Mortgage Jargon Buster

Advice A recommendation about the most suitable mortgage for you made by an advisor (such as a mortgage advisor) who is regulated by the FCA or an advisor who is an appointed representative of a directly authorised firm.

Affordability One’s ability to repay the mortgage or remortgage. Income and affordability calculations are used by mortgage lenders to assess affordability.

Agreement in Principle A lender agrees to advance monies conditional upon the verification of the borrowers details. This is therefore obtained before mortgage underwriting commences.

Annual Statement A statement from your mortgage lender, sent every year, showing among other things what you’ve paid and what you still owe.

Applicant The person or persons applying for the mortgage.

Application The process of applying for a mortgage.

Appointed Representative A firm which has permissions to deal in regulated activities through a directly authorised firm.

Appreciation The increase in a property value due to market conditions.

Approval in principle A certificate which some lenders will give you that shows the amount they will probably be prepared to lend you. This is not a guarantee, but can be helpful when signing up with estate agents.

APR Short for Annual Percentage Rate, it’s a legal requirement for APR to be shown on personal loans, credit cards and hire purchase agreements so that an easier and fairer comparison can be made.

APRC This stands for Annual Percentage Rate of Charge and is now used for mortgages, including second charge mortgages (secured homeowner loans).

Arrangement Fee The fee for the lender for arranging a mortgage, to be paid either on application or completion. Can usually be added to the loan amount.

Arrears The amount of mortgage payments you have fallen behind with – usually called mortgage arrears – termed in either months missed or pounds outstanding.

Authorised firm A firm that has permission from the FCA to carry out regulated activities.

Bank of England Base Rate The rate of interest set by the Bank of England.

Broker See ‘Mortgage Broker’

Broker Fee The fee charged by a mortgage broker for locating and processing the most appropriate mortgage, can usually be paid up front or on completion.

Buy-to-let mortgage A loan (mortgage) you take out to buy a property which you intend to rent to tenants.

Capital The amount you borrow to help buy your home.

Capped Mortgage Rate They guarantee that your mortgage payment won’t go above a certain level, but because they are a kind of variable rate, they also let you benefit from lower payments should rates go down.

Cash Back Mortgage A mortgage that comes with a cash sum (often a percentage of the amount you’re borrowing).

Caution A ‘Registration of Caution’ is a caution registered on the land registry title of a property which means the property can not be sold or re mortgaged without the cautioners (the person or organisation who registered the caution) being notified. Usually the caution needs to be repaid upon completion of any sale or remortgage.

Charging Order A charge registered through the courts on a piece of property or land by someone (a person or organisation) you are in arrears with – if you remortgage or sell the property the charge will have to be repaid. It is sometimes possible to have a charging order ‘postponed’ in order for a remortgage to proceed (if their is limited equity in the property) by way of a deed of postponement.

Collared Mortgage A collared mortgage is a mortgage with a set minimum and maximum interest rate you’ll pay during a deal period.

Commission A payment received by a mortgage broker from the lender for introducing business to them.

Completion The completion date is the date your solicitor transfers the money from your lender to the vendor’s solicitor or, in the case of a remortgage the date the new lenders funds are transferred to your existing lender to repay your existing mortgage.

Contract A legally binding agreement, either oral or written, to do or not do something.

Conveyancing The process surrounding the transfer of property between a buyer and seller, typically carried out by a licensed conveyancer such as a solicitor.

Conveyance Fee The charge paid – usually to a solicitor for transferring property ownership.

Credit An agreement under which one party (the borrower) receives money or property on the condition they repay the other party (the lender) at a later date.

Credit Check The process where a check is made on the credit history of a mortgage applicant – see about credit reference agencies.

Credit History A history of a persons debts. Checking a credit history allows a lender to make an assessment as to whether a prospective client will maintain their mortgage repayments.

Credit Rating See ‘Credit Scoring’.

Credit Reference Agency A company or organisation that stores financial and public records dealing with the payment history on a prospective borrower, credit reference agencies hold you credit file.

