Am I Eligible? - The Quick Guide to Securing a Mortgage
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A


 

Accident, Sickness and Unemployment Insurance
Insurance cover arranged by the borrower to protect against inability to meet mortgage payments. Unemployment cover is restricted to cover certain events only. Exclusions to this insurance include dismissal due to professional misconduct or taking voluntary redundancy. The accident and sickness cover does not cover any act of self-injury or any injury related to the use of alcohol or drugs.

Agreement In Principle
This means you have met the criteria for a mortgage or other financial product, but it will be subject to underwriting, valuation report and confirmation of employment.


Annual Percentage Rate of Charge (APRC)
An explanation to identify the true cost of borrowing and a standard in order to provide a method of comparing costs of different loans.

Application Fee
Any charges made for an application.

Arrangement Fees
These may also be referred to as reservation, booking, or product fees. A fee charged by a lender for setting up the loan. Normally payable upon completion but may sometimes be added to the loan. 

Arrears
A late payment, or a payment after the event, for example most salaries are paid "monthly in arrears" - i.e. the first payment is one month after commencement of work.

B




Bankruptcy
The process of declaring an individual bankrupt. Bankruptcy can be discharged within 12 months, but remains on your credit rating for seven years and limits a person's ability to borrow.

Base Rate (BBR)
Also known at the Bank of England Base Rate.
The Bank of England Base Rate is the main interest rate for the UK. It is set by the Monetary Policy Committee (MPC) of the Bank of England every month. The MPC consists of a group of independent experts appointed by the Bank of England who meet at the beginning of every month to assess the current economic situation and decide if the Base Rate should go up, come down or remain the same. The rate tends to be changed by a quarter of a percentage point at a time.

Bridging Loan
Short-term loan used as coverage when buying a new property before selling an existing one.

Broker
A third party individual who attempts to find the best available financial or other package. Brokers could be affiliated with a larger network in finance, or they may be independent.

Building Society
Building societies are mutual organisations owned by their members and regulated by the Buildings Societies Act.

Buildings Insurance
An essential insurance policy which covers the structure of the building. Where the property is leasehold the buildings insurance will normally be arranged by the freeholder and the cost charged on to the leaseholder within the service charges payable.

Buy to Let Mortgage
A mortgage for a property which the owner intends to rent out privately to tenants.

C




Capital Raising
The act of remortgaging a property based on a higher value compared to the original purchase price. The capital raised is the amount left over after repayment of the original loan is deducted from the new loan. Some lenders will also take into account home improvement projects as part of the remortgage, if they are likely to significantly raise the value of the property.

Capped Rate Mortgages
The mortgage interest rate will not exceed a certain value during a certain period of time, although it may fluctuate above and below the agreed level. Some capped products will have a ceiling and a floor between which the rate payable may move; such loans may be known as cap and collar mortgages.

Cashback Mortgages
Cashback mortgages provide you with a single lump sum of cash immediately on completion. The amount of cash is usually calculated as a percentage of the overall loan amount, though it can be a set figure. The percentage of the loan that is given as cash back can be as high as 5%, though amounts in the region of 1 to 3% are more common.

CCJ
If payments on a financial agreement are not made, a magistrate may issue a county court judgement (CCJ) in the name of the individual. This greatly affects your credit rating.

Commercial Mortgage
Where the loan is granted for commercial purposes, and is usually secured against commercial property, though residential property may be used. With a commercial mortgage there is a higher rate of interest, as it is a higher degree of risk for the lender.

Completion
The moment at which all the legal formalities of the purchase or mortgage are finalised and the funds are drawn down from the lender, usually into the solicitors account.

Contents Insurance
This is the insurance of property within your home i.e. furniture, clothing, personal possessions etc. Contents cover is a separate type of insurance to buildings insurance, which covers the structure of your property.

Conveyancing
The legal documentation relating to the transfer of ownership of a property.

Council of Mortgage Lenders (CML)
The CML represents the mortgage lending industry and its members account for around 98% of residential mortgage lending in the UK. Membership comprises banks, building societies and mortgage lenders. The organisation provides statistics and research on mortgage related topics and maintains data on the top mortgage lenders in the UK market.

Credit Check
Where an enquiry is made on the credit history of an applicant, normally by reference to one of the major credit agencies such as Equifax or Experian.

Credit Scoring
A generalised way of assessing the credit application, carried out by scoring the answers given on an application. It is important that there are no missing answers on an application otherwise the result for the question becomes a negative.

Critical Illness Insurance
Insurance cover for major illness, diseases and other potentially fatal medical conditions.

D




Daily Interest
Where interest is applied on a daily basis instead of the traditional monthly time frame.

