A
Agreement in Principle
An Agreement in Principle (AIP), also known as a Mortgage in Principle MIP) or Decision in Principle (DIP), gives you an understanding of how much you may be able to borrow towards the purchase or remortgage of a property. It is a document that you can use with an estate agent, or those selling a property, to show that you may be in a financial position to purchase it.
APRC
The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you compare different offers.
Arrangement fee
This is a charge levied by the lender to cover the costs of administering and reserving the funds for certain types of mortgages. May be paid separately or added to the loan amount. If it is added to the mortgage, you will pay interest on this sum throughout the term of the mortgage until the fee is repaid.
Arrears
If you fall behind on your mortgage payments you are “in arrears”.
Assignment
The transfer of ownership of an insurance policy or a lease.
B
Balance Outstanding
The amount of loan owed at a particular time.
Bank of England Base Rate
A rate of interest set by the Bank of England, which tracker mortgage rates and lenders’ standard variable rates usually follow.
Bridging Finance
A bridging loan is a short-term loan designed for property buyers and developers. Think of it as either a temporary loan or even a short-term mortgage. Bridging can be used in a variety of circumstances to provide finance until a more permanent form of finance can be arranged, such as a mortgage. There are closed Bridging Deals where the dates of inception and maturity is known. Open Bridging is where the maturity date is “open”.
Broker/Intermediary
An independent adviser who can help you with mortgages and other financial matters. They will shop around for you saving you a huge amount of time and hopefully keeping costs down.
Buildings Insurance
Insurance which you are required to undertake against the cost of rebuilding a property from scratch following structural damage, for example by flood, fire, or storm. Lenders usually insist that it is a requirement of the mortgage that such a policy be in place before legal completion. You usually have the option of arranging the policy rather than use their preferences and usually the mortgage broker can assist you in this area.
Building Regulations
The health and safety requirements that any new construction must meet.
Buy to Let Mortgages
A Buy to Let mortgage is for people looking to buy a property to rent out, rather than live in it.
C
Capital and Interest Payment
Your monthly payment covers the interest and reduces the total balance outstanding.
Cashback Mortgage
You receive a lump sum or a percentage of your mortgage in cash when you complete your mortgage, which is usually managed by your conveyancer.
CHAPS Fee
A fee to cover the cost of electronically transferring the mortgage funds to the borrower/solicitor. Again, your conveyancer usually oversees the collection of such a fee.
Charge
An interest in the ownership of a property; usually a mortgage or some other debt secured against the property.
Commonhold
First introduced in England in 2002, commonhold is an alternative to leasehold ownership of flats, and other properties that share communal areas or services. Instead of owning property as a leasehold for a fixed period of time, with commonhold you own your property as a freehold indefinitely.
Completion (Date of Entry in Scotland)
End of the purchase process. The seller moves out, the buyer moves in, and ownership is transferred.
Conclusion of Missives
Final part of the contract process in Scotland.
Contents Insurance
Insurance which is usually optional cover being against accidental damage or theft of all moveable contents, including furniture, appliances, and soft furnishings. Additional options within the policy can cover items whilst outside the home.
Contract
A document that describes the agreement under which the property will change hands.
Covenant
A condition, contained within the Title Deeds or lease, that the buyer must comply with, which is usually applied to all future owners of the property. A restrictive covenant is one that prohibits the owner from doing something.
Conveyancer
A person other than a solicitor who may conduct the conveyancing.
Conveyancing
The process of transferring property from one party to another, usually managed by a solicitor or a licensed conveyancer.
Credit Scoring
Lenders often use a system called credit scoring to help them decide whether to lend to you. They ask a series of questions about you and your finances and score your answers. Depending on your score you will be accepted or declined. They are not required to provide the reasons for their decision.
D
Data Protection Act
This is an act of Parliament which controls how you personal information is used by organisation, business or the government. (see below).
General Data Protection Regulation (GDPR) Privacy Notice
This is a notice issued to customers at the outset to notify you, how we manage your data, and explains what rights you have. We ask all customers to read this document and raise queries if any.
Debt Consolidation
The process of combining outstanding debts e.g., loans, credit cards etc, into one loan. Think carefully before consolidating debts onto your mortgage and seek advice from your mortgage adviser as there may be less costly options available.
Decision in Principle
A Decision in Principle (DIP) is another term used for what we refer to as an ‘Agreement in Principle’ (AIP).
