purchasers' solicitor, to be given information from the register of a property.

Bankers Draft
A cheque drawn on the Bank itself against deposit of cash. Normally required in property transactions.

Base Rate Tracker
The newest type of mortgage. The interest rate is variable but set at a premium (above or below) the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that, usually there is little or no redemption penalty. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant.

Booking Fee
A fee paid for the arrangement of a mortgage, usually at the time of application and often non-refundable if the purchase does not proceed.

Bridging Loan
Short term loan to facilitate the purchase of one property prior to the sale of another releasing funds that are required for the purchase. Professional advice should always be taken prior to considering any bridging finance as it can be a solution which is worse than the problem.

Brokers Fee
A fee charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.

BSA
Building Societies Association. Represents interests of member societies. Address 3 Savile Row, London W1X 1AF.

Building Societies Commission
Regulatory organisation for Building Societies. Reporting to Treasury Ministers.

Building Society
Mutual organisation specialising in lending money to individuals to purchase or remortgage residential properties. Most of this money comes from individual saving members who are paid interest. A proportion of building society funds are also raised on the commercial money markets. Since the early eighties there has been a progressive relaxation of the rules governing the allowable sources of building society funds for lending to allow societies to compete more effectively with banks and there is now no restrictions as between the allowable proportions of 'retail' and 'wholesale funding'.

Buy-to-Let
This is a mortgage designed for people who wish to purchase a property to rent out to others. The ability to repay this type of mortgage is often based on the projected rental income from the property as opposed to the personal income of the borrowers.

Capital and Interest
Monthly payments to the lender are a combination of part of the capital borrowed, and partly the interest on the loan, resulting in the loan reducing over time.

Capped Rate
An interest rate charged on a mortgage where there is a guarantee from the mortgagee that the rate will not exceed a certain amount usually for a set period of 1 - 5 years but which will reduce if the standard variable rate falls below the capped rate.

Cashback
A payment you receive when you take out a mortgage. It may be a fixed amount, or a percentage of the amount of the mortgage.

CCJ
County Court Judgment. A decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this.

Centralised Lender
"Term used to describe a mortgage lender who does not rely on a branch network for distribution. Originally applied to specialist lenders who entered the mortgage market in the mid-late eighties (National Home Loans, The Mortgage Corporation, First Mortgage Securities, Mortgage Express and many others). This followed some de-regulation, which made the securitisation of mortgage loans a viable and potentially profitable option for lenders. (See SECURITISATION). Several building societies now have ""centralised lending"" operations which operate quite separately from their branch networks and rely exclusively on mortgages from intermediary sources."

Charge
Any right or interest, especially a mortgage, to which a freehold or leasehold property may be held.

Charge Certificate
The certificate issued by HM Land Registry to the mortgagee of a property with registered title. Contains three parts - charges register, property register and proprietorship register. Contains details of restrictions, mortgages and other interests. Where there is no mortgage it is called the Land Certificate and issued to the registered proprietor.

Chattels
Moveable items such as furniture or personal possessions.

Chief Rent
A rent payable by the owner of a freehold property similar to the ground rent payable by a leaseholder. Normally only found in the North of England. Can be bought out by freeholder.

CML
Council of Mortgage Lenders

Completion
When the sale and purchase of the property are finalised and you become the owner of your new house.

Contract
Legally binding agreement for sale. In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.

Conveyance
The deed by which freehold, unregistered title changes hands. If the property is leasehold and unregistered it is called an assignment. If the title is registered the deed is called a transfer.

Conveyancing
The legal process involved in buying and selling property.

Covenant
A promise contained in a deed.

Credit Scoring
This is a way in which a lenders assess whether you are a good risk to offer a mortgage to.

Credit Search
A check the lender makes with a specialist company to find out whether you have any CCJs or a bad credit record.

Debt Consolidation
This is a means to repay high interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage to benefit from lower interest rates and lower monthly payments.

Deed
A legal document which is 'signed, sealed and delivered' not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.

Deposit
The amount of money you put towards buying your property.