Credit Report A report prepared by a Credit Reference Agency which details the credit history of an individual – the credit report will be used by a lender to help assess the application of an individual.

Credit Scoring The procedure by which a lender allocates a ‘score’ based on the information held on the credit file and the lender’s application form – different lenders use different formats for credit scoring – not all mortgage lenders credit score and they may use other factors and criteria when determining to lend.

Daily Interest Mortgage A mortgage in which interest is calculated daily.

Debt An amount owed by one person or party to another.

Debt Consolidation A procedure whereby a number of loans, each with individual interest rates are repaid with another loan – consolidated into one loan with one interest rate.

Decision in Principle (DIP) See – ‘Approval in Principle’.

Deed of Postponement A document in which one party agrees to postpone their rights to those of another.

Default The failure to keep up with repayments on a credit agreement (such as a mortgage).

Deposit A deposit usually refers to the amount of money a borrower pays towards the property purchase.

Depreciation The decline or reduction of a properties value due to market conditions.

Discharge Fee The fee charged by lenders at the end of a mortgage term to cover the administration costs of transferring the property ownership documents, also known as a deeds release fee.

Discharged Bankrupt A bankrupt can be relieved of the status (of being Bankrupt) by a court of residual liability, usually after a certain number of years. The former bankrupt assumes the status of ‘discharged bankrupt’ and is eligible to obtain credit again.

Discounted mortgage These mortgages have a discounted rate of interest for a set period, after which the rate will increase.

Discount Period With a discounted rate mortgage, the discount period is the length of time (usually in years) the discounted rate will apply.

Disposable Income The money left from a person’s income (usually calculated monthly) after living costs and priority debts have been deducted, money that is deemed disposable income is often used to assess one’s ability to repay if normal monthly credit commitments can not be maintained.

Early Repayment Charge A charge you may have to pay if you break off a mortgage deal early. Usually applies to special deals such as fixed or discounted rates and usually ends at the end of the special term.

Equity The amount of the property, in monetary terms, that is not taken up by a mortgage or loan secured on a property.

ESIS European Standard Information Sheet – This is an illustration for mortgages and secured loans which came into being following the European Mortgage Credit Directive (see MCD) and is similar to a mortgage KFI (see KFI).

Eviction The legal expulsion of an occupant from a property.

Exchange of Contracts The point at which the buyer and the seller legally exchange contracts and terms of sale are legally binding on both parties.

Financial Ombudsman Service – FOS An organisation established by law to help settle individual disputes between consumers and financial firms.

Financial Conduct Authority – FCA The UK’s financial services regulator.

Financial Services Register A list of firms that are regulated by the Financial Conduct Authority to carry out financial services in the UK. You can search the Financial Services register here.

Please be aware that by clicking on to the above links you are leaving Baker financial website. Please note that Baker Financial is not responsible for the accuracy of the information contained within the linked site(s) accessible from this page.

First Charge The first (or main) mortgage held on a property.

Fixed Rate Mortgage An interest rate that is fixed (i.e. it doesn’t move up or down) for a set period of time. A fixed rate mortgage can be good for budgeting purposes as your monthly mortgage payment will not change for a set number of years.

Freehold (England & Wales only) A situation where the owner owns both the property and the land it sits on.

Gazumping This is when another potential buyer puts in a higher offer for a property after your offer on the same property has been accepted.

Guarantor A person, other than the borrower, who guarantees to meet the mortgage payments in the event the borrower defaults.

Higher Lending Charge – HLC A fee charged by the lender when the loan to value (LTV) ratio is above a certain limit – not all lenders charge a HLC.

Homeowner Loan See ‘Secured Loan’.

Home Buyers Report A type of property survey that is more comprehensive than a standard mortgage valuation but less extensive than a full structural survey.

Income multiples The factor by which your earnings are multiplied to determine how much you can borrow, as set by the lender. A lender may use an Income Multiple to set a maximum on the amount they will lend.

Initial Disclosure Document A document giving information about the scope and nature of the services offered by a regulated firm.

Interest The charge made by lenders when you borrow their money.

