Glossary
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Accident, Sickness and Unemployment Insurance (ASU)
This is an insurance policy that helps meet the mortgage repayments should the borrower have an accident suffer long-term illness or be made redundant.
Accountant
A professional person who prepares and audits accounts for an individual or company.
Accountant's Letter
If a self-employed person does not have fully-audited accounts to prove a regular income, some lenders might accept an Accountant’s Letter to confirm income levels.
Accounts
Documents relating to the turnover of a business, including profit and loss. Accounts are usually prepared on an annual basis.
Added to Loan
This applies to any fees or charges that a lender allows you to add to your mortgage loan, rather than paying them up front. These might include arrangement fees and Higher Lending Charges. It’s worth bearing in mind that any fees or charges added to your loan will add interest and also increase the ‘Loan to Value’, which could lead to additional charges.
Additional Security
When lending exceeds a certain Loan to Value, lenders might insist on additional security. The most common form is a High percentage Advance Fee ‘HPA’. This fee is used to purchase indemnity cover to protect the lender. Lenders may accept other security.
Administration Charge
Some lenders will reserve a proportion of the fee charged for the valuation to cover their own costs. This element of the valuation fee may not be refunded should an application not proceed even if the valuation has not taken place.
Adverse Credit
This is another way of saying poor credit or bad credit. Someone who has had problems repaying debt in the past is likely to be described as havng an adverse credit history. This can make applying for credit such as commercial mortgages more complicated as some lenders will regards them as too ‘high risk’ to lend to.
Allowances
Any item that can be deducted from gross salary to help reduce the amount of tax you pay is called an ‘Allowance’. These can include your Personal Allowance - the amount you can earn before you pay any income tax - or other legitimate business expenditure that a self-employed person can use to reduce their gross income.
Arrangement Fee
A fee charged by the lender for setting up your commercial mortgage account. It is usually payable up front. Some lenders allow the fee to be added to the loan.
Arrears
Mortgage payments that have not been made by the due date in accordance with the contractual agreement.
Annual Percentage Rate (APR)
This is the true cost of the borrowing, in percentage terms. It is usually higher than the ‘headline rate’ you will see advertised with a product because it takes into account the likely total cost of your borrowing over the full term of the mortgage, including any charges.
Asset Finance
Otherwise known as a leasing agreement, this is a term used in commercial lending for the purchase of equipment (plant and machinery).
B
Base Rate
This is the standard rate of interest charged by banks which is set by the Bank of England’s monetary committee each month. Commercial mortgage interest rates are usually 1-2% higher than the current ‘Base Rate’.
Booking Fee
A fee charged by lenders to secure mortgage funds. Especially common on special deals such as fixed or capped rates. This fee is usually paid up front, although the lender might allow it to be added to the loan.
Broker
An authorised intermediary who sources and places commercial mortgage deals for clients. A broker can take care of all the paperwork for you and deal with the lender on your behalf, although a broker fee might be charged.
Broker Fee
A mortgage broker is normally paid either by commission from the lender or by a broker fee, charged to the customer. Any mortgage broker that offers ‘independent’ mortgage advice must offer customers the choice of paying a fee if they prefer. This fee will generally be a percentage of the mortgage loan required, typically 1-3%, but might be higher for more difficult cases.
Buildings Insurance
The insurance of your property against damage or loss as a result of fire, flood and other accidental damage. This is seperate to Contents Insurance.
C
Capital & Interest
This is another name for a Repayment Mortgage. The capital is the original loan, which is repaid monthly over a fixed period. Interest is also charged. At the end of the mortgage term, providing all the payments due have been made, you are guaranteed to have repaid your mortgage in full.
Capital Gains Tax
This is a tax - currently up to 40% - on any profit you make on an investment, over and above a certain level set by the Chancellor of the Exchequer.
Capped Rate
A rate of mortgage interest that has an upper limit.
Chain
The properties linked in a buying and selling process.
Commercial mortgage
This is a loan used to buy a commercial premises. The property itself is used as security to protect the lender from non-payment.