Disbursements
A solicitors expenses for example: land registry fees, searches, faxes etc.

Discount Rate
An interest rate which is set at a set margin below standard variable rate usually for a period of 1 - 5 years. Used as an incentive to attract potential new borrowers.

Early Redemption Charges
This a fee charged by a lender if you pay off part or all of your mortgage before the agreed date, or you move your mortgage to another lender. These charges mainly apply to fixed rate, discounted rate and cashback mortgages.

Easement
A right, such as a right of way, which the owner of one property has over an adjoining property.

Endowment
A life assurance policy that is designed to produce a lump sum to pay off an interest-only mortgage. There are different types of endowments.

Equity
The amount of value in a property that isn't covered by a mortgage - simply take the amount of the mortgage from the valuation to work out the equity.

Equity Release now known as Lifetime Mortgages
You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on.

Exchange of Contracts
This is the point at which you and the person selling the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold, as well as the date on which everything is to be completed. When contracts are signed, everything becomes legally binding and if you or the seller pull out before completion you or they will have to pay compensation.

Fixed Rate
The interest charged on a mortgage is set for an agreed period.

Fixtures
Any item that is attached to a property and so legally is part of the property.

Flexible Mortgage
This type of mortgage is relatively new. The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays.

Freehold
This is where you own the property and the land that it is on.

Gazumping
This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.

Gross monthly repayment
This is the amount you must repay to the lender before tax relief (see MIRAS) had been applied to the interest Charges. MIRAS was abolished in April 2000 and so there is now no tax relief applied to mortgages.

Ground rent
A fee that a leaseholder has to pay the freeholder every year.

Guarantor
This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family relative.

High Percentage Lending Fee
See MIG

Home Buyers Report
This is a property survey which lies between a mortgage valuation and a full survey. It is a multi-page report which gives the buyer some piece of mind about the property they are purchasing.

Income Multiples/multipliers
The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 times the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this.

Income protection insurance
This covers accident, sickness and unemployment. It provides a monthly payment if you cannot work for an extended period due to an accident, sickness or unemployment.

Income reference
This is confirmation from your employer that you earn the amount you stated when you made your mortgage application. If you are self employed, the lender may require confirmation from your accountant.

Interest Only Mortgage
With this type of mortgage, the borrower is only required to pay interest on the amount borrowed during the mortgage term. It is the borrowers responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the mortgage at the end of the term.

Intermediary
A mortgage broker or advisor who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf.

ISA’s - Personal Equity Plan.
This is a tax free way to own shares or unit trusts. You can also use ISA’s as a way to repay an interest only mortgage with some lenders.

Land Registry Fee
This is the fee paid to the Land Registry to register ownership of an area of land.

Leasehold
If you buy a leasehold property, you own the property for a set number of years but not the land on which the property is built, as opposed to freehold where you own both the property and the land indefinitely.

Licensed conveyancer
An alternative to using a solicitor, these people specialise in the legal side of buying and selling property.

Lifetime Mortgages previously known as Equity Release
You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on.

Local Authority Search
A check carried out by the buyer's solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.

LTV
Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A £45,000 mortgage on a house valued at £50,000 would mean that the LTV would be 90

MIG
Mortgage Indemnity Guarantee. This is insurance that covers the lender in case your property is repossessed and the lender cannot get back their money. Although this insurance protects the lender, you have to foot the bill. Some lenders will add the MIG on completion of the mortgage, whilst others will deduct the relevant amount at completion. This usually applies to high percentage mortgages of over 75loan to value.

MIRAS
Mortgage interest relief at source. This was tax relief on your mortgage but was abolished by the government with effect from April 2000.

Mortgage
A loan to buy a property where you put up the property as security against you paying back the loan.

Mortgagee
The Company or Organisation that lends you the money.

Mortgagor
The person taking out the mortgage.

MPPI
Mortgage Payment Protection Insurance (See also ASU). This insurance is designed to cover the borrowers mortgage payments in case of accident, sickness or involuntary unemployment.

MRP
Mortgage Repayment Protection. This is insurance you take through the lender when you take out the loan.

