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A to Z
Get to grips with the jargon with this top-to-toe glossary of terms
A
APR – annual percentage rate. Usually
shown in brackets after the headline rate for a mortgage deal, the
APR is meant to incorporate any additional payments beyond the interest
rate, thereby indicating the true cost of the deal.
ASU – accident, sickness and unemployment
insurance covers your monthly mortgage repayments should you fall
ill or be made redundant.
arrangement fee – some lenders charge a fee for setting up
your loan. It’s normally payable on completion* and can sometimes
be added to the loan.
B
base rate – the rate of interest set by the
Bank of England.
booking fee – to secure a particular mortgage
deal some lenders charge you a booking fee to reserve your slice
of the funds.
buildings survey – a detailed survey of a
property. Recommended for pre-war properties. See also Home-buyer’s
Report.
buy-to-let mortgage – a loan to buy a property
as an investment.
C
capped rate – a rate of interest
with an upper limit but which becomes variable if the lender’s
standard variable rate falls below that level.
capital and interest – another name for the
repayment method of paying your homeloan where each payment covers
the monthly interest and part of the capital
borrowed.
cashback – a set lump sum or a percentage
of your loan offered as cash on completion* as part of your mortgage
deal.
CCJ – county court judgment, handed out for
the non-payment
of a debt.
conveyancing – the process your solicitor
goes through to complete the legal aspects of your home purchase,
including carrying out a local search, nding and checking the title
deeds*, registering your ownership with the Land Registry* and drawing
up the sale contract.
credit check/score – a lender’s method
of assessing the risk of taking you on as a borrower, based on your
nancial record.
D
direct mortgages – homeloans sold
exclusively over the phone.
disbursements – the name for all the various
costs a solicitor* will detail on his or her bill to you for carrying
out the legal work on your home purchase.
discounted rate – a variable interest rate
that is consistently a certain percentage below the lender’s
standard variable rate*.
drawdown facility – the ability to borrow
extra money through your mortgage at a later date.
E
early redemption – a penalty charged
by a lender for breaking the terms of a mortgage deal by repaying
it early or remortgaging* to another deal before a given date.
endowment – a type of life assurance policy
with an investment
element that has a xed term and can be used as a mortgage repayment
vehicle with an interest-only mortgage*.
exchange of contracts – the point at which
the vendor’s and
the buyer’s solicitors swap contracts and begin to nalise
your purchase.
F
xed rate – a rate of interest that
is set at a certain level for a prescribed period of time, regardless
of what happens to the lender’s standard variable rate*.
flexible mortgage – a mortgage offering a
number of exible features, possibly including penalty-free lump-sum
and regular overpayments, underpayments, payment holidays and drawdowns*,
as well as daily calculation of interest.
freehold – land or property that is owned
in perpetuity as opposed to leasehold* where the owner buys the
right to live there for the length of the leasehold agreement.
full status loan – a loan where complete
checks are made on your credit history and income. Most conventional
high-street lenders will do this.
G
guarantor – someone who agrees to
guarantee your loan and is fully liable for its repayment should
you default.
H
Homebuyer’s Report – the more
basic survey* of the two available to homebuyers. It includes a
valuation and should reveal any major faults a property has. See
also Buildings Survey.
housing association – otherwise known as
registered social landlords (RSLs), housing associations are non-prot
making organisations set up to improve the provision of housing
in a particular area through rental and ownership schemes.
I
IFA – independent nancial adviser.
These are regulated advisers and should do a detailed nancial fact-nd
before considering the whole market to nd you a mortgage.
interest-only mortgage – a mortgage where
you pay interest on the entire loan to the lender for the whole
mortgage period while putting money into a separate investment,
which should grow to cover the loan.
ISA – individual savings account. A tax-free
wrapper for investments in stocks and shares, life assurance
and cash, sometimes used by borrowers as a repayment vehicle for
their interest-only mortgage*.
L
Land registry fee – the charge payable
to the Land Registry to enter your details in its records once you’ve
nalised a home purchase or changed your mortgage lender.
leasehold – a xed-period contract which,
when bought, gives you the right to occupy the property on the land
which the leasehold covers.
LIBOR – London Interbank Offered Rate, the
rate at which banks notionally buy and sell money to each other.
LIBOR-linked mortgages are susceptible to a change in interest rate
every three months.
life insurance – a policy made payable on
your death or a speci-ed date. See term insurance*.
LTV – loan to value, the proportion of the
value or price of the property, whichever is the lower, that a lender
is willing to offer you as a loan.
M
MIG – mortgage indemnity guarantee.
An insurance you pay that covers the lender for the extra risk of
lending you a large proportion of the value of your home, often
where your deposit is 10 per cent or less of the property’s
value.
missives – the Scottish equivalent of exchanging
contracts. No deposit is required but missives are legally binding.
N
negative equity – where the size
of the loan on your home is greater than the market value, which
makes it difficult to sell, especially if you need to move to a
more expensive property.
non-status loan – a loan granted without
the lender enquiring as to your income or credit history. Also known
as special status.
P
pay rate – the rate of interest you
pay on your homeloan.
pension mortgage – an interest-only mortgage*
where the repayment vehicle is a personal pension. The tax-free
lump sum available at maturity is earmarked to pay off the mortgage.
R
redemption penalty – when you pay
back the loan to your lender, including when you remortgage*
to a different lender.
repayment mortgage – where your monthly payments
cover the interest as well as paying back some of the capital* borrowed
each month.
S
self-build – where you design, manage
and build your own home, either doing the work yourself or employing
others.
self-certication – where you state your
level of income to the lender, which it will generally accept with
the minimum of checks.
shared ownership – buying a home in partnership with a housing
association*. The schemes available are designed for those who could
not otherwise buy their own home.
stamp duty – a government tax on the purchase
price. Properties up to £60,000 incur no tax; up to £250,000
cost 1 per cent; up to £500,000 cost 3 per cent; and those
above £500,000 cost 4 per cent. Payment is made through your
solicitor.
standard construction – brick walls with a tile or slate roof.
Lenders may not be happy to lend on buildings of non-standard construction,
although different lenders have different criteria.
standard variable rate – the basic rate of
interest a lender charges on its straight variable-rate mortgages.
survey – a report carried out by a professional
chartered surveyor as to the condition of a property.
sub-prime – borrowers with adverse credit*
are sometimes referred to as ‘sub-prime’ by lenders.
sum assured – the maximum amount an insurance
company will pay out on a particular policy.
T
term insurance – a form of life insurance
which covers you against death within a xed period; no payment
is made if you live beyond that time.
title deeds – legal documents for a property.
tracker rate – a loan with an interest rate
that mirrors an established base rate*, such as the Bank of England
Base Rate or LIBOR*.
V
valuation – an inspection carried
out by a representative for the lender to establish the property
is good security for the proposed loan.
voluntary purchase – schemes run by local
authorities that subsidise the purchase of homes by tenants.
*you can nd explanations of these terms elsewhere
in the A to Z.
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