Jargon Buster
Phillips Capital Group has created this Jargon buster to help you clearly understand everything you will need to know when it comes to finance.
Financial Definitions;
Adverse Credit
This is a term used if a borrower is suffered from a poor credit report. This could include previous mortgage or loan arrears, CCJ's or bankruptcy. Other terms used to describe an adverse credit mortgage include:
· Credit-impaired mortgage
· Subprime
· Bad credit mortgage
· Poor credit mortgage
· No credit check mortgage
· No credit mortgages
· Low credit score mortgage
Agricultural Restriction
A Freehold covenant restricting the occupancy of a property to those engaged in agriculture.
Arrears
Arrears are missed or late payments to creditors. If you miss a payment or are struggling to make your monthly repayment agreed it’s important that you speak to your creditor.
Apportionment
Dividing the liability for property tax, water charges etc. between the seller and buyer of a property.
APR
An interest rate reflects the cost of a mortgage as a yearly rate. This rate is likely to be higher than the advertised rate on the mortgage because it represents the total cost of the loan. The APR allows homebuyers to compare different types of mortgages based on the annual cost of each loan.
APRC
APRC stands for Annual Percentage Rate of Charge. A lender is always required to quote the APRC when advertising a loan or borrowing rate. It is a standard interest rate calculation designed to reflect the total amount of interest that will be paid over the entire period of the loan.
Application Pack
A finance application pack will consist of all the application documents required to complete the loan or mortgage
Arrangement Fee
This is a fee you pay to your Lender in return for providing you with a mortgage. Usually paid on completion or with application, these fees usually apply when you take out a fixed rate, discount or cashback mortgage.
Assignment
Document transferring rights of ownership from one person to another, such as an endowment policy to the building society in connection with a mortgage. Can also be the document transferring the lease on a property.
ASU
Accident, Sickness and Unemployment insurance (See also MPPI). This insurance is designed to cover the borrower's mortgage payments in case of accident, sickness or involuntary unemployment.
Auction
Public sale of a property to the highest bidder. The purchaser must immediately sign a binding contract and should ensure that all valuations, searches etc. are carried out before the sale.
Authority to Inspect the Register
Document from the registered proprietor of land allowing another party, such as the purchaser's solicitor, to be given information from the register of a property.
Balloon Payment
Repayment of the outstanding principal sum made at the end of a loan period, interest-only having been paid hitherto.
Bankers Draft
A method of payment of funds which has all the appearances of a cheque, but in effect is a cash payment.
Base Rate Tracker
The newest type of mortgage. The interest rate is variable but set at a premium (above) the Bank of England Base Rate for a period or even the term of the mortgage. The biggest advantage of this type of mortgage is that usually there is little or no early repayment charge. This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite significant.
Booking Fee
Arrangement fees are charged in connection with some mortgages, often they are charged in connection with a fixed or capped rate loan. The fee is normally non-refundable if charged upfront, sometimes it is added to the mortgage debt on completion.
Bridging Loan
Short-term loan to facilitate the purchase of one property before the sale of another releasing funds that are required for the purchase. Professional advice should always be taken before considering any bridging finance as it can be a solution which is worse than the problem.
Brokers
Brokers are people who search for a loan that is most suitable for you on your behalf. They will then talk with the loan provider on your behalf or refer you to the loan provider to consider your application.
Broker Fee
A fee is charged by an intermediary or advisor for locating the most appropriate mortgage for the borrower.
BSA
Building Societies Association. Represents interests of member societies. Address 3 Savile Row, London W1X 1AF.
Building Societies Commission
Regulatory Organisation for Building Societies. Reporting to Treasury Ministers.
Building Society
Mutual organisation specialising in lending money to individuals to purchase or remortgage residential properties. Most of this money comes from individual saving members who are paid interest. A proportion of building society funds is also raised on the commercial money markets. Since the early eighties, there has been a progressive relaxation of the rules governing the allowable sources of building society funds for lending to allow societies to compete more effectively with banks and there are now no restrictions as between the allowable proportions of 'retail' and 'wholesale funding'.
Buildings Survey
This is the most wide-ranging check of the outside and inside of a property. This is carried out by a professional surveyor and it should pick up all but the most hidden faults.
Buy-to-Let
This is a mortgage designed for people who wish to purchase a property to rent out to others. The ability to repay this type of mortgage is often based on the projected rental income from the property as opposed to the personal income of the borrowers.
