Ability to pay
A method used by mortgage providers and other lenders to calculate maximum borrowings. With this method, multiples of earnings or other formulas are not relevant; instead, the lender estimates spendable income after deductions for normal expenses and bills to calculate the maximum amount they will lend.
Accident, Sickness and Unemployment Insurance (ASU)
This insurance provides protection against default by meeting mortgage payments for borrowers. Terms and conditions vary but most policies exclude claims due to: voluntary redundancy; dismissal due to professional misconduct; self-injury; injuries caused by the use of drugs and or alcohol. The cover provided is a valuable safeguard and as such, the premiums reflect this. Cover may not be offered or offered on special terms for employees of employer’s who have already announced redundancy programmes.
Added to loan
A term describing the additions which can be added to the loan amount. The additions vary by lender but typically include arrangement fees.
Lenders may require additional security where the mortgage exceeds a set LTV. If required, the borrower will need to supply the security in the form of cash or other realisable assets.
Additional Security Fee
This is a fee charged by mortgage lenders. It is paid by borrowers to protect the lender in the event of default on mortgage repayments (the fee is used to buy insurance for the lender). The amount of the fee, if applicable, will be calculated on an individual basis but as a guide, it is typically around 5% of the loan above a set percentage of the property value. For example, lender A is providing a mortgage of £90,000 on a property valued at £100,000 and they charge an Additional Security Fee of 5% on the amount of the loan above 75% LTV – the fee is therefore 5% x £15,000 = £750.
This is a catch-all phrase for borrowers with a poor credit history. Lenders will assess credit ratings when considering whether and on what terms they will lend to an Individual or individuals. The extent of adverse credit will be reflected in any terms offered, i.e. the worse the adverse credit of an individual, the more risk they pose to a lender, and therefore they will be charged a higher rate of interest to account for this extra risk. Adverse credit ratings are due to previous mortgage and or loan arrears, County Court Judgements (CCJs) and bankruptcy.
Agreement in principle
Refers to when a lender makes a conditional offer, i.e. they agree to provide a mortgage subject to certain conditions, such as property valuations being proven correct and earnings information being confirmed.
Annualised Percentage Rate (APR)
This shows the mortgage cost as a yearly rate, taking into account the interest rate, the term of the mortgage and other charges, such as application fees. The APR is likely to be higher than the advertised mortgage rate because of these other charges. APRs allow like-for-like comparisons to be made with a single measure.
This term may be used where the seller and buyer of a property agree to divide agreed costs between them, e.g. tax and utility charges.
In the UK, practising Architects must be registered with The Royal Institute of British Architects (RIBA). Only RIBA Architects can approve certain building modifications, e.g. some house extensions. Such approval can be needed when applying for a home improvement loan or remortgage.
Arrangement Fee (aka Booking fee)
This is a fee charged by lenders on certain mortgages, typically; fixed rate, discount or other non-standard-rate mortgages. Usually paid at the time of completion as a direct cost, it may be added to the loan amount in some cases.
Mortgage repayments will be agreed at the outset to be payable at specified intervals, usually monthly. Where payments are delayed, arrears start to accrue. Lenders often charge penalties for arrears, as late payment affects their profitability.
The amount a seller is offering to sell their property for. The asking price need not be based on professional valuation and most buyers negotiate rather than offering the full asking price. Mortgage lenders will base their terms on a professional valuation of a property rather than the sale price.
Assignments can transfer the legal ownership of something from one person to another, e.g. a leasehold when buying a flat.
Auctions offer a process for property purchase whereby the property is sold to the highest bidder. It is important that any valuations, searches and other checks are conducted prior to the auction, as the highest bidder must immediately enter into a binding contract to buy the property.
Self employed people typically need to provide evidence of their earnings over the past 3 years to obtain a mortgage. Some lenders may require these earnings and or self employed business accounts to be audited, i.e. ‘signed off’ as correct, or by an Accountant.
This term is sometimes used to describe mortgages where the interest is calculated on a daily basis.
This is like a cheque but unlike a normal cheque, it is issued from a bank direct and provides immediate payment, like cash. Bankers drafts are often used in mortgage arranging where funds need to be transferred immediately.
The process of declaring someone as bankrupt. Even long after discharge, former bankrupts may be affected by an adverse credit rating, affecting their ability to borrow.
The Bank of England sets the base rate which has a direct knock-on effect on the rates offered by mortgage lenders. The Bank of England Monetary Policy Committee meets monthly to set the base rate.
