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Glossary

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AIP (Agreement in Principle)
This is a conditional offer made by a mortgage lender that provided the information you give them is correct, they will ‘in principle’ give you the loan you have discussed with them.

APR
APR stands for Annual Percentage Rate. A lender is always required to quote the APR when advertising a loan or borrowing rate. The lender will usually quote the headline rate and the APR next to it. The headline rate states the rate of interest you pay per month or per year on the mortgage, while the APR is based on the total amount that will be paid over the entire period of the loan. It also takes into account any charges that the borrower has to pay during the loan period.

AVM
AVM stands for Automated Valuation Model. It is a search used by some lenders to establish the value of your property based on recent local sales and value trends. This is instant and means that they do not have to send a surveyor to your property.
 
Base Rate
The UK's core interest rate set by the Bank of England. The lender's Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.

Buildings Insurance
Insurance cover to protect the policyholder against damage to the property itself. It can also be linked with contents insurance in a combined policy. The amount insured may differ from the purchase price or valuation depending on the type or location of the property. A valuer will usually provide a rebuild cost for insurance purposes.

Buy to Let
Purchasing a house or flat for investment purposes. Income is provided by the tenant’s rent and capital growth (if any) by the property's increasing resale value.

Capital and Interest
IAlso known as ‘repayment’ is a method used to repay your mortgage. The monthly payment to the lender each month will consist of an element of the actual loan amount (or ‘capital’) and interest. As time goes by your loan amount will reduce and providing the monthly payments are made in full and on time, your mortgage will be fully repaid at the end of the term.

Capped Rate
A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.

Cashback
A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an incentive to enter into a mortgage contract.

Completion
The final stage of the house-buying process, which occurs after exchange of contracts. The sale must proceed after exchange, but completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.

Compulsory Insurances
Some lenders, at least for certain mortgages, insist that you take out their buildings insurance - which isn’t necessarily the most cost effective on the market. Our Mortgage Wizards allow you to select out these products if you wish to (although sometimes of course, the mortgages can be so good that it outweighs the potential disadvantage of taking the compulsory insurance).

Contents Insurance
Insurance cover which protects the personal belongings contained in your home. In the case of rented accommodation, the landlord is responsible for insuring the contents owned by them, but not those owned by the tenants.

Conveyancing
The transfer of legal title of property from one person to another or in other words, changing the name of the person or people the property is registered to. This process is normally carried out by a solicitor or licensed conveyancer on the buyer's behalf and includes proving the property is actually owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property's value.

Council Tax
A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.

County Court Judgement
If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans or alternatively pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies and contain information from many different aspects of your life

Current Account
A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.

Debt Consolidation
Debt consolidation typically refers to using a mortgage to consolidate other loans and reduce monthly outgoings. The rate (as long as you choose carefully) is usually a great deal less than you are paying for credit cards, unsecured loans or other finance and can therefore save you a significant amount each month. However, as the term of a mortgage is generally longer that the term of your debt, you may pay more over the term of the loan.

Deeds
The formal written document which lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Deposit
In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property's total purchase price. This figure is most commonly around 5-10%.

Discounted Rate
A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down but the discount percentage itself remains constant.

Distance Mortgage Mediation Contract
If a regulated mortgage contract is taken out exclusively using the internet, telephone, email or fax then it is classed as a distance contract.

Diversification
The principle that wise investors should spread their risk among many different types of investment. A properly balanced portfolio will contain elements of share, deposit-based and property investments. Fund performance and objective achievement are not guaranteed.

Early Repayment Charges
A charge levied by the mortgage lender on the customer, in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can, in some cases persist long after the initial rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan.

Employment Status
A term used by lenders to describe potential borrower’s working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are, but many specialist lenders and mortgages have emerged in recent years designed especially for different types of employment status.

Endowment Mortgage
A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.

Equity
The value of your property less any outstanding mortgage or loans secured against the property

Exchange of Contracts
The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying and the seller to selling. As a buyer, you should ensure that you are covered by building insurance from this date as you would still be legally committed to buying it even if it were to be badly damaged.

Execution Only
A service in which the customers orders are followed and no advice is given.

Fixed Rate
A mortgage where the interest rate is fixed or remains at a specified level, typically for the first few years of the loan.

Fixed Rate Mortgage
A fixed rate mortgage charges a set (fixed) interest rate over an agreed period of time. This could be anything between 1 and 5 years and sometimes even longer. At the end of the fixed rate the mortgage will normally revert to the lender's standard variable rate. Usually you will find that a fixed rate mortgage offers very favourable terms, but early repayment charges will limit any flexibility to move away from it during the initial period. The benefit of a fixed rate mortgage is that you know how much you'll be repaying each month for the rate period therefore allowing you to budget more effectively. A drawback of this type of mortgage is if standard rates begin to fall as you will be fixed on a higher rate with prohibitive early repayment charges.

Flexible Mortgage
A mortgage which incorporates additional features such as allowing borrowers to make overpayments when they have spare cash, reduce or miss payments altogether when times are tough and to ‘re-borrow’ any previous overpayments. Not all flexible mortgages offer all of these features. They are often useful for self-employed individuals whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.
 
Graduate Mortgage
A mortgage which tends to require no deposit and in some cases can lend over 100% of the value of the property. There are a number of lenders who offer specialist graduate mortgage products.

Gross
Before tax has been deducted.

Growth Strategy
A growth strategy is one which seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income generated may be reinvested.
 