Capital and Interest
Your monthly payments are partly to pay the interest on the amount you borrowed and partly to pay the outstanding mortgage and ongoing costs involved in a mortgage.
Capped Rate
An interest rate charged on a mortgage where there is a guarantee from the mortgagee that the rate will not exceed a certain amount usually for a set period of 1 - 5 years but which will reduce if the standard variable rate falls below the capped rate.
Cashback
A payment you receive when you take out a mortgage. It may be a fixed amount or a percentage of the amount of the mortgage.
CCJ
County Court Judgment. A decision reached in the County Court can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this.
Charge
Any right or interest, especially a mortgage, to which a freehold or leasehold property may be held.
Centralised Lender
"Term used to describe a mortgage lender who does not rely on a branch network for distribution. Originally applied to specialist lenders who entered the mortgage market in the mid-late eighties (National Home Loans, The Mortgage Corporation, First Mortgage Securities, Mortgage Express and many others). This followed some de-regulation, which made the securitisation of mortgage loans a viable and potentially profitable option for lenders. (See SECURITISATION). Several building societies now have "centralised lending" operations which operate quite separately from their branch networks and rely exclusively on mortgages from intermediary sources."
Charge Certificate
The certificate issued by HM Land Registry to the mortgagee of a property with registered title. Contains three parts - charges register, property register and proprietorship register. Contains details of restrictions, mortgages and other interests. Where there is no mortgage it is called the Land Certificate and issued to the registered proprietor.
Chattels
Moveable items such as furniture or personal possessions.
Chief Rent
A rent payable by the owner of a freehold property is similar to the ground rent payable by a leaseholder. Normally only found in the North of England. Can be bought out by freeholders.
Circa
Approximately
CML
Council of Mortgage Lenders
CRA
Credit Reference Agency
Completion
When the sale and purchase of the property are finalised, and you become the owner of your new house.
Contract
A legally binding agreement for sale. In two identical parts, one signed by the seller and one by the purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction.
Consideration Period
All customers are given a consideration period of up to 14 days before their Credit Agreement can be put in place. This gives the customer the chance to think things over without any contact from loan companies/brokers.
Conveyance
The deed by which freehold, unregistered title changes hands. If the property is leasehold and unregistered it is called an assignment. If the title is registered the deed is called a transfer.
Conveyancing
The legal process involved in buying and selling property.
Covenant
A promise contained in a deed.
Credit Scoring
This is a way in which a lender assesses whether you are a good risk to offer a mortgage.
Credit Search
A check the lender makes with a specialist company to find out whether you have any CCJs or a bad credit record.
Debt Consolidation
This is a means to repay high-interest debts (such as credit cards and personal loans) by incorporating them into a new mortgage.
Direct Debit Mandate
You will receive a DDM in your Application pack. The DDM form is used to set up your agreed repayments for your loan or mortgage.
Deed
A legal document which is 'signed, sealed and delivered' not just signed. This has special significance in law. Title to both freehold and leasehold property can only be transferred by deed.
Deposit
The amount of money you put towards buying your property.
Disbursements
A solicitor’s expenses for example: land registry fees, searches, faxes etc.
Discount Rate
An interest rate is set at a set margin below the standard variable rate usually for 1 - 5 years. Used as an incentive to attract potential new borrowers.
Early Repayment Charges
This is a fee charged by a lender if you pay off part or all of your mortgage before the agreed date, or you move your mortgage to another lender. These charges mainly apply to fixed-rate, discounted rate and cashback mortgages.
Easement
A right, such as a right of way, which the owner of one property has over an adjoining property.
Endowment
A life assurance policy that is designed to produce a lump sum to pay off an interest-only mortgage. There are different types of endowments.
ESIS
This document is usually known as the keyfacts Illustration (KFI). In 2019, the European Standard Information Sheet (ESIS) replaced the previous KFI. The ESIS document is similar to the KFI but will have more detail about the mortgage and the terms they're offering you.
Equity
The amount of value in a property that isn't covered by a mortgage - simply take the amount of the mortgage from the valuation to work out the equity.
Equity release
You take a new, larger mortgage, or increase a mortgage you already have and use some or all of the extra money you have raised for home improvements, holidays and so on.
Exchange of Contracts
This is the point at which you and the person selling the property sign and swap identical contracts that show the price and which fixtures and fittings are being sold, as well as the date on which everything is to be completed. When contracts are signed, everything becomes legally binding and if you or the seller pull out before completion you or they will have to pay compensation.