Deeds
Title deeds are the legal documents which record the ownership of a property and any accompanying land.
Deposit
The amount you need to pay towards the total purchase price of the property. This varies depending on the product and lender. This could be from savings, or equity from the sale of a property or a combination of both.
Direct Debit
A Direct Debit is an instruction from a customer to an originator authorising their bank or building society to make regular collections direct from their account.
Disbursements
All the various costs for conducting the legal work in relation to buying or remortgaging your home.
Discharge
Paying off a mortgage.
Discount Mortgage
A discount offered by mortgage lenders to borrowers, reducing monthly mortgage repayments often for the first two or three years of the loan period. Thereafter you will be required to move up to that lenders Standard Variable Rate, but there are usually options to select alternative products with your existing lender or move to a more competitive lender. A Broker can help you compare the differences for you.
E
Early Repayment Charge (ERC)
Some mortgages, such as a fixed rate mortgage, charge a fee if you pay back the loan early. This can vary, so check your original letter of approval or terms and conditions for the amount. This is known as an Early Repayment Charge (ERC). It is usually shown in your original mortgage illustration and/or your mortgage offer.
Easement
A legal right over land, for example the right to access a specified area of land, such as a right of way.
Equity
Is the difference between the current value of your home and the amount outstanding on your mortgage.
Exchange of contracts
The point at which both buying and selling parties sign their copies of the contract which are exchanged by their respective legal representatives and are legally binding. The buyer usually pays a deposit at this point and the date of completion is agreed.
Exit Fee
This is an administration fee payable to service providers when you fully repay your mortgage.
F
Financial Conduct Authority (FCA)
The regulatory authority for the UK financial services industry. The FCA oversees the regulation of mortgages and protection products. All lenders and mortgage intermediaries in the UK must be directly authorised and regulated by the FCA or must be an appointed representative of an authorised firm.
Financial Ombudsman Service (FOS)
Should you have a need to complain about the service you have received from your Broker or Lender, you should complain to them in the first insurance. Should you not able to resolve your complaint with them you are entitled to have your complaint heard by an independent person who is called the Financial Ombudsman. They take an independent view. Sometimes they uphold complaints in favour of the customer, sometimes they do not. So be respectful of their decisions.
Financial Services Compensation Scheme.
This is a scheme whereby the industry contributes fees to a fund where complaints upheld in the customers favour are paid from if the firm no longer exists or a firm no longer has sufficient funds from which to pay.
Fixed Rate Mortgage
A mortgage where the interest rate stays the same for a specific period (e.g. two or five years) even if the base rate changes in the meantime. This is a way of stabilising your mortgage repayments if interest rates increase, but also, you may pay more if interest rates reduce. Seek advice from your mortgage broker as to which is best for you.
Fixtures and Fittings
All non-structural items included in the purchase of a property.
Flexible Mortgage
An arrangement enabling the mortgage borrower to overpay, and with the overpayments that have been built up, borrow money back, take payment holidays or pay less in some months.
Freehold
You own both the property and the land it stands on.
Full Structural Survey
A full structural survey looks at all the main features of the property, including walls, roof, foundations, plumbing, joinery, electrical wiring, drains, and garden.
The surveyor acts for you and the lender, whereas Valuation reports are for the benefit of the lender of which you usually receive a copy at the lender’s discretion.
The full structural survey is a more in-depth report and is useful for older properties or those requiring substantial repairs.
Further Advance
An additional loan to your existing mortgage taken after the main mortgage has completed which is also secured against the property.
G
Gazumping
Gazumping occurs when a seller accepts an oral offer (a promise to purchase) on the property from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price or asking for more money at the last minute, after previously orally agreeing to a lower one. In either case, the original buyer is left in a bad situation, and either has to offer a higher price or lose the purchase. This applies to England and Wales. Scottish Law has a binding agreement where the price is set once accepted.
Gazundering
A tactic whereby the buyer offers less than the agreed price just before exchange of contracts.
Gifted deposit
A gifted deposit is when someone else, perhaps a family member, provides the funds for some of, or all, your mortgage deposit. Usually, there is a requirement to evidence the source of this deposit.
Ground Rent
The annual fee which a leaseholder pays to a freeholder.
Guarantor
A third party who agrees to meet the monthly mortgage repayment if you are unable to. This is more common with First Time Buyers, with the Guarantor likely to be their parent or guardian. The guarantor ought to seek independent legal advice as to their responsibilities.