Base Rate Tracker
This is a type of mortgage. The interest rate payable with these mortgages varies with changes to the Bank of England base rate. Providers usually set an additional percentage, to be payable on top of the base rate, which remains constant throughout the term of the mortgage. Most providers allow borrowers to over-pay without redemption charges with these mortgages, so providing the potential for sizeable savings.
This is the annual income (of prospective borrowers) which is not dependent upon company or individual results, i.e. usually basic salary for employees. Variable income, such as bonuses, commissions and share options can be taken into account, but lenders may apply their own discretion in what they use to calculate affordability/maximum loan amounts.
A basis point is simply 1/100th of 1%. Basis point changes are often referred to when mortgage rates change, e.g. a mortgage interest rate which moves from 5% to 5.25% is a rise of ¼%, or, 25 basis points.
Booking Fee (aka Arrangement fee)
This is a fee charged by lenders on certain mortgages, typically; fixed rate, discount or other non-standard-rate mortgages. Usually paid at the time of completion as a direct cost, it may be added to the loan amount in some cases.
These are short-term loans designed to give the funds needed to purchase one property prior to the sale of another (upon which some of the sale proceeds will be used to repay the bridging loan). Bridging loans are not recommended for everyone as they are expensive and carry significant risk – total costs can quickly accumulate and the timing of property sales is not predictable, meaning that the intended short term bridging loan may be needed for longer than anticipated, so also meaning that costs are also higher than anticipated.
An intermediary or adviser who can source mortgage deals from a range of providers.
With our mortgage services, your Charles Derby Adviser can provide a very comprehensive brokerage service. This includes researching and reporting on a very wide range of mortgage deals, including from time to time, exclusive deals not available direct or via tied advisers, such as bank staff.
Building Societies Association (BSA)
Trade body representing the interests of member societies.
A type of UK financial institution. Building societies operate as non-profit organisations.
specialising in lending money to individuals to purchase or remortgage residential properties. Funds to provide the loans mostly come from individual savers, who are paid interest, but like banks, building societies can raise funds through commercial money markets.
Important cover for the building itself (not the contents, which must be covered separately). Although not compulsory, buildings insurance is usually taken out by all residential property owners to protect against the potentially significant costs of rebuilding in the event of various events, such as fire and collapse.
This is a type of mortgage for people buying property to rent out to others. Maximum loans may be based on the projected rental income from the property as opposed to the personal income of the borrowers.
Cap and collar
The lender will charge a variable interest rate but within a range – there is a maximum rate that can be charged (the cap) and minimum rate (the collar).
Capital and Interest
A type of mortgage where the payments are partly to repay the amount borrowed and partly to pay the interest on the outstanding mortgage. At the outset, most of the payment is in respect of interest, but as the capital sum outstanding reduces, the proportions eventually reverse. Sometimes referred to as a Repayment mortgage.
The lender may operate a variable interest rate, but, the maximum is capped at a pre-determined rate. The cap may only be for a limited period, such as the first 5 years of the loan.
Lenders may provide extra cash (on top of the amount needed for the property purchase) and in some cases, deals may offer some cashback as an incentive to choose that provider. As ever, it is important to assess overall value for money.
A technical term for the security or other collateral that a lender may require before agreeing to provide a mortgage or other loan.
Chattels is a wide term covering items such as furniture or personal possessions. Contents insurance is needed to provide protection against theft, damage and other events.
A type of mortgage used for commercial purposes, usually to buy a commercial property, such as a warehouse or office block. Interest rates for commercial mortgages are normally higher than residential mortgages as the risk of default is deemed to be higher.
The date when the purchase of the property is legally finalised. Mortgage funds will normally only be transferred on this date and not before.
A contract is a legally binding agreement between two or more parties. In the case of property purchase, a contract is signed by the seller and the buyer, and once exchanged, both parties are committed to the transaction.
The deed by which freehold, unregistered title, passes to another owner. If the property is leasehold and unregistered it is called an assignment. If the title is registered the deed is called a transfer.
The legal process involved in buying and selling property. The work is normally carried out by specialist solicitors but it can be done by anyone.
Charles Derby do not provide conveyancing services, but, we can help by referring you to approved providers.
Council of Mortgage Lenders (CML)
A trade association for residential mortgage providers.
County Court Judgement (CCJ)
CCJs affect credit ratings. They are decisions made by County Courts enforcing repayment of debt.
A method used by mortgage lenders to asses credit worthiness. Credit scores will affect the terms lenders offer.
Deeds are legal documents. In the case of property purchase, title to both freehold and leasehold property can only be transferred by deed.
