A glossary of terms
If you know what you are looking for simply click the letter it begins with below to skip to the relevant section
A
- Arrangement Fee
- Can also be referred to as a booking fee or reservation fee. The arrangement fee is a fee the lender charges for setting up the mortgage. The fee can often be added to the mortgage instead of being paid on application.
- APR (Annual Percentage Rate)
- The true rate of interest payable on any sum borrowed. The APR represents the total amount payable over the mortgage term including any costs related to the mortgage such as arrangement fees and other charges.
B
- Buildings insurance
- The insurance cover to protect the home purchased (the actual bricks and mortar), from damage caused by a wide range of risks such as fire, storm etc. The terms of the contract are confirmed in the policy document.
- Booking Fee
- See arrangement fee for definition
- Buy to Let
- A mortgage that allows the owner to Let the property to tenants
C
- CeMAP
- Certificate in Mortgage Advice & Practice. This is the qualification, recognised by the Financial Services Authority, (FSA), that practising advisors should possess in order to advise on mortgages and mortgage related products. A fully qualified mortgage advisor will possess CeMAP 1, 2 & 3. Keystone Independent mortgage advisors are all fully qualified.
- Chain
- In the context of purchasing or selling property, a chain is the term used that describes a chain of interdependent property sales. For instance Mr Hegarty has nothing to sell and is purchasing a house from Mr Houghton whom in turn is purchasing a property from Mr Wakefield who is not buying on. There are 2 properties in this chain.
- Charge
- In the context of a mortgage a charge is the security the lender has over the property to safeguard the money it has lent to the borrower. When the lender, a bank or building society for example, takes a charge over the property it then has the right to cover the outstanding debt/mortgage by selling the property if the borrower fails to observe the terms of the mortgage.
- Completion
- The end of the process of buying a house. Completion occurs when money transfers from the buyer (via a lender in most cases) to the seller. It is usually followed immediately by the buyers moving into their new home.
- Conveyancing
- The process of transferring legal ownership of property - from the seller to the buyer. (including the land, if a freehold property)
- Contract
- In the context of property purchase the contract is the legally binding agreement between the buyer and the seller.
- Capital and Interest
- Repayments on a capital & interest mortgage are made up of capital repayments and interest repayments
D
- Deeds
- The Deeds or Title Deeds are the documents which signify the ownership of a property.
- Deposit
- There could actually be 3 different definitions for this term. The first type is a pre-contract deposit, given by the buyer, as an indication of an intention to buy the property. New build properties often require a small deposit to reserve the property. The second type is a contract deposit that is payable on exchange of contracts. It is usually 10% of the purchase price and is not refundable should you withdraw from purchasing after exchange of contracts. The third type relates to how much is your total deposit. For example if you wished to purchase a property for £500,000 and you needed a mortgage of £350,000 then your deposit would be £150,000.
E
- Early Repayment Charge (ERC)
- An Early Repayment Charge is a penalty that the lender will charge when a borrower has broken the terms of the original mortgage agreement within the penalty period such as before a fixed rate has expired.
Usually this will be for the following reasons.
- The borrower wishes to change their mortgage product before their curent one has finished
- The borrorer wishes to repay the mortgage early - usually due to the sale of the property
- The borrower wishes to borrow more money, their existing lender cannot help and therefore needs to change lenders in order to borrow the extra funds
The penalty you will pay for repaying this mortgage before 1st october 2016 is 3% of the original amount borrowed. This means the maximum you could pay based on your loan amount of £200,000 is £6,000. - Early Redemption Penalty
- See Early Repayment Charge.
- Exchange (of contracts)
- By the time contracts are exchanged, the process of buying a house is almost complete. It is the transaction whereby signed contracts for both buying your new home and selling your old home are transferred between solicitors either physically or by telephone. The exchange of contracts is legally binding. After exchanging contracts, the buyer cannot pull out without incurring considerable expense. The seller can enforce the contract against the buyer, that is to say, compel the buyer to buy the property. However, this is rare. Normally, the buyer will be forced to pay all the seller's costs in reselling the property and will forfeit the full 10% deposit. This is the time for the buyer to insure both the house and his or her life.
- Equity
- Equity refers to the net value of a property after the outstanding mortgage has been deducted. For example if my property is worth £100,000 and I have an outstanding mortgage of £60,000 then I have £40,000 of equity.
F
- Freehold
- If a buyer purchases a freehold property, he or she owns the property itself (the bricks and mortar) and the land on which the property stands.
G
- Gazumping
- The unfortunate position of being gazumped. It means the seller of a property accepts a higher bid after agreeing terms (accepting an offer) from another would-be buyer.
- Ground Rent (Leaseholders only)
- Payments to the freeholder (the ultimate owner of the property) required under the terms of the lease. It usually covers things like maintenance to shared areas.
H
- Higher Lending Fee
- A single premium insurance policy to cover the additional risk to the lender, where a loan equal to a high percentage of the value of the property is taken out. Although this policy covers the lender not the borrower, the premium is paid by the borrower. The premium often goes by different names depending on which company the mortgage is arranged through. Mortgage Indemnity Guarantee (MIG) and Higher Lending Charge (HLC) are two examples of how this term differs from lender to lender. Most lenders only charge a higher lending fee where the loan to value (LTV) exceeds 90%.