H
Help to Buy
Help to Buy is the name given to several UK Government schemes generally designed to help first time buyers attain home ownership.
Higher lending charge (HLC)
This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage.
Home Buyers Report
This is an intermediate-level survey which is usually offered by the mortgage lender and prepared by their own surveyor. The homebuyer’s report comments on the structural condition of most parts of the property that are readily accessible, but it does not involve in-depth investigation or the testing of water, drainage, or heating systems.
Home Contents Insurance
A policy insuring household contents against theft and damage.
I
IDD / Initial Disclosure Document
This is a document designed to assist a retail customer in comparing the services provided and the fees and charges made by lenders and intermediaries. It explains where an intermediary will source mortgages and insurance from. The whole of the market, whereas some firms source products from a panel of product providers and a few source from one product provider. You should check this within the IDD. It also explains your recourse should you be unfortunate to warrant making a complaint and explains the role of a Financial Ombudsman and the Financial Services Compensation Scheme.
As a foot note this is not a document for use with pure Buy-to-let properties.
Interest Only Mortgage
This is where you only repay the interest on your mortgage debt each month. Alongside this you will need to put money into a separate investment vehicle which is designed to grow sufficiently to pay off your loan when your mortgage ends. You are responsible for the repayment of the capital when the mortgage reaches the end of its term. You may want to seek professional advice on the investment vehicle. Each year your lender will ask you to review the way you repay your mortgage, especially in situations should your circumstance change.
J
Joint Applicants / Joint Mortgages
This is where you hold property ownership rights equally with another person or persons. If one person dies, ownership reverts entirely to the surviving person or persons. This legal agreement supersedes any Will the deceased may have made.
As a foot note this is not a document for use with pure Buy-to-let properties.
Joint Tenants
A form of ownership frequently used by couples which ensures that when one dies, the property passes automatically to the other. The alternative is Tenancy in Common.
K
Key Facts Illustration (KFI) or ESIS
This document contains key mortgage information which is designed to help you compare the costs and features of different mortgages from one or more lenders. It is designed to make it easy to compare mortgages at a glance. It is not a formal offer of a mortgage.
L
Land Registry
The official body that holds the details of property ownership.
Land Registry Fee
A fee paid to the Land Registry to register your details if you have bought a property or changed mortgage lenders. Your conveyancer normally collects this fee and pays it to the Registry.
Leasehold
You own the property but not the land it is built on for a specific number of years. Flats are usually owned on a leasehold basis. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Leases are renegotiable, but the shorter remaining terms, the more expensive it will usually be. At the start of any purchase, enquire if there is a lease and what is the outstanding term. An Estate Agent usually holds such information.
Life Insurance
Insurance which pays out on the death of the policy holder. Policies can run alongside your mortgage and will pay off all or part of the outstanding debt in the event of your death.
Local Authority Search
A search of the local area to highlight anything that may impact on the property or surrounding area, e.g., planned road building, planning permissions etc.
LTV (Loan to Value)
LTV means Loan to Value. The size of your mortgage as a percentage of the value of your property. for instance, if you have £50,000 mortgage and your home is worth £100,000, your LTV is 50%.
M
Maturity Date
The date the mortgage must be repaid in full, or by which a new agreement needs to be taken out.
Monthly Interest
A method of calculating mortgage interest on a monthly basis. Some interest rates are calculated on a daily basis.
Monthly Repayment
The amount you pay to your lender for your mortgage each month.
Mortgage Deed
A legal document relating to the mortgage lender’s interest in the property.
Mortgage Illustration
A Mortgage Illustration should be given to you before you make a mortgage application. It describes the key things you need to know about your mortgage such as payments and fees. This is usually called a “Key Facts Illustration”.
Mortgage in Principle
A Mortgage in Principle (MIP) is another term used for what we refer to as an ‘Agreement in Principle’ AIP). It is an indicative sum as to how much the lender is likely to provide. It has no legal standing but usually helps to secure an acceptance on the property.
Mortgage Offer
This is your guaranteed offer. Once your mortgage is approved, you will get a formal offer setting out the terms and conditions. Due to pricing and market conditions, lenders are entitled to withdraw offers, especially if they become aware of a material fact that could influence the property or the pricing of a deal. Customers should always make a note of the expiry date.
