Glossary

Seen a word you’re not sure about? You might find the definition here . . .

This glossary of terms should be used as a guide only.

Affordability – This relates to your ability to repay your mortgage. Your affordability is based on several factors: your monthly income after all regular financial commitments have been deducted, your monthly mortgage repayments and your monthly living expenses ie. food, clothes. To help you work out what you can afford, use our budget planner and mortgage calculator.

Assignment – The transfer of ownership of something from one person to another. If you’re buying a leasehold flat, for example, ownership is ‘assigned’ to you through the contract.

APR – The Annual Percentage Rate helps you compare the cost of different mortgage deals. It takes into account the amount of interest you’ll pay, the length of the term of the mortgage, and other charges like application fees.

Accident, Sickness and Unemployment (ASU) – also known as Short Term Income Protection. Tax-free replacement income to cover monthly mortgage payments and other regular outgoings, in the event of ill-health or unemployment, usually providing cover for up to one year.

Bank of England Base Rate – The official bank rate (also called the Bank of England base rate or BOEBR) is the interest rate that the Bank of England charges Banks for secured overnight lending. It is the British Government’s key interest rate for enacting monetary policy.

Buildings Insurance – A policy designed to insure the building rather than its contents.

Bridging loan – A temporary loan designed to bridge the gap in time and money if you have to complete the purchase of your new home before you’ve sold your existing one. Some lenders may only offer bridging loans secured by way of a solicitor’s undertaking. This is a personal legal guarantee by the solicitor that something will be done – usually the repayment of a mortgage or production of title deeds.

Capped rate – The maximum rate of interest you can pay on a mortgage during a set period of time. The interest rate charged, and the monthly mortgage payment is variable up until the capped rate comes into effect.

Charge – A technical word for the security or collateral a company relies on when lending money on property.

Completion – This process is the point when the money being used to buy a property is paid to the seller and the legal ownership of the property passes to the buyer.

Conclusion of Missives (Applies to Scotland only)– The swapping of contracts between a buyer and seller’s conveyancers. Once contracts are exchanged both parties are legally bound to the transaction.

Contents – Refers to the contents of your home, such as furnishings, appliances and personal possessions, covered by a household contents insurance policy.

Conveyancing – The official term for the legal process of transferring property from one person to another.

Credit Scoring – A technique used by lenders to assess the suitability of your application.

Critical Illness Cover (CIC) – Pays out a lump sum if you are diagnosed with one of the 40 conditions, including 37 critical illnesses, 2 additional payment conditions and terminal illness cover, during the policy term.

Daily Rest – The interest owed, calculated daily on the outstanding balance on your mortgage.

Disbursements – All the costs listed on your conveyancer’s invoice which have been charged for carrying out your home buying legal work.

Discounted rate – A mortgage that offers a discounted rate at a certain percentage below Barclays Bank Base Rate for a set period of time. The discounted rate is variable and will move up and down in line with Barclays Bank Base Rate

Discharge Fee – A fee you may have to pay some lenders to release their hold over a property once you’ve paid off your loan.

Early repayment charge – A charge you may incur if you pay off all or part of your mortgage earlier than agreed.

Equity – The difference between the amount you owe on your mortgage and the current value of your property.

Excess – The amount you’ll have to pay before your building or contents insurance policy kicks in to cover any claim you might make. For example, if your property is damaged by fire, you may have to pay the first £100 towards the claim. The amount varies so always check what the excess is before buying a policy. The cost of the insurance cover can be affected by the level of any voluntary excess you choose.

Exchange of contracts – The swapping of contracts between a buyer and seller’s conveyancers. Once contracts are exchanged both parties are legally bound to the transaction. The Scottish equivalent is called Conclusion of Missives.

Exclusions – Most insurance policies have exclusions – the things they don’t cover. It’s worth checking your policies for exclusions as they could affect any claims you make.

Extended cover – You can ask for an insurance policy to be extended to cover things over and above the basic policy. For example, valuable items such as rare Star Trek figurines or expensive photographic equipment can be specially covered. There will be an additional cost for this service, which will be added to your annual premium.

Final repayment charge – This charge is applied when the mortgage is paid in full.

