The mortgage market can be a bit of a minefield when it comes to terms, definitions and jargon, so this short glossary is designed to help you steer your way through it. The following A-Z of some of the more common terms is, however, necessarily selective and is unlikely to cover all of the ones that have you scratching your head. If you come across a term that’s not included in this short list, then, don’t hesitate to let us know and we’ll get straight back to you with a definition.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Ability To Pay
This is quite a recent introduction, designed to measure a borrower’s ability to make mortgage repayments once deductions for his or her other, normal living expenses have been made from gross earnings. As you can tell, it’s pretty much a “rule of thumb”.
Agreement In Principle
This is good news – it means that your application for a mortgage (or any kind of financial service) has been agreed in principle, subject to such things as the valuation of your property or confirmation of your income.
Arrangement Fee
Another fairly self-explanatory term – it’s what you might be charged by the lender for arranging the mortgage. Generally, you’’ need to pay this fee on completion of the purchase, but sometimes the amount can be added to the loan itself.
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Bank Rate
This is the basic rate of interest determined by the Bank of England.
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Cash Back Mortgages
As the name suggests, this type of mortgage gives you a cash lump sum when you’ve completed the term of the mortgage. Normally, it’s a percentage of the amount of the loan you borrowed and can be up to 5%, but the more usual cash back percentage is between 1% and 3%.
Completion
The moment you’ve been waiting for! All the legal necessities have been completed and your lender actually advances the funds for the purchase – the funds usually being deposited into an account held by your solicitor.
Completion Date
Another critical milestone in your calendar – completion of the sale of the property to you, when the keys are handed over.
Conveyancing Fee
This is what you have to pay a solicitor (or a licensed conveyancer) for doing all the legal work for registering the property in your name. The final bill for this service should also include stamp duty, land registry fees and his or her disbursements.
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Deeds Release Fee
Just as the name suggests, it’s what you have to pay to the mortgage lender for the return of the property deeds he has been holding pending completion of the mortgage payments.
Discount rate
The lender might offer you a (temporary) discount on his normal Standard Variable Rate (SVR) of interest. Normally, you’ll be offered a greater discount the shorter the period of the discount (which might be given for, say, six months or two years).
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Equity Release Scheme
This offers a useful way for older owners (55+) to free up some of the value of their property (the equity), in return for a cash payment or income.
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First-time Buyer
Just as the name suggests – though some lenders might consider you as a first-time buyer even if you’ve owned your home before and subsequently sold it before buying anew. This can be helpful, since some lenders might give preferential rates to first-time buyers.
Full Structural Survey
Before you sink quite so much money into your home, you’ll of course want to know that it’s structurally sound. Such a comprehensive condition survey is therefore essential if you’re thinking of buying an older property.
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Guarantor
Sometimes, you may need someone else to give the lender a guarantee that a loan will be paid, even if you yourself default on the payments. This guarantor will then be entirely liable for making the payments if for any reason you fail to do so.
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Higher Lending Charge (HLC)
If the lender thinks there’s some risk of his losing money (because you fail to make the repayments or your home is repossessed), or if, for example, you’re looking to borrow more than three-quarters of the asking price for the property, the lender might choose to insure against such a potential loss. You pay the premiums for such insurance, but the lender’s covered by it – not you!
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IFA
An Independent Financial Adviser (IFA) is just that – a totally independent adviser who has no ties or obligations to other financial institutions.
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Land Registry Fees
If you take out a mortgage or change an existing one on a property, this needs to be registered with the Land Registry, who will make a charge for amending the records.
Loan to Value Ratio
This is a simple ratio or percentage that expresses the proportion of a loan to the value of the property. In other words, if you’re looking to borrow £150,000 on a property valued at £300,000 you’d need to secure a 50% loan to value rate.
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Negative Equity
Is something you clearly want to avoid, since it arises when the extent of your borrowing is greater than the current market value of the property.
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Prime Rate
This is the most favourable (i.e. the lowest) rate at which the lender will lend and is reserved, therefore, for its most favoured (or valuable) customers.
Procuration Fee
The fee that a Mortgage Lender will pay to an introducer for introducing the business to that lender.
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Redemption Charges
These days, the term is better and more clearly known as Early Repayment Charges – the penalty you’ll incur if you wish to repay your mortgage before the end of its full term.
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Search Fee
It will be important to make sure that there are no plans in the neighbourhood that might affect the future value of your home. For this, you need to ask the local authority to do a search for you and, of course, there is a charge.
Stamp Duty
This is a tax on buying real property. It’s applied on a sliding, so that homes costing up to £125,000 pay no stamp duty; home costing between £125,001 and £250,000 attract 1% stamp duty; home from £250,001 to £500,000 attract 3%; and those costing £500,001 or more attract 4% stamp duty. Please note: Stamp duty brackets change from time to time so be sure to check the Direct.Gov.Uk website for the latest figures.
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