Commercial remortgage
A commercial remortgage is a new mortgage loan that’s agreed on commercial premises without actually moving. The existing mortgage is paid off and a new loan for a higher amount, taken out. This can either be with the existing lender or a new one. Surplus funds from new loan can be used for improvements or debt consolidation.
Completion
This is the final stage of the conveyancing process, when legal ownership of a property transfers from one person to another.
Conditional Insurance
An insurance policy that has to be taken out as a condition of obtaining a mortgage.
Contents Insurance
The insurance of belongings within your property.
Conveyancing
This is the term used to describe the legal process of buying and selling property and involves the transfer of the title deed from one owner to another.
Conveyancing Fee
The fee charged by your solicitor to deal with the legal paperwork involved with transferring property ownership.
County Court Judgement (CCJ)
This is a judgement made in a County Court for non-payment of a debt. If a CCJ isn’t settled within 30 days of the judgement, it will appear on the credit register for the next six years.
Credit Line
Companies that take out a mortgage for commercial purposes can sometimes establish a credit line with their lender for future lending purposes.
Credit Score
When you apply for a mortgage, the lender will assess your application and award ‘points’ depending on your answers. The total number of points you are awarded is known as the ‘credit score’. Those with low credit scores may be refused credit terms.
Credit Reference
A lender can request a report from one or more of the main Credit Reference Agencies in the UK. This will detail your recent credit applications. It will also show whether you have missed payments and highlight other credit concerns.
Creditor
A person or company that is owed money.
d
Debt Consolidation
Using one new loan to pay off other debts. A remortgage is often used for this purpose, as the interest rates charged on mortgages are generally much lower than other forms of debt.
Debtor
A person or company that owes money to a creditor.
Decision-in-principle
A lender can normally tell you if you are likely to be successful in applying for a loan by giving you a ‘decision-in- principle’. This is not a formal mortgage offer.
Defaults
Failing to make repayments is known as ‘defaulting’.
Deposit
When buying a property, a deposit will normally have to be paid in advance towards the total cost. Generally, this is 10% of the purchase price.
Disbursements (conveyancing)
Fees charged by a solicitor to cover costs working on your behalf. An exmple might be Local Authority Searches.
Discharge Fee
An administration fee sometimes charged by mortgage lenders to close your mortgage account.
Discount Purchase Price
Price of a property that has been reduced below the open-market value. An example of this might be a Right to Buy.
Discount Rate
A rate of mortgage interest which is marked down, or ‘discounted’, at a rate below the lender’s Standard Variable Rate (SVR). An example might be a 2% discount for 12 months.
E
Early Repayment Charge (ERC)
This might apply if the mortgage is repaid before the end of the term.
Equity
This is the difference between what is owed on the mortgage and what the value of the property stands at on the open market. If the property is worth less than is owed, this is called ‘Negative Equity’.
Employed/Employee
This is a person who has an open-ended contract of employment and has income tax and national insurance contributions deducted from their salary.
Employment Status
The condition of an individual’s employment - i.e. employed, self-employed, unemployed.
Endowment
A type of long-term savings policy sometimes used to help repay an ‘Interest Only’ mortgage. An endowment policy aims to build up a cash sum large enough to repay the loan at the end of the mortgage term. It will also include life insurance to help repay the loan should the policyholder die before completion of the term.
Exchange (of contracts)
This is one of the final stages of a property purchase process, normally about 1-2 weeks before completion, when all the conveyancing is finalised, a mortgage offer is in place, the deposit is paid and a completion date has been set. When contracts have been exchanged, it is a legally obligation to buy the property and you could be sued for failing to complete.
F
Factoring
This is another form of borrowing for companies. A commercial loan can be secured against the value of any outstanding invoices, rather than a property. It’s also known as ‘invoice discounting’.
First Charge
A method of securing the main mortgage, whereby a lender has first call on any funds available from the sale of the property, with any equity passed back to the borrower (less any deductions for charges).