Mortgage Term
The amount of time you are repaying your mortgage over (e.g., 25 years).
N
Negative Equity
When the value of your home falls below the amount of your mortgage.
NHBC
National House Building Council. A warranty scheme for new properties providing cover against major structural defects for 10 years.
O
Overpayment
This is when you pay extra, over and above your monthly mortgage payment. You could choose to make a one-off lump sum overpayment or overpay a regular amount with your normal mortgage payment. Overpayments save you interest and will shorten your mortgage term.
P
Payment Holiday
This is a period during which you make no payments on your mortgage. While you make no payments interest will continue to be charged. Payment holidays are generally available where you have previously overpaid to a lender.
Please note: Should you ever begin to experience repayment difficulties, always talk to your lender to see what options are available.
Planning Permission
The permission granted by the local planning authority (usually the local council) for any new building or engineering operations or change of use of a building if it meets the public’s interest.
Portability
Where an existing mortgage can be transferred between properties when you move house. This is always subject to your lender’s criteria at the time of moving.
Premium
The amount you pay regularly, monthly, or annually, to an insurer for an insurance policy.
Product Fee
This is a set-up fee for your mortgage. Lenders will charge different product fees, so it is worth letting your broker shop around for the most competitive deal for you.
Product Transfer
This is the process for changing interest rates or mortgage products with the same lender, when your current mortgage product finishes. It is usual practice to allow the Mortgage Broker to compare products on your behalf with that of other lenders to make sure you are obtaining the most competitive deal for you.
Q
R
Rebuild costs
The amount it would cost to rebuild your home if it is destroyed (by fire for instance). This is needed for insurance purposes.
Remortgage
The process of moving your mortgage without moving home. You take a new mortgage with a different lender or your existing lender to pay off your old mortgage.
Repayment Mortgage
Also known as a Capital and Interest mortgage. Your monthly payments pay off the interest and some of the capital borrowed. By the end of the term of your mortgage you will have paid off all your mortgage debt if you maintain your mortgage repayments.
Retention
Holding back part of a mortgage loan until any repairs to the property are satisfactorily completed.
S
Solicitor
Legal expert handling all documentation for the sale and purchase of a property. Sometimes referred to as a Conveyancer.
Stamp Duty
This is a tax you pay when you buy a property. This amount differs based on the purchase price of a property and what type of purchaser you are e.g. A First Time Buyer or someone purchasing an additional property. Governments from time to time offer incentives to stimulate the housing markets so the amount you pay can vary depending on the state of the housing market.
Standard Variable Rate
The default mortgage interest rate your lender will charge you after your initial mortgage deal ends.
Subject to Contract
Words to indicate that an agreement is not yet legally binding.
Survey
A thorough report on the property you are planning to buy.
Surveyor
Person who conducts the survey.
T
Tenancy in Common
A form of ownership by two or more people in which, if one dies, their share of the property forms part of their estate and does not automatically pass to the other property owner (if any). Seek advice from your broker of conveyancer which is best for you.
Tenants
People living in a property on a non-ownership basis. To do so, they normally pay a sum each month to occupy a property.
Title
The record of ownership of a property, the evidence of which is found in the title deeds.
Total Amount Payable
The total cost of repaying a mortgage.
Tracker Rate Mortgage
The mortgage interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate. This mainly benefits a customer if interest rates are falling, but adversely, may inhibit a borrow in time when interest rates are gradually increasing.
Transfer of Equity
Adding or removing a party to/from a mortgage.
Transfer Deeds
The Land Registry document that transfers legal ownership from seller to buyer.
U
V
Valuation
Mortgage lenders require a valuation to prove that the property is worth the amount you want to borrow. These are usually a requirement of a lender and for their benefit. The lender dictates which type of valuation can take place, these being: –
Visit Valuation, where they visit and inspect the property.
Drive By, valuation, where the valuer drives by and estimates the value of the property. Usually, the valuers have experience of properties in that area.
Desk Top Valuation – whereby the Lender engages an experience member of staff to conduct a Desk Top Valuation whereby using local data provides all the information they need for them to be able to lend.
Usually, the lower the Loan to Value, the more a lender could focus on Drive By or Desk Top valuations.
Valuation Fee
The charge for the valuation of the property.
Variable Rate
This means the interest rate can go up or down if your mortgage lender decides to change their Standard Variable Rate.
Vendor
The seller of a property or piece of land.
