# uk : glossary

Advance

The actual amount of money agreed to be lent to you for
your mortgage.

Annual Versus Daily Interest Rate Calculations

Some lenders offer mortgages with daily or with annual interest.
The best option depends on your personal circumstances,
for example if you know you will want to make overpayments
or regular capital payments on your mortgage, you should
probably consider a daily interest type mortgage. However,
if flexibility of payment is not a requirement, annual interest
may be more appropriate.

Depending on the mortgage product you have chosen, interest
will be calculated either annually (on 1st January) or daily.
Interest is worked out based on the amount of capital you
owe at the time of calculation.

APR (Annual Percentage Rate)

It assumes certain fees and likely costs in connection with
a mortgage and combines this amount with the interest rate
of the mortgage product. The APR is intended to help you
compare the terms offered by different lenders. An APR must
be quoted by lenders on each mortgage product, in addition
to the actual rate of interest for the mortgage product.

Arrears

This is the term used to describe payments which are due,
but have not been made.

Building Survey

Sometimes referred to as a Structural Survey, this is a
comprehensive report, conducted by a surveyor, for the buyer
of a property. It is usually appropriate if the buyer has
concerns as to the structural adequacy of the property.

Buy To Let Mortgage

A loan taken out to buy a property as an investment, for
the sole purpose of letting. Rental income is received from
the tenants, which is used to repay the mortgage and can
provide additional income.

Capped Mortgage

A mortgage product which guarantees the interest rate charged
will not rise above a certain level for a set period of
time. However, if the Standard Variable Rate goes below
the capped rate, the Standard Variable Rate will apply.
Once the set period of the capped rate has ended, the Standard
Variable Rate of interest will be charged

Cashback Mortgage

Is a mortgage product, which provides a cash lump sum or
a cash percentage of the mortgage amount to spend as you
wish. The cashback amount is paid to the borrower shortly
after completion. The interest rate applied is usually the
Standard Variable Rate.

Chain

Is where a number of buyers and sellers are connected by
the fact that they are all buying and selling properties
to each other at the same time. Exchange of contracts must
be agreed so that each buyer gains vacant possession of
the property they are buying on the same day

Completion

Completion is the final stage of the mortgage process and
occurs when the solicitor or conveyancer dealing with the
purchase or remortgage is in a position to receive the mortgage
funds. This date is known as the completion date. The lender
sends the amount of the mortgage to the solicitor who then
uses the funds to either repay your existing mortgage (if
remortgaging) or sends the agreed purchase price to the
seller’s solicitors (if purchasing a property).

Credit Scoring

Credit scoring is a system which lenders use to assist in
making decisions about granting loans. Credit scoring uses
statistical techniques to measure the likelihood that an
application for loans will be a good credit risk.

Mortgage Deposit

The deposit is the initial lump sum payment, which the buyer
must contribute to the property’s total purchase price.
The minimum amount of deposit is usually 5% or more of the
property’s purchase price or valuation. Many mortgage
products, however, require a larger deposit to be paid

Endowment

A life assurance policy used as a repayment vehicle to pay
off a mortgage loan. Some policies offer an additional amount
when the policy matures. However, this depends on the investment
performance of the policy. There is a risk of shortfall
in the anticipated amount on maturity if the policy does
not perform as expected

Equity

The positive difference between the value of your property
and the amount of any outstanding loans secured against
it.

First Time Buyer

Someone whose name has never appeared on the deed to a property
regardless of whether the property was mortgaged or not.

Fixed Rate Mortgage

A mortgage product which guarantees a fixed rate of interest
at a specific level for a set period. After the set period
has ended, the Standard Variable Rate will apply.

Flexible Mortgage

Is a mortgage product, which provides the customer with
flexible benefits such as payment holidays, the facility
to make over and under payments or combination with a current
account

Guarantor Mortgages

Guarantor mortgages are taken out in situations where the
applicant may not have adequate income on their own to support
the mortgage and a blood relative gives an undertaking to
promise to pay the debts of the applicant if they fail to
do so. The guarantor is instructed to take independent legal
advice to ensure they fully understand the potential consequences
and the limit of their liability.