Higher Lending Charge
This is an insurance premium that you have to pay for some mortgages, usually when the Loan to Value is higher than a certain percentage. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout and that if the payout doesn't cover their costs they may seek further compensation from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan to Value over a certain percentage. The insurer may pursue you as the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.

Home and Contents Insurance
A joint term referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer but buying them together can sometimes save money or make life simpler.
 
Illustration
In the context of mortgages, this is a lender's estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up and any other features included.

Impaired Credit
Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders' standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.

Income Strategy
An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).

Independent Mortgage Advisors
Those who can advise you on a mortgage that is right for you, taking into account your circumstances and the full range of products available.

Interest
A premium which a borrower must pay a lender in return for use of the lender's money.

Interest Only Mortgage
An interest only mortgage is when only the interest amount on your loan is paid to the lender each month. As no part of the actual loan amount or ‘capital’ is being repaid, this figure will remain outstanding until the end of the term when it is your responsibility to repay the loan amount in full. For this repayment method, you will need to invest money each month into a repayment vehicle (such as ISA, endowment, pension), in order to build up a sufficient funds to pay off the capital portion of the mortgage at the end of the term.

ISA Mortgage
A mortgage loan funded by contributions to an Individual Savings Account (ISA). ISA’s provide tax-free growth, generated mainly by stock market investment. The ISA aims to repay the loan's capital at the end of its term as the interest element will have been paid to the lender as you go along. It's important to remember that past performance is not necessarily a guide to future performance and values can go down as well as up.

Letting Agent
A property agent who can help landlords locate suitable properties for purchase and who assist in finding tenants to occupy those properties. They can also manage the rental process which follows..

Loan to Value
This is the percentage your loan represents against the property value and is worked out by dividing the amount you wish to borrow by the purchase price (and converted to a percentage). In other words, it reflects the size of your deposit. Generally the lower the loan to value, the safer the lender will view the loan.

London Inter-bank Offered Rate (LIBOR)
The interest rate at which leading banks lend to one another. This rate is sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. LIBOR rates can be for different periods up to a year however the most common period used in setting mortgage rates is one or three months.
 
Money/Wholesale Market
The market in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money using these markets, particularly for funding fixed rate mortgages

Net
After tax has been deducted.

Non-Status
Where your income is not disclosed and/or you have some adverse credit.
 
Overpayment
A mortgage repayment bigger than the one needed to meet the loan's minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.
 
Payment Holiday
A short break from regular mortgage repayments sometimes offered as a feature of flexible mortgages. This can sometimes be useful for those who are self-employed or have irregular income.
 
Pension Mortgage
A mortgage whose capital repayment is funded by contributions to a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax and there is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan's capital at the end of the term. Past performance of pension funds is not necessarily a guide to future performance.

Premium
In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

Procurement Fee
The total amount paid by the mortgage lender to a mortgage advisor/intermediary (whether directly or indirectly), in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.
 
Remortgaging
The process of switching your mortgage loan from one lender to another without moving house.

Repayment Mortgage
Also known as ‘capital and interest’ is a method used to repay your mortgage. The monthly payment to the lender each month will consist of an element of the actual loan amount (or ‘capital’) and interest. As time goes by your loan amount will reduce and providing the monthly payments are made in full and on time, your mortgage will be fully repaid at the end of the term.

Repayment Vehicle
An investment (usually an ISA, endowment policy or pension) which is used to repay an interest only mortgage at the end of the term.
 
Searches
These are usually carried out by a solicitor or licensed conveyancer. The types of searches that will be conducted are local authority search (an examination of local planning records to uncover details of any upcoming developments near the property – these could affect the future value), environmental search (check of past used of the land in order to ascertain whether the past use is likely to have led to contamination) and land registry search (to find out whether there are mortgages registered against the property that have not been previously disclosed

Secured Loan
A loan where property is offered to the lender as ‘security’ for the loan. Therefore, should you default on your mortgage, for instance the lender can repossess your property to recover their money.

Self Build Mortgage
A mortgage designed to help you finance the building and ownership of a house that you are about to build. The UK self build mortgage market is classed as a specialist area as you are asking lenders to put forward money against an asset which does not exist at present.

Stamp Duty
Stamp Duty is the tax you pay when you buy property or shares. Stamp Duty Land Tax is paid when you buy property (such as houses, flats, buildings or other land) and either Stamp Duty or Stamp Duty Reserve Tax is paid when you buy shares. The amount of Stamp Duty is determined by the purchase price of the property and is most commonly between one and four percent of the entire purchase price.
The current Stamp Duty Land Tax rates based on purchase price are as follows: Up to £125,001 to £250,000 - 1%, £250,001 - £500,000 - 3%, £500,001 or more - 4% £1,000.0001 to £2,000,000 – 5%, £2,000,001 Plus – 7%

Standard Variable Rate (SVR)
A mortgage lender's main interest rate. Initial rates (such as fixed and discount) will usually revert to SVR when the initial offer period ends.

Status
Where income is provable

Survey
An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.
 
Term
The period of time over which your mortgage (or a particular rate) will run. Typically mortgages are over 25 years but can be more or less than this amount.

Tracker
A variable rate that tracks another rate. In the case of mortgages, this is generally the Bank of England base rate. The tracker rate is set at a percentage above or below the rate it is tracking.
 
Underpayment
A mortgage repayment smaller than the regular agreed sum. This feature of a flexible mortgage is useful for those with irregular income.


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