Fixed-Rate
The interest charged on a mortgage is set for an agreed period.
Fixtures
Any item that is attached to a property and so legally is part of the property.
Flexible Mortgage
This type of mortgage is relatively new. The interest rate is variable but has the big advantage that it is calculated daily instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays.
Financial service
The business sector in which we operate
Freehold
This is where you own the property and the land that it is on.
Gazumping
This is when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before the exchange of contracts.
Gross monthly repayment
This is the amount you must repay to the lender before tax relief (see MIRAS) has been applied to the interest Charges. MIRAS was abolished in April 2000 and so there is now no tax relief applied to mortgages.
Ground rent
A fee that a leaseholder must pay the freeholder every year.
Guarantor
This is the person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. This is usually a parent or close family relative.
Home Buyers Report
This is a property survey which lies between a mortgage valuation and a full survey. It is a multi-page report which gives the buyer some peace of mind about the property they are purchasing.
Higher Lending Charge
A Higher Lending Charge is paid to take out an insurance policy designed to indemnify the mortgagee (lender) against loss in the event of default on the mortgage repayment. It is normally taken out by the lender at the start of the mortgage and the mortgagor (borrower) is made to pay the premium! The premium is normally calculated as a percentage (5.8% is typical) of that part of the loan above a certain percentage of the property value, 70 - 75%. It is charged as a lump sum to the borrower and can usually be added to the mortgage advance. It should be understood that such policies are for the protection of the lender and NOT the borrower.
Hire purchase
Hire purchase (HP) is a way to finance buying a new or used car. You (usually) pay a deposit and pay off the value of the car in monthly instalments, with the loan secured against the car. This means you don't own the vehicle until the last payment is made.
Illustration
Mortgage illustration document. When a lender or an adviser recommends a mortgage, or when a lender gives a mortgage offer, they have to give you a mortgage illustration document which is tailored to your mortgage needs and explains: Your monthly repayments.
Income Multiples/multipliers
The size of the mortgage that the lender will offer is usually worked out by multiplying your income by a set figure. Most lenders will take 3 times the gross salary of the first applicant plus 1 time the income of the second applicant or 2.5 times the joint salaries. Some lenders will allow you to borrow more than this.
Income protection insurance
Income Protection Benefit provides a monthly benefit should you be unable to work due to incapacity caused by accident or illness, resulting in a loss of earnings.
Income reference
This is confirmation from your employer that you earned the amount you stated when you made your mortgage application. If you are self-employed, the lender may require confirmation from your accountant.
Interest-Only Mortgage
With this type of mortgage, the borrower is only required to pay interest on the amount borrowed during the mortgage term. It is the borrower’s responsibility to ensure that enough funds will exist (either through an investment policy or other means) to repay the mortgage at the end of the term.
Intermediary
A mortgage broker or advisor who locates the most appropriate mortgage for borrowers and arranges the mortgage on their behalf.
Jargon Buster
Industry definitions, insight and lingo
Land Registry Fee
This is the fee paid to the Land Registry to register ownership of an area of land.
Leasehold
If you buy a leasehold property, you own the property for a set number of years but not the land on which the property is built, as opposed to freehold where you own both the property and the land indefinitely.
Lender fee
Lender fees are fees charged by banks and other financial institutions for processing and funding a loan. They can include application fees, attorney fees, recording fees, underwriting fees and more. Lender fees are items payable in connection with a loan and contribute to the total amount of the borrower's costs.
Licensed conveyancer
An alternative to using a solicitor. These people specialise in the legal side of buying and selling property.
Local Authority Search
A check was carried out by the buyer's solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.
LTV
Loan to Value. This refers to the size of the mortgage as a percentage of the value of the property i.e. A £45,000 mortgage on a house valued at £50,000 would mean that the LTV would be 90%.
Lump sum payment
A lump sum repayment refers to making a payment on your loan that is more than a standard monthly instalment.
MIRAS
Mortgage interest relief at source. This was tax relief on your mortgage but was abolished by the government with effect from April 2000.
Mortgage
A loan to buy a property where you put up the property as security against you paying back the loan.
Mortgagee
The Company or Organisation that lends you the money.
Mortgagor
The person taking out the mortgage.
MPPI
This insurance provides a monthly benefit to help you pay your mortgage for up to 12 months if you are unable to work due to accident, sickness and/or involuntary unemployment.
