Please note: The FSA does not regulate loans.
The lender will usually quote the headline rate and the APR next to it. The headline rate states the rate of interest you pay per month or per year on the mortgage, while the APR is based on the total amount that will be paid over the entire period of the loan. It also takes into account any charges that the borrower has to pay during the loan period.
Bonding Scheme : An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.
Buildings Insurance : Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.
Buy to Let : The practice of buying a house or flat for investment purposes. Income is provided by the tenants’ rent, and capital growth (if any) by the property’s increasing resale value.
The value of property can fall as well as rise and past performance is not a guide to future performance.
This product is not always regulated by the FSA.
Capital and interest : In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.
Capped Rate : A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.
Cashback :A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a mortgage contract with the mortgage lender.
Completion : The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property’s agreed sale price (less any deposit already paid) safely reaches the seller’s bank account.
Compulsories : This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance – which needn’t necessarily be the most cost effective on the market. Our Mortgage Wizards allow you to select out these products if you wish to (although sometimes of course, the mortgages can be so good that it outweighs the potential disadvantage of taking the compulsory insurance)
Contents Insurance : Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.
Conveyancing : Normally carried out by a solicitor or licensed conveyancer on the buyer’s behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property’s value.
Council Tax : A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.
County Court Judgement (CCJ) : If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.
Cover : In the context of insurance, cover describes the specific risk a given policy protects you against. Life cover protects your family against the financial consequences of your death, buildings cover against damage to your property, and so on.
Credit Reference Agency : When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.
Current Account : A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain. Click here for further information on Current Account Mortgages.
Deeds : The formal written document which lists exactly who owns a property and enables transfer of a property’s ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments)
Deposit : In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property’s total purchase price. Commonly set at around 5% to 10%.
Deposit-based Savings : A method of saving which pays regular, usually variable interest based on the amount invested (instead of relying, for example, on the unpredictable returns from stockmarket investment)
Discounted Rate : A mortgage which has an interest rate below the lender’s standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.
Distance mortgage mediation contract : If a regulated mortgage contract is taken out exclusively using the internet, telephone, email, or fax then it is classed as a distance contract.
Diversification : The principle that wise investors should spread their risk among many different types of investment. A properly balanced portfolio will contain elements of share, deposit-based and property investments. Fund performance and objective achievement are not guaranteed.
The past performance is not necessarily a guide to future performance.
Durable Medium :A document which meets the following criteria is said to be in a durable medium
- Capable of being used by the recipient
- Enables the recipient to store the information in a way accessible for future reference for a period of time adequate for the purposes of the information; and
- Allows the unchanged reproduction of the information
Early Repayment Charges : A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan. The Charcol online web site shows you the size of any early repayment charge and how it changes over time.
Employment Status : A term used by lenders to describe potential borrowers’ working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status, and the Charcol online website has a wide variety of these in its database.
Endowment Mortgage : A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.
Equities : Another name for ordinary shares.
Exchange of Contracts : The terms of a property’s purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.
Execution-only : A service which offers no advice, but merely carries out the customer’s orders.
Flexible Mortgage : A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.
Growth : A growth strategy is one which seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income may be reinvested.
Higher Lender Charge : This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn’t cover their costs they may seek further money from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.
Home and Contents Insurance : A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.
IDD or Initial Disclosure Document : This document will give you Key facts about the company – who the firm is, which mortgage and insurance products they offer, any costs and how your adviser is paid, for example a fee from you or commission from the mortgage lender.
Illustration : In the context of mortgages, a lender’s estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.
Income : An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people)
Independent Financial Advice : The Financial Services Act introduced the concept of “polarisation” – people advising on, or selling, regulated financial products (investments, pensions etc) had to sell either one company’s products, or provide advice about the range of products in the market, independent financial advice can recommend you products from the whole of the market.
Independent Mortgage Advisers : Someone who can advise you on mortgage that is right for you, taking your circumstances and the full range of products available into account. We can put you in touch with one of our advisers who can give you advice on the full range of products available in the market.
Interest : The premium which a borrower must pay a lender in return for use of the lender’s money.
