The Finance Blog

Arranging a mortgage and the mortgage/remortgage process in general, can at times be somewhat confusing, not least due to the fact that many of us have little or no understanding of what many of the related words and terms actually mean. This glossary has been designed to dispel any confusion or misunderstanding about many mortgage and finance related terms that you may have encountered.

Advance
The amount of loan the customer takes out.

Adverse Credit
Having adverse credit is a negative credit rating, generally due to a poor history of loan repayments. Also see Adverse Credit Loans & Adverse Credit Remortgage & Adervse Credit Mortgage

APR
The ‘Annual Percentage Rate' (APR) helps you compare the cost of different mortgage deals. It takes into account the amount of interest you will pay, the length of the term of the mortgage and other related charges such as an arrangement fee.The APR is designed to enable prospective borrowers to compare the cost of prospective credit by a standard formula.

Bad Credit
Having bad credit can mean a different number of things. Often bad credit is accumulated by not repaying bills and debts on time. Bad credit can equate to having mortgage arrears, CCJs, defaults, IVAs and bankruptcies. Also see Bad Credit Loans & Bad Credit Remortgage

BACS – Bankers Automated Clearing system
The process of transferring money electronically from one bank to another.

Bank of England Base Rate
This is also known as the Bank of England's Repo Rate. This is announced from time to time by the Bank of England's Monetary Policy Committee.

Beneficiary
A person entitled to benefit, for instance under the terms of a trust or a will.

Bond
A fixed length agreement to pay interest on a debt.

Cap and Collar
A cap is a maximum rate of interest that can be charged for a specified period, while a collar is a minimum rate of interest that can be charged for a specified period.

CHAPS – Clearing House Automated Payment System
CHAPS is a telegraphic transfer through which the mortgage advance is sent to the conveyancer.

Completion
The time when payment of the advance is made to the customer and the agreement terms commences.

Compound Interest
This is an interest payment on both capital and on previously accrued interest.

Conveyance
This is the legal document which transfers ownership of unregistered freehold land.

Conveyancing
The legal process involved in buying and selling a property.

County Court Judgments (CCJ)
A CCJ is a judgment from a Country Court requiring the payment of a sum of money by one party to another.

Credit history
This is an individual's record of financial transactions which is compiled and held on file by the Credit Agencies.

Credit Reference Agency
A credit reference agency holds files on the borrowing records of nearly every adult in the UK. The information is collated from a variety of different sources. These agencies do no more than supply information to lenders. The lenders will then use this information as part of their credit scoring process.

Credit scoring
A system used by lenders to calculate the statistical probability that a loan they grant to you will be repaid. Different lenders will have different rules with regards to assessing risk. Each lender works out the characteristics of 'good' and 'bad' customers, based on its past experience. Each answer you give on your application form will be given a rating. If the combined total score is above a certain threshold, then your application will be accepted.

Decision in Principle
An initial decision will be made on whether the application can proceed. A decision in principle will be based on the information provided.

Easement
This is a Right of Way that allows persons other than the owner to access a property.

Encumbrance
Anything that has a limiting or detrimental affect on the ownership of a property, including, for instance, mortgages, leases, rights of way and easements.

Endowment
There are different types of endowment and they are all primarily investment products. They do also contain an element of life assurance. An endowment is often arranged as a repayment vehicle for a mortgage of which the proceeds are used to pay off the mortgage loan at the end of the term.

Equifax/Experian Searches
The Equifax/Experian credit search will show information registered against the name and address searched. This information will refer to adverse entries such as County Court Judgments (CCJs) and past/present credit transactions, including the insight service.

Fixed Rate
A fixed rate of interest is guaranteed not to fluctuate over a fixed period of time – this will of course subsequently mean that the repayments on a fixed rate of interest will not change over the same period. Also see Fixed Rate Remortgage

Flexible
A flexible mortgage is a mortgage product that will have a range of different benefits open to the borrower, such as overpayments, underpayments, payment holidays and interest calculated on a daily basis. Also see Flexible Remortgage

Equity
The equity of a property is simply calculated as the difference between the value of the property and the amount of the mortgage and any other outstanding loans secured against it.

Gazumping
This process occurs when the person selling the property accepts an offer and then accepts a new, higher offer from another buyer before exchange of contracts.

Gazundering
The practice of withdrawing a price already offered and making a lower offer. This is the flip side of the coin to the practice of gazumping. When the property market is weak, a buyer may try to reduce his or her bid for a home prior to the exchange of contracts.

Interest Rate
This is the rate of interest charged on a mortgage or loan. This may be different to the APR as it might not take into account associated fees and charges. Also see Low Interest Rate Loans

Land Registry
The Land Registry is a Government organisation that keeps on file records of properties in England and Wales. Any transfer of ownership has to be registered with HM Land Registry.

Loan Period
The loan period refers to the number of years or months over which the loan has been agreed to be repaid.

Loan to Value (LTV)
The LTV is the amount of the loan plus the outstanding mortgage balance in relation to the value of the property usually expressed as a percentage.

Local Search
This is a search carried out by your solicitor of the records of local authorities to discover issues such as who is responsible for road and footpath maintenance, whether the property has mains drainage and any planning matters that could affect the property or the area. This search is very much for your protection.

Mortgagee
The lender in a mortgage.

Mortgagor
The borrower in a mortgage.

Mortgage Arrears
A mortgage arrear is an unpaid sum overdue in relation to a mortgage. An arrear will usually be classified as a missed monthly payment.

Mortgage Repossession
Failing to meet your mortgage or secured loan repayments on time could result in mortgage repossession. This is when a lender is granted a possession order from the courts in order to repossess your home in the event of borrower default.

Negative Equity
This is when the amount you owe on your mortgage is greater than the value of your property. It becomes a particular problem if you are looking to move house.

Non Status
A Non Status mortgage is one that is offered without the need for the borrower to prove their income – much like a self certification. Also see Non Status Remortgage

Outgoings
Identified deductible expenses, comprising items such as 1st mortgage commitments, endowment and other credit payments.

Poor Credit
Having a poor credit rating is based on a wide range of factors ranging from missed payments on loans to late payments on Car Tax. Each lender has their own credit scoring system to assess the ‘creditworthiness’ of a borrower. Also see Loan For Poor Credit

Purchase price
The amount paid for property.

Redemption
The settlement of the loan in full.

Searches
Investigation made by your solicitor to check there is anything to cause concern about the present ownership of the property.

Self Certification
A self certification or ‘self cert’ mortgage is arranged for those borrowers, often self employed, with little or no proof of income. In this case the borrower declares their income as opposed to providing audited accounts or payslips. Also see Self Certification Remortgage

Shared Equity
A scheme essentially designed for first time buyers whereby a person purchases part of a property and the other part is held by a developer.

Shared Ownership
This scheme is similar to that of the shared equity, but in which the second part of the property is owned by a housing association.

Sitting Tenant
A person currently renting and occupying a property and who is legally protected against being removed.

Sole Occupancy
A property that is occupied by only the mortgage applicant(s) and their direct family.

Stamp Duty
Stamp Duty is a Government tax you have to pay on the purchase price of a property worth £120,000 or more. There are different rates in relation to the purchase price of the property.

Title
This document confirms the right of possession to an area of land.

Title Insurance
This is an insurance policy that is often taken out that will protect against any losses resulting from defects of title to a specifically described parcel of property.

Underwriting
Underwriting is a system used by many lenders and insurers to decide whether or not to approve applications for credit from customers.

  

<<Blog Home