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 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