MRP
Mortgage Repayment Protection. This is insurance you could take.
Negative Equity
This is where the money you owe on the mortgage is greater than the value of your property.
Overpayment
When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.
Payment Holiday
A period during which the borrower makes no mortgage payments. Normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.
Personal Pension
These aim to build up a fund that'll provide you with a pension income when you come to take your benefits.
Portability
A term used to describe a mortgage that can be transferred between properties when you move to a new house.
Repayment
The process of paying off your mortgage either when moving to a new house, remortgaging or at the end of the mortgage term.
Repayment Penalties
Penalties are levied by the lender when a borrower pays off the mortgage before the end of the agreed repayment period. These are often charged on fixed, capped or discounted-rate mortgages.
Remittance Fee
A charge made by the lender for sending mortgage funds to your solicitor just before the purchase is completed.
Remortgage
The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
Repayment
Your monthly payments are partly to repay the amount you borrowed and partly to pay the interest on the outstanding mortgage. This is also known as a capital and interest mortgage.
Repossession
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Right to Buy
A tenant in a council-owned property may purchase the property at a discount depending on the length of their tenancy.
Sealing Fee
This is a charge made by lenders when you repay a mortgage.
Searches
These are checks carried out during the conveyancing process. These checks are made with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and its saleability in the future before making a loan.
Second charge
A Second Charge is a second mortgage/loan taken out on your property also referred to as a secured loan or homeowner loan.
Shared Equity
A scheme operated by a developer where the developer retains a percentage equity of around 10% in the property. Thus, the developer holds a second charge over the property. The 10% owing may be interest-free or may incur interest and be added to the total amount owing on the property.
Shared Ownership
A scheme operated by a housing association where a person owns part of the property and pays a mortgage on this, while the housing association owns the rest of the property and the person pays rent on this.
Stamp Duty Land Tax (SDLT)
This is a tax payable on the purchase of a property by the purchaser. If you are a first-time buyer, you can claim a discount (relief) so you do not pay any tax up to £300,000 and 5% on the portion from £300,001 to £500,000. If the price is over £500,000, you follow the rules for people who’ve bought a home before.
Standard rates are as follows:
Up to £125,000: Zero
£125,001 - £250,000: 2%
£250,001 - £925,000: 5%
£925,001 - £1,500,000: 10%
Over £1,500,000: 12%
Buy-to-let/Second home rates are as follows:
Up to £125,000: 3%
£125,001 - £250,000: 5%
£250,001 - £925,000: 8%
£925,001 - £1,500,000: 13%
Over £1,500,000: 15%
*Applicable as of 01/01/2020
SVR
Standard Variable Rate. This is the interest rate that the lender charges. The rate goes up and down and your repayments are adjusted accordingly.
Term
The period of years over which you take the mortgage and when you have to repay it.
Term Assurance
This is an insurance policy designed to help repay the mortgage on the death of the insured person during the policy term. Level Term Assurance covers a lump sum throughout the policy term and pays out the full amount on death. Mortgage Decreasing Term Assurance is designed to help repay the balance outstanding upon death during the policy term. Term Assurance may also pay out early on the diagnosis of a terminal illness.
TCF
Treating Customers Fairly
Third charge
A Third Charge is a third mortgage/loan taken out on your property also referred to as a secured loan or homeowner loan
Tie-in period
As a condition of a special mortgage deal, you may have to agree to stay with the lender for months or years after the deal has ended. If you move your mortgage elsewhere during this period, you may have to pay an early repayment charge.
Title Deeds
Documents that show proof of who owns the freehold and leasehold property.
Transfer deed
This is a document that, once you sign it, transfers the ownership of a property to you.
Total repayment
Total Repayment is the whole amount you will have repaid on your Loan once your term has ended. The figure will be the amount you borrowed plus the interest paid over the life of your term.
Top-slicing
Top-slicing is where a buy-to-let lender uses a borrower's income to top up any shortfall in rent which is needed for the borrower to obtain the loan amount they require.
Unencumbered
This is where the property is owned outright, and no mortgages or loans are secured against it.
Valuation
A simple check of the property to find out how much it is worth and whether it is suitable to lend a mortgage.
Valuation Fee
A fee paid by a borrower to cover the cost of the lender checking that the property is suitable security for the mortgage loan.
Variable Rate
The interest rates the lender charges. it goes up and down and your repayments change accordingly.
Vendor
The person selling the property