Fixed rate mortgage – Your mortgage interest is fixed for a set period which means your monthly repayments stay the same each month for that period of time.

Family and Personal Income Plan (FPIP) – This is life insurance that provides a tax free monthly benefit on the death of the insured until the end of the term specified at outset. However, because the benefit is paid after death, Inheritance Tax may be due on the benefits paid.

Flexible mortgage – Generally, this describes a mortgage that offers flexibility over how you pay it off, although some early repayment charges may apply. A flexible mortgage could allow you to pay off your mortgage early or make overpayments.

Freehold – The legal word for the ownership of land and the property that stands on it, where both belong to the owner indefinitely.

Gazumping – Every home buyer’s nightmare. You’re close to completing the purchase of your dream home and then a latecomer arrives on the scene and offers a higher price, which the seller accepts. That’s gazumping.

Gazundering – Every seller’s nightmare – and gazumping in reverse. This happens if the buyer is in a strong position and threatens, just before contracts are exchanged, to pull out of a deal unless the price is reduced.

Ground rent – The annual rent paid by a leaseholder to the person or company owning the freehold. It’s usually paid by people living in leasehold flats to the company owning the land on which the block was built. Ground rent is not the same as a service or maintenance charge, which leaseholders may pay to cover such things as the management, maintenance and repair of the block of flats or property.

Higher Lending Charge – A type of insurance policy that covers the lender against loss if you stop paying your mortgage, the property is sold and the lender does not recover the amount of the loan.

Home insurance – Home insurance comes in two forms: contents insurance and buildings insurance. The first covers furnishings, appliances and personal possessions in your home and should cover any loss or damage. The second covers the property itself: the roof, walls and so on. If a freak storm rips the tiles off your roof, buildings insurance should cover the cost of repairs.

Income Protection Benefit (IPB) – This provides a tax free monthly benefit in the event of you not being able to work due to incapacity caused by illness or injury, resulting in a loss of earnings. The monthly benefit will last until you recover and return to work, die or the policy ends.

Indexation – Some policies can be linked to inflation where premiums and benefits increase annually.

Interest only mortgage – A mortgage where monthly payments only cover the interest on the mortgage. The amount of capital remains constant and it’s down to you how you choose to repay the full amount. At the end of the mortgage term the capital borrowed will need to be repaid in full, so you will need a suitable alternative investment in place to do this.

Interest Rate – This is how a lender calculates the interest payable on your mortgage. This may be calculated on a daily, monthly or annual basis.

Key Facts Illustration – A Key Facts Illustration is a personalised illustration that details things like the amount of borrowing requested, your monthly repayment amounts, any associated fees and charges, and information about any additional features of the mortgage product. All lenders must set out their KFIs in the same format, so you can easily compare products before submitting an application to a lender.

Land Registry – A government department responsible for publicly recording interests in land in England and Wales.

Land Registry Fee – Your conveyancer pays this on your behalf to register your details in the Land Registry records once you’ve bought a property or changed your mortgage lender.

Lease – The legal document that details the agreement between the freeholder and those who occupy their property for a specified period of time and at an agreed price or rental. It sets out what responsibilities the landlord has and whether, for example, you can keep a pet in your new home or take up the carpet and expose the floorboards.

Leasehold – The legal word for the ownership of a lease. It usually refers to a flat but also includes leases on commercial properties such as shops and offices. The term of a lease can vary from six months to 999 years.

Lender – Any person or company who offers to lend you money for an agreed period of time. In return, you will have to repay the loan and the interest on it. The company that gives you your mortgage is a lender.

Local Authority Search – Part of the conveyancing process when you buy a property, carried out by your conveyancer or solicitor. It gives useful information that might affect the property, like proposed changes to the local area or any planning permission given for the property.

Life Assurance – An insurance policy which, in return for the regular payments, pays a lump sum on the death of the insured during the policy term.

Loan to Value – This is the amount of money you borrow as a mortgage expressed as a percentage of the value or price of the property (whichever is lower). For example, a £171,000 mortgage on a house valued at £180,000 would mean an LTV of 95%.

