Jargon Buster |
A
Accident, Sickness and Unemployment Insurance
The policy pays a percentage of the usual monthly mortgage
payment including any insurance (occasionally an element of
extra cover is allowed for household bills) if the borrower cannot
work because of accident/sickness or
unemployment/redundancy.
Payments are made for limited periods of time - 6, 12 or 24
months or until the borrower returns to work.
N.B. The following would preclude the payment of benefit:
Voluntary redundancy, summary dismissal for misconduct, self injury and injury arising from the misuse of alcohol or
drugs.
Administration Fee
Some lenders charge this fee to cover their costs of
administration and sourcing funds. This fee is not refundable if
the mortgage application does not proceed. Often the
administration fee will form part of the valuation fee and this part
will not be refunded by the lender if the valuation does not
proceed.
Adverse Credit
This is a term used to describe credit problems the borrower
may have suffered in the past. Such problems will encompass
County Court Judgements and arrears on loans.
Annual Percentage Rate (APR)
This is a legal definition which is used to show what the cost of
borrowing actually is. As it is a standard definition it enables a
potential borrower to compare the costs of various types of
mortgages & loans.
Arrears
When mortgage & laon payments have not been paid on time and/or
are not made at the correct level. Borrowers with a history of
payment arrears will find it harder to effect a further mortgage
with their current lender or a new lender in the future. However,
there are a number of lenders who will consider lending to credit
impaired individuals.
B
Bankrupt
This occurs when someone is unable to pay their debts and
creditors move to secure what monies they can from any
existing assets (property) held by that person. All property is
then administered by the official receiver. A Bankrupt if able to
still work will only receive an allowance to live on after payments
are made to creditors.
Bankruptcy
Discharged From - After a period of time a Bankrupt Individual
can be discharged from bankruptcy. This then releases them
from their financial obligations. However, having been declared
bankrupt, it will be many years before they may be able to
borrow money or obtain a mortgage, if ever.
Buildings Insurance
All lenders require a property to be insured. It should be insured
for the full rebuilding cost including professional fees and such
insurance cover is normally a condition of the mortgage.
N.B.
The full rebuilding cost will normally differ from the mortgage
valuation of the property.
Buy to Let
This term describes where a property is purchased for the
purpose of letting it out to tenants, which will generate an
income for the purchaser. A number of lenders will consider
granting a mortgage for such a purchase.
C
Capital
This refers to either the deposit put down on a property or the
amount over and above the mortgage which would be available
if the property were sold. Also known as equity.
Capital and Interest Mortgage
This is one of the most usual types of mortgage. The monthly
repayment made by the borrower includes a repayment of
capital borrowed and an amount for the interest charged. At the
beginning of the mortgage most of the payment is used to cover
the interest and only a small amount is paid towards reducing
the mortgage. Over the term of the mortgage more and more of
the monthly payment is comprised of paying back the capital
borrowed. As long as the monthly payments of repayments are
always made on time the mortgage is guaranteed to be paid off
at the end of the term.
Cash Back
With these schemes once a mortgage is completed a lender
will pay a percentage of the mortgage as a lump sum to the
borrower. The higher the percentage of cash paid the greater
the amount of strings attached. These may be reflected in
higher redemption penalties if the mortgage is redeemed in the
early years and/or reflected in a less favourable rate of interest
on the mortgage. It should be noted that if the cash back is large
then this could result in a capital gains tax liability for the
borrower.
Charge or Legal Charge
When an individual takes out a mortgage the bank take a
charge or a legal charge over the property. This means that they
are registering the interest in the property.
Completion
This is the last stage in the purchase of a property. The legal
documentation is finalised and the lender has sent the
mortgage funds to the purchaser's solicitor. Once the
purchaser's solicitor forwards the funds to the seller's solicitor
the property is now owned by the Purchaser.
Contents Insurance
This is insurance which should be considered by all
householders whether or not they have a mortgage. It covers
items such as furniture; carpets, curtains; electrical goods and
many policies also cover personal possessions, which may be
removed from the home. This is separate to buildings
insurance.
County Court Judgement (CCJ)
This is a judgement for debt lodged in a County Court. Such
judgements are recorded and will be shown when a credit
check is run. An individual with CCJ's will not easily be able to
get a mortgage or loan. Lenders will normally insist that such CCJ's are
satisfied or have been satisfied for some time before a
mortgage or loan will be granted.
Credit Check
This is where the lender evaluates the credit history of
an applicant by referring to one of the major credit agencies.
Current Standard Variable Rate
This is the usual mortgage rate charged by a lender. This rate
moves up and down in line with interest rates and the general
movement in mortgage rates.
D
Debt Consolidation
Borrowers with a number of different loans usually which are
unsecured - (not secured on the property) may find that they can
replace these loans with a single loan secured on the property.
This can often reduce the borrowers monthly outgoings by
paying only one loan which is secured on the property
sometimes over a longer term. As the loan is secured, the
interest rate may be considerably lower.
Deposit
This is another term for the equity put into a property by
borrowers. The phrase may also refer to the amount paid upon
exchange of contracts.
E
Equity
see Capital.
Exchange of Contracts
(England only) - At this stage of property purchase legally
binding contracts are exchanged between the buyer and the
seller. After contracts have been exchanged the vendor must
sell and the purchaser must buy on the terms agreed.
Expatriate
This is someone who is working or what is known as domiciled
(living in) in a country which is not the place of his or her birth or
nationality.
F
Fee
A lender, mortgage broker or adviser may charge this for
arranging a property purchase.