Negative Equity
This is where the money you owe on the mortgage is greater than the value of your property.

Non-Status
This is where a lender may not require income details from you and a loan would be made on the basis of a good credit history and affordability checks. A larger deposit is often required. (See also Self-Certified)

Overpayment
When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.

Payment Holiday
A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.

Personal Pension
This is a structured savings and investment plan to provide for your financial needs after you retire. You can use some or all of the proceeds from a personal pension to pay of an interest only mortgage.

Portability
A term used to describe a mortgage that can be transferred between properties when you move house.

Redemption
The process of paying off your mortgage either when moving house, remortgaging or at the end of the mortgage term.

Redemption Penalties
Penalties levied by the lender when a borrower pays off the mortgage before the end of the agreed redemption period. These are often charged on fixed, capped or discounted rate mortgages.

Remittance Fee
A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed.

Remortgage
The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.

Repayment
Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.

Repossession
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Right to Buy
A tenant in a council owned property may purchase the property at a discount depending on length of their tenancy.

Sealing Fee
This is a charge made by lenders when you repay a mortgage.

Searches
These are checks carried out during the conveyancing process. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and it's saleability in the future before making a loan.

Self Certified
Normally when a borrower applies for a mortgage he or she will be asked to provide pay slips or company accounts to prove their income. If it is difficult or extremely inconvenient for you to provide this documentation, you can choose to self-certify your income. This involves signing a declaration which states your income sources and amounts. Lenders will sometimes charge you higher rates than average and offer you a more limited range of mortgages if you choose to self-certify your income, so it's not a good idea to self-certify just to avoid some paperwork. (see also “Non Status”)

Shared Equity
A scheme operated by a developer where the developer retains a percentage equity of around 10in the property. Thus the developer holds a second charge over the property. The 10owing may be interest free or may incur interest and be added to the total amount owing on the property.

Shared Ownership
A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this. There is often an option to purchase the full amount at a later date.

Stamp Duty
This is a tax payable on the purchase of a property by the purchaser. For properties with a purchase price of up to £125,000, no stamp duty is charged.
For properties between £125,000 and £250,000, 1% stamp duty is payable on the purchase price.
For properties between £250,000 and £500,000 it is 3%
For properties between £500,000 and £1,000,000 it is 4%
For properties between £1,000,000 and £2,000,000 it is 5%
For properties over £2,000,000 from 22nd March 2012 it is 7%
For properties over £2,000,000 purchased by certain persons including corporate bodies) from 21 March 2012 it is 15%

If the value is above the payment threshold, SDLT is charged at the appropriate rate on the whole of the amount paid. For example, a house bought for £130,000 is charged at 1%, so £1,300 must be paid in SDLT. A house bought for £350,000 is charged at 3%, so SDLT of £10,500 is payable.

Structural survey
This is the most wide ranging check of the outside and inside of a property. This is carried out by professional surveyor and it should pick up all but the most hidden faults.

SVR
Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly.

Term
The period of years over which you take the mortgage and when you have to repay it.

Term Assurance
This is an insurance policy designed to repay the mortgage on the death of the insured person. Level Term Assurance covers a principal sum throughout the policy term and pays out the full amount on death. Reducing Term Assurance is designed to repay the balance outstanding on a repayment type mortgage upon death. Term Assurance may also pay out early on the diagnosis of a terminal illness, and other benefits can be added, such as comprehensive critical illness cover.

Tie-in period
As a condition of a special mortgage deal, you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early redemption charge.

Title Deeds
Documents that show proof of who owns the freehold and leasehold property.

Transfer deed
This is a document that, once you sign it, transfers the ownership of a property to you.

Unencumbered
This is where the property is owned outright and no mortgages or loans are secured against it.

Valuation
A simple check of the property in order to find out how much it is worth and whether it is suitable to lend a mortgage on.

Valuation Fee
A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.

Variable Rate
The interest rate the lender charges. it goes up and down and your repayments change accordingly.

Vendor
The person selling the property.

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E-mail: enquiries@hyde-associates.co.uk