Lump-sum payments – One-off payments, on top of your regular repayments, that can be used to pay off your mortgage early – if your lender allows you to. You could, for example, choose to make a lump-sum payment if you’re lucky enough to get a windfall. With some mortgages there may be an early repayment charge associated with making overpayments above a given percentage. Customers who receive cash lump sums may wish to consider the benefits of an offset mortgage.

Mortgage – A mortgage is a loan which you use to buy a home. You pay your mortgage by way of regular payments. Your home will become the security for the loan which means that if you cannot afford your mortgage repayments your home may be repossessed.

Mortgage Decreasing Term Assurance (MDTA) – Life insurance that decreases regularly during the policy term roughly in line with the way a repayment mortgage decreases. However, there will be some circumstances when the lump sum will not be enough to pay off your mortgage in full.

Mortgage Deed – A legal document establishing a mortgage on a property. In Scotland this is known as a Standard Security.

Offset mortgage – Offsetting is a way of managing your money using your current account, savings account and offset mortgage. You can ‘offset’ the credit balances you have in your current and savings accounts against your mortgage balance and pay interest (at the mortgage rate) on the difference only. This means that you could potentially reduce the total amount of interest you have to pay on your mortgage. You will not, however, earn interest on your credit balances. When offsetting credit balances against the mortgage, you have the option of keeping your mortgage repayments as they are, thereby paying the mortgage off more quickly, or keeping the original term and reducing your monthly repayments (please note your mortgage repayments may vary). Either option may provide substantial savings.

Premiums – The technical term for the payments you make in return for your insurance cover. They’re usually made monthly and best paid by Direct Debit so you don’t forget them.

Registered land – Land whose title is registered at HM Land Registry and usually guaranteed by it.

Remortgaging – Remortgaging is the process of moving your mortgage from one lender to another, or choosing a different type of mortgage from your current lender.

Repayment Mortgage – With a repayment mortgage your monthly payments cover both interest and capital at the same time. It is calculated so that at the end of your mortgage term the amount you borrowed including interest is paid in full, provided you make all the repayments as required.

Repayment types – Repayment types are the different ways you can pay your mortgage. With a repayment mortgage your monthly payments cover interest and capital. At the end of the mortgage term the amount borrowed including interest will have been paid in full. With an interest only mortgage the amount of capital remains constant. At the end of the mortgage term the capital borrowed will need to be repaid in full, so a suitable alternative repayment vehicle should be in place to do this.

Retention – Holding back part of a mortgage loan until repairs to the property are satisfactorily completed.

Stamp duty – A sliding scale of tax paid by the borrower to the government on the purchase price of any property over a certain threshold. You should remember to factor in stamp duty costs when budgeting to purchase a property.

Standard Security (Applies to Scotland only) – A legal document establishing a mortgage on a property.

Standard Variable Rate – A variable interest rate set by the lender that may fluctuate in line with general interest rates and market conditions. The SVR rate would usually represent a specific margin above the Bank of England Base Rate and therefore may vary in accordance with this.

Structural Engineers Report – A specialist report from a structural engineer on the condition of a property.

Term Assurance – This is an insurance policy which, in return for the regular payments, pays a lump sum on the death of the insured within a specified term.

Terminal Illness Cover (TIC) – Not to be confused with CIC, this benefit simply allows those who are diagnosed with less than 12 months to live to claim early on a life insurance policy. Minimum policy term is 2 years and cover is not available during the last 12 months of the term.

Title deed – Documents that provide evidence of property ownership.

Tracker mortgage – A tracker mortgage has an interest rate that follows the movement of either the Bank of England’s or lender’s base rate which can go up or down depending on the decisions of the Bank of England Monetary Committee.

Trusts – As a rule, every life insurance policy should be written in trust. While there are many variations, a trust is a simple legal instrument that causes the proceeds of the policy to be paid swiftly and avoids all delays connected with probate, wills and the lack of them. Placing a life insurance plan in trust can also help protect against Inhertance tax.

Valuation – A service provided by an independent expert to determine the value of any property you might want to buy or sell. There are several different types of valuation and you should ensure you consider each type carefully before deciding which one to proceed with. Valuations can be arranged by your lender.

If you would like to see any other definitions on this page, get in touch and we’ll upload them as soon as we can.

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