First Time
Someone buying a property for the first time who doesn’t have a property to sell. A First Time Buyer is usually the first person in a house buying ‘chain’.
Fixed Rate
A rate of mortgage interest which is set, or ‘fixed’, at a certain level for a given period of time.
Footprint
When you apply for credit, the lender will do a credit check with a Credit Reference Agency. This check will be recorded on your credit record, leaving a mark or ‘footprint’ for other companies to see.
Freehold
If you own a freehold property, you are the outright owner of the property and associated land.
Full Structural Survey
This is the highest level of property inspection you can get. If a surveyor misses something in a Full Structural Survey that later becomes a problem, you can take legal action against the firm to recover any costs incurred.
G
Guaranteed Earned Income
This is income you are guaranteed to receive, although it is not part of your basic pay under the terms and conditions of your employment.
H
Higher Lending Charge (HLC)
This is a charge made if a borrower wants a mortgage that exceeds 75% of the property’s value. This figure is known as the ‘Loan to Value’.
Homebuyer's Report or Homebuyer's Valuation
This is an inspection of the property you intend to buy, carried out by a surveyor. The inspection is more detailed than a basic valuation, but will not be as in-depth as a Full Structural Survey. The surveyor will send you a report, detailing the condition of the house, its current market value and any repairs that are required.
I
Illustration (Key Facts Illustration)
This explains exactly how much a mortgage will cost to repay (interest payments) and set up (fees and other costs).
Income Multiples
The amount you can borrow usually depends on how much you earn. Each lender uses a set of ‘income multiples’ to work out the maximum loan they will grant, subject to a property valuation. Most lenders allow 3 times the income of a single applicant or 2.5 times the incomes of joint applicants.
Individual Saving Accounts (ISA)
These are savings accounts introduced by the Government. ISAs have a special tax status, which means that all growth and profit on your investment is free of income and capital gains tax, although there are limits to the amount you can invest each tax year. ISAs can be used to help repay the capital of an interest-only mortgage.
Initial Interest
This is interest to cover the period of time between completion date and the normal monthly repayment date.
Interest Only
With an interest only mortgage or loan, the monthly repayment consists of the interest element only, leaving the original capital outstanding at the end of the term.
k
Key Features Illustration
To comply with mortgage regulations, borrowers must be provided with a Key Features Illustration (or KFI) before they take out a loan. This states what rate of interest is to be charged, how much the borrower will repay and any charges that apply.
l
Land Registry
This is a record of property. Ownership and the mortgage is listed on a register at HM Land Registry.
Landlord
This is someone who lets out a property in return for a regular rental payment.
Landlord's Reference
This is a reference from a previous landlord regarding the general conduct of a tenant, the state he property was left in and whether their rent was paid promptly.
Lease / Leasing Agreement
This sets out the rental term, stating how long it will last as well as listing the conditions.
Leasehold
As a leaseholder, you do not own the property outright, but have the right to reside there for a specified term in return for rent and any service charges specified in the lease.
Legal Charge
This is a legal document which grants rights of security over your property with a lender. The type of legal charge used varies depending on the lender.
Lender
This is company that provides finance to a borrower.
Letting Agent Fees
This is a fee charged by Letting agents (usually a percentage of the monthly rent) for finding and monitoring tennants.
LIBOR
London Interbank Offered Rate is the rate banks buy and sell money to each other. It varies from day to day and is linked to Base Rate.
LIBOR-linked
This is a rate of interest linked to LIBOR and will be set at a certain margin above the LIBOR rate (typically 1 - 1.5%).
Life Insurance
This is a policy that pays out a set amount on the death of the policyholder. Life insurance policies linked to mortgages are usually run for the same period as the mortgage and cover the repayments.
Loan to Value (LTV)
This is the amount a lender will be prepared to lend on a property. It is based on a current market valuation.
Loan - Secured
With this, the equity is used as security against the loan not being repaid. The loan is secured against your property. It means the property could be repossessed if repayments aren’t paid.
Loan - Unsecured
Certain loans don’t require any security. That’s if the loan amount or the financial position of the applicant means there’s little risk to the lender.
