Glossary

A | B | C | D | E | F | G | H | I | J | K l L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Annual Percentage Rate (APR)
APR is used to illustrate the true cost of borrowing as it allows you to compare the rates charged by various mortgage lenders. APR should be calculated in the same way by all lenders.

ASU - Accident, Sickness & Unemployment Insurance
See Payment Protection Insurance.

B

Base Rate
The Bank of England Base Rate is set by the Monetary Policy Committee every month in an attempt to keep inflation low. The rate is followed by most lenders and fluctuations in the Base Rate generally influence variable rate loans and mortgages.

Buildings and Contents Insurance (BCI)
Buildings and contents insurance or house insurance provides cover for damage to a property and damage or loss of the contents within that property. The insurance can be purchased as individual buildings and contents policies or a joint policy.

Buy-to-Let Mortgage
A buy to let mortgage is a mortgage for an investment property, i.e. a property that is, or will be, let to tenants. One of the main differences between buy to let mortgages and standard mortgages is that many lenders consider potential rental income in addition to or in place of your income when assessing the size of mortgage they will offer you.

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C

Capital-and-Interest Mortgage / Repayment Mortgage
See repayment mortgage.

Capped Rate Mortgage
Capped rate mortgages were designed to offer the benefits of variable and fixed rate mortgages. You will never pay more than your capped rate if the variable rate rises and if rates fall you will pay less in accordance with the fall.

Cash Back Mortgage
Cash Back mortgages provide ‘cash back’ on completion of the mortgage, which is either a percentage of the mortgage amount or a set amount.

Critical Illness Insurance
Critical illness insurance covers you in the event of being diagnosed with specified serious illnesses. It means that you would receive a lump sum to help you meet your financial commitments.

Current Account Mortgage (CAM) / Offset Mortgage
Current Account Mortgages are a flexible type of mortgage where your mortgage is in essence a large overdraft. When your salary goes into your account, it reduces the amount owed on your mortgage and when you withdraw money from your account the amount owed increases. Essentially a current account mortgage allows you to overpay and underpay without being charged for it.

D

Discounted Rate Mortgage
A Discounted rate mortgage is where the rate you pay is discounted from the lender’s standard variable rate for a set length of time. It is important to remember with discounted mortgages that at the end of your discount period your mortgage payments will revert to the lender’s standard rate.

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E

Early Repayment Charge
The early repayment charge or redemption penalty refers to the fee you would have to pay for fully repaying your mortgage balance early. The redemption charge is usually equivalent to one or two month’s interest, though this varies from lender to lender.

Endowment
An endowment is a form of investment which runs alongside an interest-only mortgage. You pay of the interest on your mortgage every month, but in addition you make a payment into the endowment policy. The value of the endowment is supposed to grow in value so that you can pay off the balance of your mortgage at the end of the term. However if the endowment policy value does not perform well enough you can be left with a short fall that you will have to meet at the end of your mortgage term.

Equity
Equity is the market value of a property less the value of the charges on it. For example, if a property is worth £200,000 and the mortgage on it is for £110,000 with no other loans secured against it, the equity on the property is £90,000.

F

Fixed Rate Mortgage
A fixed rate mortgage is where the rate applied to the mortgage is fixed for a particular period of time. It makes monthly budgeting easier as the monthly payments remain the same regardless of rises in the Base Rate. However if rates fall you payment would not drop and you could be left paying a relatively high rate.

Flexible Mortgage
A flexible mortgage allows borrowers to overpay, underpay, borrow back overpayments and take payment holidays on their mortgage without being penalised for it.

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H

Higher Lending Charge
A higher lending charge is a fee charged by your mortgage lender when you want to borrow a high percentage of a property’s value. This fee is generally used by the mortgage lender to insure against potential losses in the event that you default or stop paying your mortgage and the house is repossessed and sold for less than the outstanding mortgage.

Homeowner Loan / Secured Loan
Homeowner or secured loans are where the lender is provided with some form of security, usually the borrower’s property.

House Insurance
See Buildings and Contents insurance.

I

Income Multiples
Income multiples are the factors a mortgage lender uses to determine the maximum borrowing amount they will offer you. In order to calculate this they multiply the gross annual income of borrowers by the income multiple. The income multiples used will vary among mortgage lenders.