The amount of money directly paid by the purchases. Lenders may offer improved mortgage terms to those people paying a high proportion of the property value.
A form of expenses, e.g. land registry fees.
The interest rate charged by the lender is discounted, usually by a set percentage and for a set period, typically, the first 5 years of the mortgage. Lenders use discounted rate to attract customers, but, as ever, it is important to assess overall value for money.
Early Redemption Charges
Some mortgages carry these charges when you over-pay, pay off or move your mortgage to another provider. Standard variable rate mortgages usually have no early redemption charges.
A life assurance policy designed to produce a lump sum to pay off an interest-only mortgage, and, to provide life cover during the period of the mortgage to ensure funds are available to repay the mortgage in the event of death. It is very important to keep endowment policies under review as the final payout is not guaranteed to repay the mortgage.
The amount of value in a property above any outstanding mortgage amount.
A general term covering a wide range of products designed to allow home owners to release available equity. Equity release can be used for a variety of purposes including providing an income for retirees.
Exchange of Contracts
When contracts are signed by both the seller and buyer and exchanged (i.e. each party is provided with an identical contract), the transaction becomes legally binding. If either the buyer or seller does not complete the transaction, or they will have to pay compensation.
The right to be first when funds are derived from a property sale. A lender may require first charge on a property, typically, this is required for loans above 70% LTV.
First time buyer
Some lenders provide preferential terms to those buying a property for the first time. People who have previously bought and subsequently sold property may also qualify.
Fixed rate mortgages
A type of mortgage where the interest charged by the lender is fixed, usually for a limited period, such as the first year or 5 years. Fixed rate mortgages provide certainty of costs throughout the period of the rate being fixed. Depending on changes in the underlying Bank of England base rate, fixed rate deals may prove to be lower or higher cost than standard variable rate mortgages.
All items attached to a property. It is important to ensure that fixtures and fittings are specified in the contract.
Types of mortgage which allow payments to be varied, e.g. over-paying to reduce total costs.
This is where lenders choose to delay taking action against a borrower in arrears.
Offering a higher price to a property seller after the seller has already accepted a lower offer from a different prospective buyer.
A report detailing requirements the lender imposes on the borrower, e.g. home renovations.
Broad category of insurance including buildings and contents policies.
Charles Derby provides comprehensive general insurance services.
A fee that a leaseholder has to pay their freeholder. Usually payable annually.
The person liable for the repayment of a mortgage if a borrower fails to maintain their mortgage payments. Usually a parent or close family relative, a guarantor can help others to get on the property ladder, but they are the ones at risk in the case of default.
High Loan to Value Fee
A charge made by lenders to protect them from default. Usually only applicable for loans above 75% LTV. Also known as an Indemnity guarantee premium.
Home Buyers Report
This is a property survey which provides information more detailed than a mortgage valuation, but less detailed than a full structural survey.
Most lenders work out how much they are prepared to lend by setting their own income multiples. For example, a lender could set their multiple at 4 times an individual’s income.
Income protection insurance
Protection against loss of income. Upon claim, the insurance policy will pay out a monthly income at a pre-determined level. Policy terms and conditions vary, but usually, accident, sickness and unemployment are all covered.
Lenders may request confirmation of earnings from employers.
Interest Only Mortgage
With this type of mortgage, the borrower is only required to pay interest during the mortgage term. The capital repayment is due in total at the end of the mortgage term. Some lenders may require evidence of some form of saving, but, repayment is the borrowers responsibility. It is naturally very important that plans are set up and monitored to ensure that repayment can be paid.
With our mortgage services, we can provide help, advice and implementation for savings and investments, as well as full mortgage research and brokerage.
A service provider intermediating (dealing with both parties – the prospective borrower and the mortgage providers) to arrange mortgages or other financial products.
A mortgage which two or more people are seeking to take out.
Any liability, such as any outstanding mortgage amount, is shared by two or more people.
Land Registry Fee
A fee paid to the Land Registry to register ownership of an area of land.
With leasehold property, the property is owned for a set period only. The land on which the property is built continues to be owned by the freeholder.
The person buying a lease.
The person or entity selling / granting the lease.
Local Authority Search
A check carried out by the buyer’s solicitor to check that there are no proposed developments in the area of the property such as roads, railways or other buildings. The check also includes details of the planning permission for the property and whether the council has served any enforcement notices on the property. A fee is charged for this service.
Loan to Value (LTV)
This refers to the size of the mortgage as a percentage of the value of the property. For example, a £100,000 mortgage on a house valued at £200,000 would be a 50% LTV. The higher then LTV, the higher the risk to the mortgage provider, and hence, the worse the terms of the mortgage are likely to be.
