Mortgage Jargon
Accident, sickness, and unemployment insurance (ASU): This insurance policy pays a percentage of the monthly mortgage payment if you cannot work and your income is reduced. It covers specific incidents and will be paid for a predefined period.
Adverse credit (also impaired credit): A term used to describe a poor credit history. This could include late payments, county court judgements (CCJs), arrears, or bankruptcy.
Annual percentage rate (APR): The interest rate used for comparison between mortgages includes mortgage repayments and any other associated fees charged, such as application, redemption, or legal fees.
Arrears are usually measured in months or pounds. This is the measure by which mortgage payments are behind schedule.
Bankrupt: A person or company that is relieved from the payment of all debts by a court order after the surrender of all assets.
Bankruptcy: the court proceedings that relieve a debtor who owes more than his or her assets by transferring his or her assets to a trustee appointed by the court.
Broker (also intermediary): A mortgage broker is a person who brings the mortgagor and mortgagee together.
Buildings insurance: An insurance policy that pays the cost of rebuilding or repairing your house if it is damaged or destroyed.
Commitments: Charges that a person has committed to pay, which could include mortgage payments, maintenance payments, car loans, or any other loans or credit payments. This could also include normal day-to-day living expenses such as food, gas, water, electricity, etc.
Contents insurance: An insurance policy that pays for lost, damaged, or stolen contents within a home.
Critical illness insurance: This insurance policy repays all or part of the mortgage balance in the event of a designated illness such as cancer, heart attack, etc.
Decision in principle: A mortgage offer in principle is based solely on the information given by the client. Any information not given may change the scheme being offered.
Early redemption charge: A charge is applied when the mortgage balance is repaid within a certain period, normally shown as a number of months’ payments or percentages.
Equity: an owner’s financial stake in a property. It is the difference between the value of the property and the outstanding loan amount.
Fast track: In particular circumstances, for instance, when a client has an impeccable credit history and requires a low loan value, the lender may approve the loan without requesting proof of income. This type of income verification has all but disappeared.
First charge: If more than one loan is secured on the property, the lender with the first charge has the first call on the property if the borrower defaults on the loan. The first charge is usually taken by a mortgage company.
First-time buyer (FTB): A person who has never previously bought and owned a property or has not owned it for a specified period.
Freehold: A property where you own both the property and the land on which it is built.
Further advance: Where another mortgage or loan is given on a property by an existing lender.
Gross income: Pay before tax is deducted.
Higher lending charge: If the loan-to-value of the property (LTV) is above a certain value, this fee is payable, normally on completion of the mortgage.
Home buyers report: A type of property survey that is more detailed than a mortgage valuation but less detailed than a structural survey.
Income Multiples: Lenders will use a multiplier against a borrower’s income to determine if the mortgage is affordable by taking references against his or her employer or accountant.
Interest only: A mortgage where the borrower is only required to pay the interest due on the principal mortgage amount during the specified term. The principal loan balance must be repaid at the end of the term.
Introducer: A person who brings the client together with the broker.
Individual voluntary arrangement (IVA): Normally an alternative to bankruptcy proceedings, where someone makes a voluntary arrangement with their creditors through the law courts for the settlement of debts. The payments normally work out around GBP 0.80 pence for every pound owed and result in a compulsory remortgage in the 4th year of the 5-year agreement.
Joint Income: The total income of two people sharing the repayment of a mortgage.
Landlords Reference: A record of the prospective borrower’s payment history prepared by his or her previous landlord
Legal charge: A document held by the land registry documenting who has a claim on your property.
Life assurance: A policy that pays a lump sum on the death of the policyholder.
Loan to value (LTV): The ratio of the loan amount to the value of your property. Example: GBP 80,000 against a property value of GBP 100,000 would be 80% LTV.
Length of employment: Although this can vary dramatically, most lenders will want to see at least the last 12 months of employment history, whether employed or self-employed.
Local authority search: A check carried out by the buyer’s solicitor to check if there are no proposed developments in the area, for example, new roads or buildings.
The London interbank offered rate (LIBOR) is the rate at which banks in London can borrow in the financial markets and from each other.
Main eesidence: If a person owns more than one property, this is the one in which they spend most time.
Maintenance: Payments made to an ex-partner to cover the costs of bringing up children in the relationship.
Maisonette: A self-contained unit with two or more floors that only occupies part of the building.
Minimum valuation: Most lenders require a minimum property valuation of at least GBP 25,000 for acceptance of a mortgage application.
Mortgage: A legal document that secures a loan against a property.
Mortgage valuation: The assessed market value of a property according to a qualified surveyor to enable the lender to assess the amount of the mortgage loan they are prepared to offer.
Mortgagee: The mortgage lender.
Mortgagor: The borrower.
Net profit: The income of a self-employed person or company after running costs and taxes have been deducted.
Other income: The amount earned from second jobs, working family tax credits, pensions, etc. may be taken into account, depending on the lender in question.
Previous lenders reference: A record of your repayment record with previous lenders
Quotation: An illustration showing the approximate monthly costs of a mortgage and other terms and conditions that may apply.
Redemption is the process of paying off a mortgage completely.
Remortgage: the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
Repayment method: How you choose to pay back a mortgage, either interest-only or capital-and-interest (repayment)
Repayment mortgage: Mortgages where monthly payments are made up of part interest and part capital repayment
Repossession is the legal process by which a borrower is deprived of his or her interest in the property as a result of default. This usually involves the eventual sale of the property.
Retention: A sum of money held back from the original loan amount pending completion of outstanding repairs or improvements.
Right to buy: A tenant in a council-owned property may purchase the property at a discounted purchase price depending on the length of the tenancy.
Second charge: If more than one loan is secured against a property, the lender with the first charge has the first call on the property in the event of default. Second charges and loans from subsequent lenders basically get the remaining equity.
Self-employed: A person who makes his own income as either a sole trader, a limited company, or as part of a partnership.
Self-certification: If it is difficult to provide substantiated confirmation of your income, lenders will allow you to self-certify your income by signing a declaration stating your income and that you can afford the loan repayments. This type of income verification has all but disappeared.
Sitting tenant: A person who currently rents and occupies a property and is currently protected by the law from being removed.
Special conditions: Requirements on the mortgage offer that must be met before completion (explanation of arrears, CCJ’s, etc.).
Stamp duty: A tax payable on the property depending on the purchase price.
Standard construction: A building built using normally accepted techniques and traditional materials, for example, bricks and mortar, with a lead-tiled roof.
Structural survey: A thorough examination of a property by a qualified surveyor
Studio flat: A one-roomed flat, normally with a bathroom and a separate kitchen.
Timber-framed property: a building that has been constructed using wooden parts as structural members and does not have a cavity wall.
Title insurance: A policy that protects you in the event of loss resulting from defects in the title specific to the property.
Unencumbered: a property without any loans or borrowings on it.
Valuation: See mortgage valuation.