Individual Savings Account (ISA)
An ISA is described as being a tax wrapper as it allows you to save without being taxed on any interest earned or capital gains made. There is a limit to how much you can save into an ISA in one tax year, though you can invest in stock market based investments such as unit trusts and investment trusts via an ISA as well as using it as a traditional savings account.

Interest Calculation
Interest calculation is the frequency with which mortgage lenders calculate the interest on the outstanding balance on mortgages. Interest calculation varies from lender to lender and can be calculated daily, monthly or annually.

Interest-Only Mortgage
An interest only mortgage is where your monthly payments consist only of the interest due on your total mortgage balance. Your mortgage balance is not reduced during the term of your interest only mortgage. It is recommended that you set up an investment of some form to run concurrently with your mortgage so that you can repay the total balance at the end of the term.

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L

Legal Fees
Legal fees are charged by a solicitor in relation to your mortgage application. These fees include costs for services such as conveyancing, which deals with the transfer of land ownership and legal registrations. There are many mortgage deals available with free legal fees included.

Life Assurance
Life assurance is an insurance policy designed to repay your mortgage in the event of your death.

Loan to Value (LTV)
Loan to value expresses the ratio between the mortgage amount and the value of the property as a percentage. For example a house worth £100,000 with a mortgage of £60,000 would have a loan to value (LTV) of 60%.

P

Payment Protection Insurance (Accident, Sickness & Unemployment Insurance ASU)
Payment protection or ASU insurance is a form of income protection that ensures your mortgage payments are met if you are unable to work. You would be covered if you became sick, have an accident or are made redundant.

Permanent Health Insurance (PHI)
Permanent health insurance is a long term form of income protection. It pays an income for a specified time (the deferred period) in the event of prolonged illness, an accident or become disabled, preventing you from working.

Portability
A portable mortgage generally allows you to transfer your mortgage when you are moving home, without being penalised for it. However it is important to note that the terms and conditions vary between lenders.

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R

Release Fee / Sealing Fee / Deeds Release Fee
An administrative charge imposed by mortgage lenders for releasing the title deeds of your property when you redeem your mortgage (repay in full). This fee is payable because remortgages involve redeeming the mortgage with one lender and transferring it to another. It varies considerably from lender to lender.

Repayment Mortgage / Capital and Interest Mortgage
A repayment mortgage or capital-and-interest mortgage is where part of your monthly payment repays the capital amount you owe and part goes towards paying interest charged on the loan. Generally at the end of the term of your mortgage the entire debt will be repaid.

S

Secured Loan / Homeowner Loan
See Homeowner Loan

Split Loan / Part Repayment - Part Interest Only
A split loan or part repayment-part interest only mortgage a mixture of an interest-only mortgage and a repayment mortgage i.e. you repay the interest owed on your mortgage and part of the capital you owe, just not as much as you would pay on a full repayment mortgage.

Standard Variable Rate (SVR)
Each lender has their own Standard Variable Rate which they base all their products around. Many homeowners end up paying their lender's SVR without knowing it as their mortgage rate automatically changes to the SVR when their mortgage deal is up, so it is important to seek a more competitive mortgage deal when your tie in period on your mortgage is coming to an end.

Stamp Duty
Stamp duty is a land tax payable on property or land purchased in the UK. Currently any property or land under £125,000 is exempt. Anything above that is charged at between 1 to 4 % of the purchase price. There are exemptions for some disadvantaged areas in the UK.

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T

Tracker Mortgage
A tracker mortgage is a variable rate mortgage that is set above or below the Bank of England Base Rate. They then fluctuate in accordance with changes in the Base Rate, which is reviewed by the Bank of England every month, although it does not necessarily result in a change.

V

Valuations and Surveys
A valuation is a report detailing the estimated value of a property by a qualified valuer. Your mortgage lender requires a valuation when you take out a new mortgage on a property - for both whether house purchases or remortgages. The mortgage lender uses the valuation to ensure that the property offers sufficient security. Mortgage lenders tend to have their own panel of surveyors they work with, so ensure you check before instructing a survey so you don’t end up paying for two.

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Variable Rate Mortgage
With a variable rate mortgage the interest rate changes according to the Base rate fluctuations. As such your repayments can increase or decrease according to the fluctuations.