I
- Interest
- Interest is the charge made by the mortgagee (bank or building society) for lending the borrower the funds they require to purchase a property.
- Interest Only
- The monthly repayment on an interest only mortgage consists only of interest and no capital is repaid
J
K
L
- Land Registry Fees
- A set fee payable to the Land Registry by the buyer to register ownership of a property. The fees are set by the Government.
- Leasehold
- In the case of leasehold properties, for example some flats, the buyer purchases a lease which guarantees the right to occupy the property for a set period, rather than owning the actual bricks and mortar. Leases can be of varying lengths, but new leases are typically for 99 or 999 years. When purchasing a leasehold property your solicitor will check how long is left on the lease. Lenders will require that there is sufficient remaing term on the lease in order to consider it suitable security for lending purposes.
- Loan to value (LTV)
- This is the percentage that your mortgage amount equates to against the purchase price. For instance if you are applying for a mortgage of £50,000 and the purchase price is £100,000 then the LTV is 50% This is quite important as the lower the LTV the better the deal you will get from the lender. For example, someone that requires a mortgage at 75% LTV will get a much better deal than someone that requires a 90% LTV mortgage.
- Listed Properties
- A listed property is a building that has been placed on the Statutory List of Buildings of Special Architectural or Historic Interest. A listed building cannot be demolished, altered and extended without special permission from the local planning office. There are 3 types of listing today, Grade 1, Grade 2 & Grade 2*. Grade 1 is for properties of exceptional interest, Grade 2 is for particularly important buildings of more than special interest and Grade 2* are for buildings that are of special interest that warrant every effort to preserve them
M
- Mortgage Indemnity Guarantee (MIG)
- See higher lending fee for definition
- Mortgage Redemption
- The act of terminating the mortgage agreement by payment in full of the outstanding balance and any related fees. Related fees may include a redemption penalty for repaying the mortgage early in accordance with the lenders terms.
- Mortgage
- A legal agreement by which a sum of money is lent on the security of property, land etc. If the borrower fails to observe the terms of the mortgage, the lender retains the right to take possession of the property. See also Mortgage basics.
- Mortgagee
- The lender.
- Mortgagor
- The borrower.
- Mortgage Offer
- This is the document you receive from the mortgage lender once they have fully assessed your application and have approved any supporting documentation requested, for example payslips and bank statements. A formal mortgage offer is needed before you can exchange contracts. It is the document that details the terms and conditions of your mortgage such as interest rate, repayment method, monthly payments, reversion rate, early repayment charge etc and is also confirmation that the lender is happy to offer a mortgage to the borrower.
N
O
- Offer
- An offer is effectively a bid by a prospective buyer. In England & Wales an offer does NOT constitute a legally binding contract. (Differs from mortgage offer)
P
Q
R
- Reservation Fee
- In the context of a mortgage see arrangement fee for definition.
- Mortgage Retention
- When the surveyor recommends that the lender retains an amount of money equal to what he/she believes would cover the cost of works he deems are necessary then the lender may place a retention equal to or greater than this amount. Once the works have been completed and following a successful re-inspection then the lender releases the retained money. Retentions can often make the sale fall through because the buyer does not have the funds to complete the purchase and therefore can not pay the purchase price in full. For example Mr Smith wants to purchase a property for £100,000. He has a deposit of £10,000 and wishes to borrow £90,000 but the lender is retaining £5,000 from the mortgage due to works that need to be carried out. This means Mr Smith is now £5,000 short and unless he can raise the extra funds himself he will be unable to complete the purchase.
- Repossession
- When a court rules that a property can be repossessed it means that the lender can evict the borrowers and take its security (the property) and sell it to recover its mortgage balance and costs. This is a last resort for the lender and usually happens when borrowers have fallen behind on their mortgage payments to such a level that the lender applies for a repossession
- Repayment vehicle
- Such as an ISA, endowment or pension lump sum. A separate provision to repay the mortgage once the term ends on an interest only mortgage
S
- Stamp Duty
- This is the tax paid by the buyer of a property to the government, currently based on the following rates:
1% of the purchase price on any property bought for more than £125,000,
3% of the purchase price on any property bought for more than £250,000,
4% of the purchase price on any property bought for more than £500,000,
5% of the purchase price on any property bought between £1,000,000 & £2,000,000,
7% of the purchase price on any property bought for more than £2,000,000
- Searches
- The enquiries made by the buyer's solicitor of the local authorities into matters affecting the new property. These are designed to highlight details of new roads that are to be built, new housing estates planned etc.
- Security
- In the context of a mortgage the 'security' is the property on which the mortgage is secured. It's the lenders security and in the event of repossession the security can be sold to repay the outstanding mortgage and fees.
- Surveyor
- A Surveyor is the person who visits the property to report on, amongst other things, its value, condition and suitability for lending purposes
T
U
- Undertaking
- When a lender places an undertaking as a condition of your mortgage offer it means that they recommend that repairs are carried out in accordance with the surveyors comments on the basic valuation report following completion. This is different to retention
V
- Vendor
- The owner of the property - the seller
W
X
Y
Z
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
For mortgage advice we can charge a fee of typically £295 or we can receive commission from the lender
For mortgage advice we can charge a fee of typically £295 or we can receive commission from the lender