Debt Consolidation
Replacing a number of existing loans with a single loan from a new lender which may reduce your monthly payments by spreading out a larger loan over a longer period of time, and reducing the interest rate being paid.

Deed
The document that proves you own the property. It will also show any land boundaries.

Default
When a payment or a series of payments are missed.

Dependant
An individual who depends financially on another person.

Disbursements
Search fees, land registration, stamp duties are all examples of disbursement.

Discharged Bankrupt
Person whose period of bankruptcy has ended.

Discharged CCJ
A county court judgement that has been paid.

Discount Mortgages
Such products allow for a certain discount to the lender's standard variable rate (SVR) typically for a set period of time. For example, if your lender's SVR is 6.75% and you have a three-year discount mortgage with a rate of 4.99%, you will receive a discount of 1.76% for three years and then pay the SVR of 6.75%.

Discounted Purchase Price
The price of a property which has been reduced below the open-market value, such as in the case of a right-to-buy purchase or a builder's discount. Under right to buy legislation, properties are not offered at the open market value, but at a discount, and if the property is resold within a three-year period, some or all of the discount will have to be repaid.

E

 




Early Repayment Charges (ERC)
A fee charged if you choose to move or pay off your mortgage before the end of an agreed term.

Easement
A right of way giving individuals other than the owner permission to use a property for a specific purpose.

Endowment mortgage
A mortgage with an interest payment and a separate payment into an endowment investment product designed to repay the mortgage at the end of the term.

Equity Release scheme
A way older homeowners (typically 55%) can free up some of the value of their homes in exchange for a cash lump sum or income.

 


 

 

F

 

Fee
The amount charged by a lender, broker or other middleman for arranging a mortgage or property purchase.

Financial Ombudsman Service (FOS)
This body provides consumers with an avenue for resolving disputes involving financial services firms. Set up by the Government, it gives independent advice on complaints in areas including banking, mortgages, pensions, insurance and investments. Consumers must try and resolve their dispute with the relevant organisation before referring to the FOS for advice, however. Decisions made by FOS regarding disputes are not legally binding unless agreed by both parties.

Financial Conduct Authority (FCA).
This independent, non-governmental organisation regulates the UK's financial services industry, including mortgage lenders and brokers. Any organisation regulated by the FCA is legally bound to adhere to its rules. The FCA can conduct investigations and has powers to enforce rules upon the organisations it regulates and punish those that fail to adhere. The three main aims of the FCA are to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve business capability and effectiveness. 

Financial Services Compensation Scheme (FSCS)
This is the fund of last resort for customers of authorised financial services companies. The FSCS can pay if a firm is unable to pay the compensation for claims made against it. It is a free, independent service, set up under the Financial Services and Markets Act 2000. It protects deposits, insurance policies, investments, insurance broking (for business on or after 14 January 2005) and mortgage advice and arranging (for business on or after 31 October 2004). The FSCS is funded by levies on authorised firms.

First Charge
A legal charge used to secure the main mortgage. A lender with a first legal charge over a property has a first call on any funds available from the sale of the property.

First Time Buyer
A person that is purchasing a property for the first time. Some lenders offer preferential lending terms to first time buyers. A borrower who has owned a property before but has sold this prior to buying again may be offered first time buyer terms by some lenders but this is dependent on the lender.

Fixed Rate Mortgages
A loan where the initial payments, for a certain period of time, are based on a specific interest rate. The rate payable will not change during that period regardless of changes in the lender's standard variable rate.

Flat Over Shop
Residential habitation situated above retail premises. Some lenders will not lend on this type of security because it is seen as having limited appeal to prospective purchasers and therefore have a lower value compared to an otherwise similar property. Any property that is located above commercial property usually takes longer to sell than properties which do not have any commercial element. A flat above a take-away restaurant is more difficult to arrange a loan on than a flat above a book shop.

Flexible Mortgages
Flexible mortgages are offered by some lenders and allow you to make overpayments in order to repay the mortgage early or save for a special event.

Forbearance
An action a lender may take to delay repossession or legal issues with a delinquent borrower.

Freehold
Land or property which is owned outright, as opposed to leasehold where the owner has the right to occupy the land or property for a given period of years only.

Full Structural Survey
It is essential to have this comprehensive survey carried out if you are thinking of buying an older property, as it will tell you if there is any problem or faults.


 

G



Guarantor mortgage
With a guarantor mortgage, either a parent or a relative agrees to guarantee your mortgage in the event that you fail to make the mortgage repayment. Having a guarantor may also enable you to borrow more money than your income would usually allow, because your guarantor's income (less any other financial commitments) is taken into account.