Interest-only Mortgage : With a mortgage like this, your monthly repayments cover only the interest element of the loan. You will normally need a repayment vehicle, such as an ISA, endowment or a personal pension, to repay the capital.
ISA Mortgage : A mortgage loan funded by contributions to an Individual Savings Account. ISAs provide tax-free growth, generated mainly by stockmarket investment. The ISA aims to repay the loan’s capital at the end of its term, but the interest element must be paid separately as you go along. It’s important to remember that past performance is not necessarily a guide to future performance.
The ISA may not be sufficient to repay the loan at the end of the term and does contain an element of risk.
Loan To Value : This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.
Local Search : See Search
London Inter-Bank Offered Rate (LIBOR) : The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either “1” or “3” months LIBOR is what is normally used in setting mortgage rates.
Money Markets : The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.
Mortgage Broker : An agent who shops around for the most suitable mortgage deal on behalf of his clients.
Mortgage Adviser : A firm/ individual with permission for advising on mortgage contracts.
Mortgage Intermediary : A firm with permission for advising on or arranging mortgage contracts.
Overpayment : A mortgage repayment bigger than the one needed to meet the loan’s minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.
Payment Holiday : A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.
Pension Mortgage : A mortgage whose capital repayment is funded by contributions to a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan’s capital at the end of the term. The past performance is not necessarily a guide to future performance.
Premium : In the context of insurance, a premium is the regular sum you pay to keep your cover in force.
Procurement Fee : The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into mortgage contracts with the mortgage lender.
Regulated Mortgage Contract : In accordance with the new Mortgage Conduct of Business, it is important for you to understand if the mortgage you buy is regulated by the Financial Services Authority (FSA).
Your mortgage contract is regulated by the FSA if it is :
A first charge mortgage secured on land in the UK where at least 40% of the property to be mortgaged will be or is intended to be occupied as residential accommodation by you or a related person.
Related Person is defined as :
- Your spouse
- A person (whether or not of the opposite sex) whose relationship with you has the characteristics of the relationship between husband and wife
- Your parent, brother, sister, child, grandparent or grandchild.
Property is defined as :
- Space within the property and Land used in connection with the dwelling. This includes house, driveway and garden.
- The share of the aggregate floor and/or land area used directly in connection with the habitation of the property. Portions of the property used directly for business purposes would be excluded.
- Non Connected land is where the use is unconnected or can exist without the dwelling e.g. Farmland
If you choose a mortgage that is not regulated by the FSA. You will not benefit from the regularised standards and safeguards provided by the FSA.
However with our service you will still be able to make an equal comparison of the different mortgages available from different providers as we present mortgage details in a standard table.
Remortgaging : The process of switching your mortgage loan from one lender to another without moving house.
Redemption penalties : See early repayment charges
Repayment Mortgage : A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less if preferred).
Repayment vehicle : The means by which a mortgage loan’s capital is repaid. Examples include endowment policies, ISAs, and personal pensions.
Search : A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property which could affect its future value or existing restrictions on the site.
Second-Hand Endowment Policy (SHEP) : Endowment policies part-way through their term can sometimes be sold on the open market. Disposing of an unwanted policy in this way often produces a better price than the traditional route of early surrender. Also known as Traded Endowment Policies (TEPS).
Secured (loan) : If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be “secured” on the property.
SIPP : – Self Invested Personal Pension Plan which allows full self investment and Income Withdrawal options for the individual concerned. The SIPP also carries the option of investing in commercial property using the fund/ loans.
Self-Employed : Where no proof is available, prospective borrowers are sometimes allowed to vouch for their own income. Self-employed applicants who lack the two years’ record of accounts that lenders would normally require most commonly use this process, known as self-certification. Many lenders charge a small premium on self-certificate business to reflect the extra risk involved.
For self-employed mortgages the overall cost for comparison is 6.6% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration.
Standard Variable Rate (SVR) : A mortgage lender’s main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR)
Status : A shorthand term for the borrower’s credit record and employment situation. See “Non-Status Loan”.
Surrender : The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy’s early years.
Survey : An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself. There are several levels of survey available’
Tracker : Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected.
Traded Endowment Policy (TEP) : Another name for Second-Hand Endowment Policy (SHEP).