Local Authority Search
A search of local authority records to confirm the status of the property. This is normally done by your solicitor and the fees for this are included as part of their disbursements. This search will reveal certain important information about the property you intend to buy and the surrounding area, such as planning permissions and enforcement notices.
m
Maintenance Costs
These are costs necessary to keep a property in good condition.
Mortgage
This is a loan used to buy a property. The property itself is used as security to protect the lender from non-payment.
Mortgage Deed
This is a legal document which secures a loan on a property.
Mortgage Officer
This is a fully-qualified and experienced Go representative who can help you with all aspects of your mortgage application from initial enquiry through to completion.
Mortgage Subsidy
Some employers offer their employees a subsidy or additional income payment to help meet the cost of mortgage interest payments. The amount of subsidy offered will vary and can be calculated in a number of different ways.
Mortgage Term
This is the length of time set for the mortgage to run. At the end of the mortgage term, you are legally obliged to repay the loan in full.
Mortgage Payment Insurance (MPI)
This is a special type of insurance used to protect your mortgage repayments in the event of illness or accident.
Multipliers (income multiplier)
This is the factor a lender applies to an applicant’s income to work out how much they can borrow. Although Go calculate the amount as a percentage of the property value – up to 85%.
n
National Insurance
These are insurance contributions paid to the government by every working person who earns above a minimum amount. A self-employed person does not automatically have National Insurance (NI) contributions deducted from his or her salary like an employed person, so they have to make arrangements to pay their own.
Negative Equity
If your property is worth less than is owed on your mortgage, this is known as negative equity.
Net Profit
This is the income of a company or self-employed business after all the expenses of running the business have been deducted. The lender uses this figure to calculate an applicant’s borrowing limits.
No Capital Raising
This is an application for a loan which is to replace an existing loan and doesn’t involve additional borrowing.
No Credit History
If an individual has no credit arrangements already in place, it can be difficult to obtain new credit because a lender cannot easily assess how ‘creditworthy’ the applicant is.
Non Status
This is a loan that is approved without making enquiries about the borrower’s income or credit history.
p
Part & Part
This is a term used to describe a mortgage that is split between two repayment methods, with part of the mortgage set up on a repayment method, the other on an interest-only basis.
Payment Protection Insurance (PPI)
This is a type of insurance that pays your monthly repayments for a limited time in the event of accident, illness or unemployment.
Payment Schedule
This is a schedule of monthly payments that you are legally obliged to make when your mortgage starts.
Pension Mortgage
This is an interest-only mortgage that will use the ‘tax free cash’ element of a personal pension plan to repay the mortgage at the end of the term.
Portable
This is a mortgage that can be transferred from one property to another.
Principal
This is the original amount of the loan.
Profit
This is the amount of money left after allowing for the legitimate expenses of running the business.
q
Quotation
This details how much a loan or mortgage will cost you, including the monthly repayments, the total amount that will be repaid over the term of the loan together with any charges or fees.
r
Redemption / Redeeming your Mortgage
This means paying off the mortgage in full, either when you move house or at the end of a mortgage term.
Redundancy Insurance
This is a type of insurance that pays your monthly repayments for a limited time in the event of accident, illness or unemployment.
Refinancing
This is rearranging borrowing with a different lender to obtain better terms or to raise more capital.
Regular Earned Income
This is income which is not guaranteed but does form a regular part of an employee’s salary.
Regulated Loan
This is a loan under £25,000, that’s regulated under the terms of the Consumer Credit Act.
Remortgage
A remortgage is a new mortgage loan that’s agreed without actually moving. The existing mortgage is paid off and a new loan for a higher amount, taken out. This can either be with the existing lender or a new one. Surplus funds from new loan can be used for improvements or debt consolidation.
Remortgage with Outstanding Discount
This is a property bought under a Right to Buy scheme that the owner now wants to remortgage, but where there is an outstanding discount remaining.
Rent / Rental Income
This is the income you earn from a renting out a property.