Interest Only

A mortgage where only interest is paid during the term of
the loan. The capital borrowed is repaid at the end of the
mortgage term using the proceeds of an investment repayment
vehicle taken out for that purpose.

Loan To Value (LTV)

This is the term used to describe the percentage of the
mortgage amount to the value of the property. For example,
if a person is buying a property for £80,000 and is
able to put down a deposit of £20,000, the mortgage
amount loaned will be £60,000. The loan to value percentage
is the amount of loan divided by the purchase price. Therefore
£60,000 as a percentage of £80,000 is 75% LTV.
This means there is equity of 25% in the value of the property.

Monthly Mortgage Payment

This is the amount a lender requires to be paid each month
to repay your loan over the mortgage term.

Mortgage

A loan taken out for the purpose of buying a property, secured
against the value of the property itself.

Mortgage Agreement in Principle

An expression of a mortgage lender's willingness to enter
into an agreement subject to other conditions being met,
such as credit checks and a satisfactory property valuation.

Mortgage Code

This is a voluntary code followed by lenders and mortgage
intermediaries in their relations with personal customers
in the UK. It sets standards of good mortgage lending practice,
which are followed as a minimum by those subscribing to
it. As a voluntary code, it allows competition and market
forces to operate to encourage higher standards for the
benefit of customers.

Mortgage Deed

The legally binding document held by a lender, together
with other legal documents, in the Title Deeds of the property
for the term of the mortgage. A Mortgage Deed confirms the
details relating to the mortgage agreement.

Mortgage Deposit

The deposit is the initial lump sum payment, which the buyer
must contribute to the property’s total purchase price.
The minimum amount of deposit is usually 5% or more of the
property’s purchase price or valuation. Many mortgage
products, however, require a larger deposit to be paid.

Mortgage Indemnity Guarantee (MIG)

Also known as Loan Percentage Charge. Every lender is required
to obtain Mortgage Indemnity Insurance to act as extra security
for their sole benefit for higher risk lending. Some lenders
may cover the cost of this insurance up to a specific percentage
of the property’s valuation, such as up to 90% of loan
to value. However, if the mortgage exceeds 90% of the property’s
valuation, a borrower may be required to pay a one-off fee
to cover the cost of this insurance, which could be added
to the mortgage account.

In either case you should be aware that:

Such insurance does not protect you if your property is
subsequently taken into possession and sold for less than
the amount you owe.

You remain liable to pay all sums owing, including arrears,
interest and a lender’s legal fees.

If a claim is paid to the lender under such insurance,
the insurers have the right to recover this amount from
you.

Mortgage Term

The agreed period of time (in full years) over which your
mortgage will be run. In most cases this is 25 years, the
majority of lenders have a minimum mortgage term of 5 years.
At the end of the mortgage term you are required to have
paid off the mortgage.

Remortgage

A mortgage loan taken out with a new lender for the purpose
of repaying an existing mortgage with a different lender,
which is secured against the value of the property.

Repayment Mortgage

A mortgage where the repayments pay off both the interest
and the loan itself (the capital). You should owe nothing
at the end of the mortgage term.

Right To Buy Mortgage

The applicants currently rent, usually from the council,
and are entitled to buy this property at a discounted price.

Self-Build Mortgages

This is a mortgage for applicants who are building their
own property. The loan is usually released in stages as
the building progresses.

Tracker Mortgage

Is a mortgage product linked to a benchmark interest rate,
such as the Bank of England base rate, usually for a set
period of time. The rate you pay moves up and down in line
with the benchmark selected. At the end of the set period,
the Standard Variable Rate will apply.

Variable Rate

A mortgage where the interest rate is not fixed, but rises
and falls in line with changes in interest rates in the
ec