Gazumping
Where the seller accepts a higher bid after accepting your offer.

Ground Rent
When you are a leaseholder you will probably have to pay ground rent to the person that owns the land you property stands on.

H



Higher Lending Charge (HLC)
An insurance premium which insures the lender against any loss of money, e.g. If you default on your loan or get repossessed. This usually applies only if you borrow more than 75% of the price asked for the property you are buying. Even though you have to pay for the insurance premium, it does not mean that you are covered by the insurance, the lender is.

Homebuyer's Report
The homebuyer's report is a less stringent report than a full structural survey.

House Auction
The process whereby something is bought at a price that arises from a process of bidding. If you bid for and win a home at an auction you will be legally bound to buy the house.

Household Insurance
Insurance cover for your home. The two main types are building and contents insurance.

Housing Association
A body of trustees or company that is established for the purposes of providing, building, improving or managing, or facilitating, or encouraging the construction or improvement of, housing accommodation. It does not trade for profit. Anyone wanting help with housing puts his or her name down on the housing association list which acts in the same manner as council house lists.

I




Income Protection
(Also known as Permanent Health Insurance (PHI) Income protection provides long-term protection for an agreed sum if you are unable to make payments on an outstanding agreement, such as a mortgage or other bills.

Individual Voluntary Arrangement (IVA)
IVAs were introduced under the insolvency act 1986 with the intention of allowing an individual to avoid bankruptcy and make maximum possible restitution to creditors. An IVA is seen as preferable to bankruptcy as the debtor can retain his tools of trade and, in the case of a professional person, continue to practice, or hold company directorships.

Interest Only Mortgages
With an interest-only mortgage, you repay the interest on your mortgage every month and pay off the capital debt - the value of the property - at the end of the mortgage. As you only pay off the interest, the repayments on an interest-only mortgage are cheaper than those on a repayment mortgage, where you pay off a combination of interest and capital debt each month. But with an interest-only mortgage, you'll need to ensure that you have the means to repay the mortgage in full at the end of the term. 

Interest Rate
Also known as the rate of interest, mortgage rate or product rate
The rate of interest on your mortgage denotes the amount you are paying the lender to borrow funds. The rate is expressed as a percentage and calculated by the lender to ensure it receives the original loan amount back by the end of the term (or before if you repay early), plus a profit.

Intermediary
Broker or person who attempts to sort and arrange financial packages for you.

Intermediary Mortgage Lenders Association (IMLA)
This organisation represents mortgage lenders who channel their business through mortgage intermediaries, or brokers. Its membership includes banks, building societies and subsidiaries of overseas banks. IMLA is involved in a range of activities, including communicating its members' views to the Council of Mortgage Lenders and supporting new product development.

 

J

 




Joint Application
A mortgage application that involves more than one person as the borrower.

Joint Liability
Two people who are responsible for a loan or debt.

K




L



Land Registry
A record of property, ownership and the mortgage is registered in a central register at HM land registry.

Leasehold
The land on which the property is built is not owned directly by the property purchaser and is held under a lease for a fixed period.

Legal Charge
The means by which lenders enforce their rights to a property, and is recorded at the land registry. There are various different types of legal charge and the type used will vary from lender to lender. A primary mortgage will normally be secured by a first charge.

Lender's Arrangement Fee
Fee charged by the lender to the borrower for arranging a mortgage.

Lessee
Person to whom the lease is granted.

Lessor
An individual or company that grants a lease.

Liabilities
Debts and outgoing payments that you are legally responsible to pay.

LIBOR
London interbank offered rate is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to base rate.

Life Insurance
A policy payable upon the death of the insured, usually referred to as assurance.

Loan To Value (LTV)
The ratio of the loan amount to the property valuation expressed as a percentage. So if a borrower is seeking a loan of £100,000 on a property worth £200,000 it has a 50% loan to value rate.

Local Authority Search
A search of local authority records to confirm the status of the property. Local authority searches should reveal any proposed changes in the area, the details of the planning permission for the subject property and whether any enforcement notices have been served by the local authority.

M

 




Monthly Repayment
This is the amount you pay our lender each month toward the cost of the credit they have given you.

Mortgage
The name given to credit used to buy property or loan secured by land.

Mortgage Deed
Legal document establishing a loan on property.

Mortgage Indemnity Guarantee
See Higher Lending Charge.

Mortgage Term
The length of time before the mortgage loan must be repaid.

Mortgage Payment Protection Insurance (MPPI)
This is an insurance cover to protect your mortgage payments.

N




Negative Equity
A situation that occurs when the amount loaned against a property is in excess of the market value of the property.