First Time Buyers (FTB)
The lending market is very competitive for first time buyers.
Mortgage lenders want to be the first to lend to such borrowers
in order to keep them as customers for subsequent mortgages.
Generally this phrase is used for those borrowers who are
buying a property for the first time. Some lenders will also
consider someone who has owned a property before but
maybe currently renting. First time buyers may be able to
access particularly attractive mortgage packages such as fixed
rates and discounted rates.
Fixed Rate Mortgage
These are mortgages where the interest rates are set for a
number of months or years. After the fixed rate period the
interest rate will revert to the normal variable mortgage rate. If
the mortgage is redeemed during the fixed rate period there
are usually redemption penalties.
Freehold (England only)
This refers to land or property which is owned indefinitely.
Leasehold property only gives the owner a right to hold for a
limited period of time. Full Status - This refers to a mortgage
where full credit checks and information has been sourced on
the borrower.
G
Gross Monthly Payment
This refers to the monthly mortgage payment before the
deduction for MIRAS tax relief.
Gross Profit
This is the profit of a company before allowing for expenses.
Guarantor
This is a person who will guarantee that the mortgage
repayments are made in the event of default by the borrower.
Usually this will be a parent or relative of a borrower. It should
be remembered that a guarantor would be fully liable for
repayment of the mortgage amount if a borrower defaults. The
guarantor should therefore be confident that the borrower will
meet all the necessary monthly payments.
I
Interest Only Mortgage
This is a mortgage where only the interest is paid to the lender.
A borrower should be aware that any capital repayment is an
extra amount which will be over and above the interest paid.
The capital will be repaid from an endowment policy, pension
plan or PEP/ISA. It is the responsibility of the borrower to
ensure that the repayment vehicle will pay off the mortgage at
the end of the term. Remember that Life Assurance will also be
costed separately.
L
Leasehold (England only)
If a property has a tenure which is Leasehold then the land is not
owned by the property purchaser, and is only leased to them for
a certain fixed period.
Lender
The organisation offering the mortgage or loan.
Life Insurance
Term used to describe a policy which pays out benefits if the
policy holder dies.
Loan to Value (LTV)
This term explains the relationship between the value of the
property and the amount of mortgage, e.g. a mortgage of £75,000 on a property valued at £100,000 would have an LTV
of 75%. The higher the LTV required (i.e. the more of the
property value being borrowed), the fewer lenders willing to
lend.
M
Mortgage Valuation
This is the cheapest and most basic type of property survey. It is
the minimum required survey by lenders in order that they can
evaluate the suitability of the property for mortgage purposes.
The borrower normally receives a copy of this report, however, it
is not a comprehensive report on the condition of the property.
The borrower should consider a home buyer's report or
structural survey if they require more detailed information before
deciding to purchase.
N
Negative Equity
A phrase now quite well known although its affects have more
recently, largely disappeared. This occurs when the property
value has fallen below the amount of mortgage still owing. There
are a number of lenders who have products which can help such
borrowers.
Net Profit
This is the income of a company or self employed person after
the expenses of running the business have been deducted. In
the case of a limited company, corporation tax will also have
been deducted. With regard to the self employed, the net profit
figure is the one that can be used to calculate their ability to
repay a mortgage.
New Build
Newly built housing on either a brown field or green field site.
P
Payment Protection Insurance
see Accident, Sickness and Unemployment Insurance.
Permanent Health Insurance (PHI)
This is a policy which pays out regular sums of money to the
insured after specified period during disability through sickness
or accident and injury. The benefit is payable until the policy
holder returns to work, dies, or the policy term expires,
whichever is earlier. Such a policy is used to replace a
percentage of full income and not just the monthly mortgage
repayment. PHI is not an accident, sickness and unemployment
and insurance policy which usually only give cover for up to two
years. PHI pays an income until a return to work or normal
retirement age. N.B. PHI does not cover unemployment.
R
Remortgage
When a borrower moves a mortgage from one lender to another
this is known as a remortgage. The new mortgage will pay off
the existing lender and sometimes the borrower may raise
additional funds over and above the old mortgage amount. With
a competitive mortgage market, remortgaging has greatly
increased in popularity and many borrowers usually
re-mortgage to secure a competitive interest rate. It should be
noted that remortgages carry costs and the borrower should
also be wary of any redemption charges when considering a
re-mortgage.
Right to Buy
Sitting council tenants have an option to purchase the property
in which they live in. Usually the property can be purchased at a
discount based on the length of time they have been a tenant.
S
Self-Certification
With this mortgage the borrower provides a statement of his or
her income and the lender may or may not check the accuracy
of the information provided.
Self-employed
An individual who works for himself/herself. This will include
partners in businesses and professional practices such as
lawyers.
Shared Ownership
A housing association tenant may have the opportunity to
purchase a property. The scheme works by allowing the
borrower to purchase part of the property and rent the other part
from the housing association. This subsidises home ownership
for people who would otherwise not be able to become home
owners.
Stamp duty
This is a Government tax which is levied when a property is
purchased. The tax is paid by a property purchaser and is charged at a percentage of the properties value.
T
Typical APR
Mortgage quotations and advertisements will usually show a
typical APR figure in order to comply with the Consumer Credit
Act.
V
Variable Rate
Many mortgages are still arranged in this manner. Such
mortgages have interest rates which fluctuate up and down
often in tandem with bank base rates. In more recent years
many variable rate mortgages are marketed with an initial
discounted rate or fixed rate period.
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