A property comprising of more than one separate living area, e.g. a flat which extends over more than one floor or a flat that has its own entrance at street level.
This was the acronym for ‘Mortgage interest relief at source’, a form of tax relief on mortgages which was abolished from April 2000.
A loan to buy a property where the property is used as security. Hence the phrase – “Your home is at risk if you do not keep up mortgage repayments” as the lender could foreclose.
The mortgage provider.
Mortgage Payment Protection Insurance (MPPI)
Insurance designed to cover the borrowers’ mortgage payments in case of accident, sickness or involuntary unemployment.
The person taking out the mortgage.
The amount of the mortgage left to be repaid is higher than the value of the property.
This is a way of applying for a mortgage, where the lender does not require evidence of certain details (such as income) and may not perform credit checks.
When monthly payments to a mortgage are increased so that the mortgage is repaid before the end of the mortgage term. Flexible mortgages allow overpayments to be made without penalty allowing significant interest savings over the mortgage term.
A period during which the borrower makes no mortgage payments. Payment holidays are normally only available to borrowers with a flexible mortgage who have previously overpaid their monthly repayments.
A wide range of financial products designed to provide income in retirement. Pensions can also be used to fund mortgage repayments. For example, with Personal Pensions, 25% of the value can be paid out as a tax free lump sum which can be used for any purpose. For most people, pension benefits cannot be taken before the age of 55. Using a pension to repay part or all of a mortgage obviously reduces the amount of income the pension can provide.
A term used to describe a mortgage that can be transferred between properties.
A term to describe the amount of loan left outstanding. This is the amount used when calculating repayment costs.
The process of paying off a mortgage. This could be from moving house, remortgaging or at the end of the mortgage period.
These are charges levied by lenders when borrowers pays off the mortgage before the end of the agreed redemption period. These are often charged on fixed, capped or discounted rate mortgages.
A charge made by lenders for the actual transfer mortgage funds.
The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
A type of mortgage where the payments are partly to repay the amount borrowed and partly to pay the interest on the outstanding mortgage. At the outset, most of the payment is in respect of interest, but as the capital sum outstanding reduces, the proportions eventually reverse. Sometimes referred to as a Capital and Interest mortgage.
The legal process by which a mortgage borrower in default loses any entitlement to the property.
Right to Buy
A tenant in a council owned property may purchase the property at a discount depending on length of their tenancy.
A charge made by lenders when you repay a mortgage. Searches
These are checks carried out during the conveyancing process with local authorities and other official organisations to check planning proposals and other matters that may affect the value of the property and it’s saleability in the future before making a loan. Self Certified (Self Cert)
A way of applying for a mortgage where no evidence of earnings is made available. As the lender has more risk of false information, the terms for self certified mortgages are less attractive. Shared Equity
Some new property developments offer purchasers the option of buying only part of the equity in the property, with the developer retaining a portion. In these cases, the developer will have a charge (usually a second charge) on the property. Shared Ownership
A scheme operated by a Housing associations may operate Shared Ownership schemes, where a person owns part of a property and pays a mortgage on this, but the housing association owns the rest of the property and the person pays rent on this portion. Stamp Duty
This is a tax payable on the purchase of a property by the purchaser.
Standard Variable Rate (SVR)
Stamp Duty %
|£60,000 – £249,999
|£250,000 – £499,999
A type of mortgage where the interest rate payable varies with changes that the lender determines. Rate changes can be frequent and are often triggered by changes in the base rate. Structural survey
Professional report provided by Surveyors detailing internal and external faults and potential problems with a property. Although not compulsory, a full structural report is preferred by many, if only for peace of mind, as it provides more detail than lesser reports.
An insurance policy which pays out a cash sum on death and or range of critical illnesses. Level Term Assurance provides the same amount of cover throughout the policy. Reducing Term Assurance is designed to repay the balance outstanding on a repayment type mortgage.
Charles Derby provides comprehensive advice and brokerage for all life assurance, including all forms of Term Assurance.
A method of house construction. Timber framed properties have traditionally suffered from poor damp-proofing and as a result, a number of lenders are NOT willing to accept them as security and will not offer mortgage terms, regardless of other factors.
Legal documents confirming the property’s owner.
Where a property is owned outright with no mortgages, loans or charges.
There can be many! Lenders will carry out their own valuation before offering mortgage terms. This is likely to err on the lower end of potential valuations.
A fee paid by a borrower to a potential lender for carrying out their valuation.
The person selling a property.