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Glossary Of Terms
The terms below are often used in house buying or mortgage process. You may come across these terms when you are in the process of buying a home so we have provided clear definitions below.
Advance
The mortgage loan.
Administration fee
This fee is to cover the cost of document preparation and sourcing funds, payed only on completion of your mortgage.
Adverse Credit Mortgage
Adverse credit mortgages are known by many names, depending on the lender.
Within the mortgage trade in contrast with "standard mortgages" for people with no credit problems an Adverse Credit Mortgages may be known as non-conforming or sub-prime mortgages (infamous with the Northern Rock collapse in 2007), credit impaired mortgage, non status mortgage, bad credit mortgage or non standard mortgage.
Bankruptcy
Bankruptcy is a legal status that usually lasts for a year and can be a way of clearing debits you can't pay. When you're bankrupt, your non-essential assets (property and possessions) and excess income are used to pay off your creditors (those you owe money to). At the end of the bankruptcy period, most remaining debts are "discharged". You or one of your creditors can petition for bankruptcy. Bankruptcy is a serious matter and will impact your credit rating and ability to borrow for a considerable time after you are discharged from the bankruptcy order. Always seek advice from a professional financial advisor who specialises in debt management before considering bankruptcy application.
Bridging loan
A short-term loan to bridge the period between you buying a new property and selling your previous home.
Broker/ Intermediary
A person who will arrange a mortgage with a lender. Mortgage brokers must tell you which lenders they use and how much lenders pay them for arranging mortgages.
Building survey
An extensive survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.
Buy To Let Mortgage
A mortgage loan secured against a property that is rented to a third party (tenant) by the applicant (borrower) and is not lived in by the borrower.
It can otherwise be known as an investment mortgage , investment property mortgage or a commercial mortgage.
Capital
The amount you have borrowed on the mortgage, and on which interest is charged.
CCJ
A CCJ or "County Court Judgement" is an adverse ruling by a County Court against a person who has not satisfied their debt payments with their creditors. It is recorded against the person's credit history and appears every time a credit search is done for the next seven years.
Completion
When you become the legal owner of the property.
Contract
The legal document which transfers the ownership of the property from the seller to the buyer.
Conveyancer
A solicitor or licensed conveyancer who does the legal work involved in selling and buying property.
Conveyancing
The legal work involved in selling and buying property.
Credit reference agency
An organisation that keeps details of individuals and their credit histories. Lenders will check with a credit reference agency to see if someone applying for a mortgage has any known credit problems.
Disbursements
The fees, such as stamp duty and Land Registry fees, which you pay to the conveyancer.
Early redemption fee/ early repayment charge
The charge some lenders make if a mortgage is paid off early.
Equity
The total value of your property, less the amount of the mortgage. For example, if your house is worth £60,000 and you have a mortgage of £50,000, you have equity of £10,000.
Exchange of contracts
The point where the property sale becomes legally binding.
Financial Services Authority (FSA)
The Financial Services Authority (FSA) is the independent watchdog set up by the government to regulate financial services and protect your rights. The FSA has regulated mortgage sales since 31 October 2004. All lenders must be authorised by the FSA, and brokers must either be authorised directly by the FSA or be agents (known as "appointed representatives") for other authorised firms. This means that all firms must follow FSA rules when dealing with you. You can check that a mortgage firm is authorised through the FSA website - or by calling the FSA Consumer Helpline (0845 606 1234).
First Time Buyer Mortgage
This is a mortgage loan secured against a property that is taken out by borrowers who have never owned their own property before.
As the property market is supported by an influx of new borrowers, most mortgage lenders offer special deals with improved income multipliers to enable young lenders to "get on the property ladder".
Freeholder
Someone who owns a property and the land it stands on.
Ground rent
A yearly fee leaseholders have to pay to the freeholder or landlord who owns the land the leasehold property is on.
High lending fees
Not all lenders charge these, but if you borrow a high percentage of the price of the property - for example, over 80% or 90% - you may have to pay this type of fee. This is because the mortgage represents a higher risk to the lender if you do not keep up your repayments. Lenders sometimes buy insurance (called mortgage indemnity) to protect themselves. This insurance does not protect you - you would still be responsible for your debt, even if the lender claimed on its insurance.
Home-buyer's report
A surveyor's report on a property. This type of survey is less extensive than a full building survey but more extensive than the lender's valuation.
Income Multiples
Income multiples are a simple calculation that many lenders use to determine the maximum amount of borrowing that they are prepared to allow you. The multiples are literally a multiple of your usual salary. Income multiples are often described against main salary or joint income, for example 4 x Main salary or 3 x Joint Salary
Income / Outgoings Ratio
A borrower's monthly income compared to their outgoing commitments. A ratio of 2:1 would indicate that half of a persons income is spent on monthly bills and commitments.
Interest
The money you are charged for borrowing. This is usually indicated as a percentage of the amount borrowed per year. Hence 5% Interest on a loan of £100,000 would equate to £5,000 interest being paid in that year.
IVA
Individual Voluntary Arrangement
This is an agreement made when an individual's debt becomes unmanageable. This is usually an arrangement between a borrower and their creditors, setting personal terms to help the individual out of financial difficulty.
Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
Lease
A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.
Leaseholder
Someone who owns a property, but not the land it stands on, for a fixed period of time.
Mortgage
A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.
Mortgage application fees
These are fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.
Mortgage deed
The legal agreement which gives the lender a legal right to property.
Mortgage term
The length of time over which the mortgage will be repaid.
Offer of advance
The formal offer of a mortgage from a lender.
Poor Credit Rating
If you have a Poor Credit Rating, the chances are that you will have previous mortgage arrears or rent arrears in your credit history. You may have had County Court Judgements (CCJs) entered against you. You may have entered into an individual voluntary arrangement (IVA) or at worst experienced bankruptcy.
Redemption
The paying off of a mortgage loan.
Retention
When the lender holds back some of the mortgage money until certain repairs have been done, the amount held back is known as a 'retention'.
Security
The property the mortgage is being used to buy is the lender's 'security' for the loan. This means that the lender has rights over the property. If the mortgage repayments are not kept up to date, the lender can repossess the property and sell it to recover the debt.
Self Certificate Mortgage
A specialist mortgage aimed at those who are not eligible or are excluded from "standard" mortgages due to their inability to prove their income through the usual process that a standard mortgage application would follow.
A self certification mortgage allows you to certify your own income often not requiring independent confirmation.
Stamp duty
A government tax on buying properties costing more than £125,000.
Subject to survey and contract
Wording included in any agreement before the exchange of contracts. This wording allows the seller or buyer to withdraw from the property sale.
Term assurance
Life insurance to pay off a mortgage if the borrower dies.
Title deeds
The legal documents which set out the ownership of a property.
Valuation
The lender's inspection of the property to assess whether it is suitable for a mortgage.