Interest Rate The figure that determines how much interest you pay. Usually linked to the Bank of England’s rates and can move up or down.

Interest-only mortgage A mortgage where you only pay the interest charges (interest only) of the loan each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way.

Joint Income The total income of two borrowers in a joint mortgage.

KeyFacts documents – KFI The KFI document summarises all the important features of the mortgage and must be clear, fair and not misleading. It is set out in a standard way and allows you to check all the costs and benefits of the mortgage offered.

Leasehold (England & Wales only) A type of ownership whereby a person owns a property but not the land it sits on – the land will typically be owned by the Freeholder.

LIBOR London Interbank Offered Rate – The rate of exchange banks lend money to each other, many subprime lenders use LIBOR when setting interest rates for consumers.

Loan-to-value The percentage of money you want to borrow compared to the cost of the property.

MCD The Mortgage Credit Directive (MCD) is European legislation designed to foster a single market for mortgages and to protect consumers. The European Commission published the final MCD text in February 2014. MCD will be implemented in the UK through rules set by the Financial Conduct Authority (FCA).

Money Advice Service The Money Advice Service offers free and impartial money advice, set up by government.

Mortgage A loan which is secured against your property.

Mortgage Lender The lender in a mortgage transaction.

Mortgage broker A mortgage broker helps you understand the various mortgage types and deals available to you. A mortgage broker may recommend a mortgage to you or they may provide you with information to enable you to make your own choice.

Mortgage Packager An intermediary between the lender and mortgage broker, they usually have special deals not available through the lender directly and do not deal with the public.

Mortgage Statement See – ‘Annual Statement’.

Mortgage Term See – ‘Term’.

Mortgagor The borrower in a mortgage transaction.

Negative Equity Where a mortgage and other loans held on a property is more than the property value.

Ombudsman See ‘Financial Ombudsman Service’.

Open Market Value The value of a property based on current market values.

Principal The principal loan or capital.

Priority Debts These are debts which must take priority over normal debts and credit commitments – priority debts are numerous, a few examples would be – council tax arrears, child support agency arrears, Magistrates’ Court Fines, for a full list please contact the Citizens Advice Bureau.

Quotation See ‘Key Facts’.

Redemption Charge See ‘Early Repayment Charge’.

Register See ‘Financial Services Register’.

Remortgage The process of changing your mortgage for a different one (remortgage), without moving home.

Repayment mortgage A mortgage that pays off both the home loan and the interest at the same time. Make all the payments over the mortgage term and the mortgage will be fully repaid.

Repayment Period See ‘Term’.

Repossession The Legal process by which a defaulting borrower is deprived of their interest in a mortgaged property, typically involving a forced sale of the property at a property auction.

Retention The ability by the lender to hold back (retain) part of a mortgage until certain conditions are met.

Right to Buy Mortgages for public sector tenants who qualify to buy their home under the government’s Right to Buy scheme.

Stamp duty A tax which home buyers must pay on properties valued above a government set figure.

Standard Variable Rate A standard variable rate of interest at the lender’s normal mortgage rate – i.e. without any discounts or deals.

Secured Loan A loan that is secured on your home – also called a ‘second charge’ or ‘second mortgage’.

Survey A report on the condition of the property you are planning to buy.

Structural Survey A survey of the construction of a property carried out by a qualified surveyor – this is the most comprehensive and most expensive report available.

Term The period of time over which the mortgage must be repaid.

Title The document that confirms the right of possession to an area of land or property.

Tracker mortgage A tracker mortgage is a mortgage with an interest rate that is usually linked to a particular rate that is set independently from the lender and moves up or down with it.

Unencumbered A property that has no mortgages or loans secured on it.

Valuation A brief inspection, for the benefit of your lender, of the home you hope to buy or re mortgage. This is to make sure they are not lending more than the property is worth and that the property is suitable security for the mortgage, but this will not tell you if it is a good or bad buy. For your own peace of mind, you may want your own survey.

Valuation Fee The fee charged to cover the cost of the lenders valuation, typically paid by the borrower.

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