Net Profit
The income of a company or self employed business after making full allowance for the expenses of running the business. This should be the amount available to the owners of the business for their own benefit. It is the figure that can be used to calculate their ability to service a mortgage.

New Build
Refers to newly built properties. Can refer to a single property or whole estates.

O




Offset Mortgages
An offset mortgage pulls all of your finances into a single account. So it runs your current account, mortgage, savings and personal loan accounts together. On a daily basis, it adds up all of your assets and your savings, plus the money in your current account, and offsets them against your debts (mortgage and loans).

Open Market Value
The value of a property on the basis of a willing buyer and willing seller in the open market allowing for a reasonable period for sale.

Outgoings
This includes existing liabilities and debts, other than an existing mortgage, such as hire purchase, personal loans, school fees etc.

Outstanding Balance
The amount that is outstanding on your mortgage.

Overpayments
Flexible mortgages allow you to pay more than the standard monthly repayment, in order to pay off your mortgage more quickly and potentially save a lot of time and money.

P


 

Payment Shock

If you have taken out a mortgage on a low rate, you may experience payment shock when the low rate ends, if your repayment then reverts to a much higher interest rate.

Portable
Describes a mortgage that can be transferred from one property to another.

Q




R




Redemption Charges
These are any charge levied by the lender when the mortgage loan is repaid before the end of the full term. Known as Now known as Early Repayment Charges.

Remortgage
The arranging of a loan on a property in which the borrower already resides. Normally this involves redeeming an existing loan on the property.

Repayment Mortgages

Right To Buy
This is an option for council tenants to purchase the property in which they live in. The property price is often at a discount, proportional to the length of occupancy.



S




Search Fee
Before you buy your property you have to check with your local authority that there are no plans that will affect the value of your property.

Second Charge
A second charge is a legal charge that ranks behind a first charge, possibly to secure a second mortgage, or a guarantee given to secure other borrowings.

Self Build
A property, the construction of which is controlled by the borrower; not a finished unit. Loans on self build properties will normally be advanced in stage payments and are subject to strict limits on loan to value. A qualified architect will need to be involved.

Semi-Commercial
A property that has at least part commercial use. A semi-commercial mortgage is a loan on security that is not entirely used for residential purposes, e.g. a shop.

Shared Ownership
A method of property purchase in partnership with a housing association. The borrower purchases part of the property and rents the remainder from the housing association. Also known as co-ownership, this arrangement is designed for people who could not otherwise become homeowners. Under most arrangements, the minimum purchase amount is 25% of the property value with the remainder available to be purchased in blocks of 25%.

Sitting Tenant
A person having a legal right of occupation, even if the property changes ownership, and who is able to apply to the local authority to set a fair rent. Properties with sitting tenants are generally worth at least 30% - 40% less than their open market value with vacant possession.

Stamp Duty
A tax is payable on property purchase, please contact us for the latest rates.

Standard Variable Rate Mortgages (SVR's)
With a variable rate mortgage, the interest rate you pay can vary, moving up and down over time. Every mortgage lender has an SVR that is loosely based on the Bank Rate; the benchmark interest rate set by the Bank of England. Each lender sets its own SVR, usually 1% to 2% above the Bank Rate. So where the Bank Rate is 1.0%, a lender's standard variable rate may be 3.5%, 4.5% - or higher in some cases.

Structural Survey
The most comprehensive form of inspection that can be undertaken by a chartered surveyor. In the case of properties with movement, lenders may require a structural engineer's report. This is a different type of survey carried out by a chartered building engineer and should not be confused with a structural survey.

Survey
An inspection carried out for the benefit of the mortgage lender to make sure that the property forms a good security for a loan. This inspection and should not be relied upon on when deciding whether to purchase a property or not. Purchasers should be advised to obtain either a house or flat buyer's report or a full structural survey before proceeding with a purchase.

T




Term
The mortgage term is the length of time before the mortgage loan must be repaid.

Term Assurance
This is the simplest form of life assurance. The insured person is covered against death within a fixed period depending up on the payment of the premiums. If an insured person dies within the policy term the sum assured is paid out. If the insured person survives the term the premium has been spent and the insurance ends with nothing being paid to the policyholders.

Tracker Mortgages
A tracker mortgage follows the Bank Base Rate set by the Bank of England and is charged at a defined margin to this rate – for example Base Rate plus 2%.

U




V




Valuation
A basic survey that is carried out by a valuer or surveyor to establish the value of your property.

Valuation Fees
A fee usually paid by the borrower for the lender's inspection of the property. This is normally paid on application. 

Variable Rate Mortgages
See standard variable rates.


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