Repayment Mortgage
With a repayment mortgage, part of each monthly repayment goes towards repaying the loan itself, whilst the rest is made up of the interest due on the outstanding amount. When all of the repayments are made, you are guaranteed to repay the entire mortgage off at the end of the term - unlike an endowment mortgage.
Right to Buy
Under Government legislation, council tenants have a right to buy their council property.
s
Schedule D
This is the schedule of taxation that applies to self-employed people. Employees are subject to Schedule ‘E’ taxation.
Second Charge
This is a legal charge on a property that ranks behind a ‘first charge’. A second charge is usually used to secure additional borrowing, such as a second mortgage or a secured loan.
Second Mortgage
A second loan on a property which ranks after the first charge mortgage.
Security Address
This is the address of the property that is being offered as security against a mortgage or secured loan.
Secured Loan
A personal loan that is secured against a property, in the same way as a mortgage or remortgage. If there is a mortgage already, the lender takes what is known as a ‘second charge’ on the property.
Self-build
A self-build property is one that is built by the borrower themselves - it is not an existing property. Self Build Mortgages are usually advanced in stage payments and are subject to strict limits on Loan to Value.
Self Assessment
Each year, self-employed people (and those subject to the highest rates of income tax) are required to complete their own tax return - a process known as Self Assessment. When the return has been made to the Inland Revenue, the amount of tax due can be calculated.
Self Certification / Self Certified Mortgage
If you are self-employed and you cannot prove a regular income, it’s still possible to get a mortgage by applying for a Self Certified Mortgage. With this, you simply confirm on the application form (or ‘self certify’) your income. Because of the additional risk, Self Certified Mortgages usually have higher rates of interest.
Sitting Tenant
This is someone who has a legal right of occupation, even when a property changes ownership. They also have a right to apply to their local authority to set a fair rent.
Sole Occupancy
This is a property occupied by the borrower. There are no tennants.
Special Status or Non Status
This is someone who is unable to provide all the necessary documentation relating to income and credit history.
Stamp Duty
This is a tax imposed by the Government on all house sales over a certain threshold.
Start-up Business
This is a brand new business with little or no trading history.
Status
This is the credit-worthiness of a borrower.
Structural Survey
This is the same as a Full Structural Survey.
Sum Assured
This is the maximum amount payable under a policy of insurance.
t
Tax Free Cash Sum
Under the terms of personal pension legislation, it’s possible to withdraw a lump sum from your pension fund as cash, free of income tax. This money can be used to help repay an interest-only mortgage.
Tenant
This is someone who rents a property from a person or company (a landlord).
Tenancy Agreement
This is a document which sets out the terms of a tenancy. It states the rights of both the tenant and the landlord in respect of the property and the period of the lease. The most common form of Tenancy Agreement is an ‘Assured Shorthold Tenancy’, which allows a landlord to reclaim possession of the property at the end of the tenancy period.
Tracker Mortgage
This is a mortgage with a rate of interest linked directly to the movement of the Bank of England Base Rate.
Total Amount Payable (TAP)
This is the total amount payable to a lender throughout the period of the mortgage, including all interest payments and charges.
Typical APR
This is an example rate of interest, designed to give borrowers an indication of the total cost of borrowing.
u
Underwriting
This is the process a lender goes through to assess a mortgage application, taking into account the information given to them by the borrower and the credit reference they obtain.
Unemployed Insurance
This is an insurance policy that helps meet the mortgage repayments should the borrower have an accident suffer long-term illness or be made redundant.
Unencumbered
This is a property that is owned outright without a mortgage or any other legal charge over it.
Unsecured Loan
This is a personal loan that is not secured against a property.
v
Valuation
This is an inspection of a property, carried out on behalf of a lender. It assertains the current market value of the property in its current condition.
Valuation Fee
The fee payable to a lender to arrange for a valuation of the property. This is normally paid when you send in your application. When the valuation has been carried out, this fee is not refundable - even if you do not proceed with the mortgage.
Variable Rate
This is a rate of interest that will vary according to market conditions.