Whole of market mortgage advice
Questions:
- General
- Accident, Sickness and Unemployment Insurance (ASUI)
- Additional Security Fee
- Adverse Credit
- Annual Percentage Rate (APR)
- Arrangement fee
- Bank of England Base Rate (BoEBR)
- Booking fee
- Bridging Finance
- Buildings and Contents Insurance
- Buy-to-Let mortgage (BTL)
- Capital and Interest mortgages
- Capped rate mortgage
- Cashback mortgage
- Completion
- Contents Insurance
- Conveyancing
- Current Account mortgage
- Discounted rate mortgage
- Discounted Tracker rate mortgage
- Early Redemption Penalty (ERP)
- Early Repayment Charge (ERC)
- Endowment
- Exchange of Contracts
- Exclusive mortgage
- Fixed rate mortgage
- Flexible mortgage
- Freehold
- Full Status
- Gazumping
- Higher Lending Charge (HLC)
- Homebuyers' Report
- Income Multiples
- Indemnity
- Individual Savings Account (ISA)
- Interest Only mortgages
- Introducer fee
- Key Facts Illustration (KFI)
- Leasehold
- Let to Buy mortgage (LTB)
- Libor-Linked mortgage
- Life Policy
- Loan to Value (LTV)
- Mortgage Indemnity Guarantee (MIG)
- Mortgage Payment Protection Insurance (MPPI)
- Non-Conforming
- Offset mortgage
- Overpayment
- Pension
- Personal Equity Plan (PEP)
- Portability
- Procuration Fee
- Redemption Penalty
- Repayment mortgage
- Right to Buy (RTB)
- Self Build
- Self Certification mortgage (S/C)
- Shared Ownership
- Split Loan
- Stamp Duty
- Standard Variable Rate (SVR)
- Term Assurance
- Tracker mortgage
- Valuation Fee
Answers:
- Accident, Sickness and Unemployment Insurance (ASUI)
In the event of an accident, sickness or involuntary unemployment befalling a borrower, this insurance will cover their mortgage repayments. Some Lenders attach mandatory insurance cover to their most attractive rates, although this is increasingly uncommon.
Also known as: Mortgage Payment Protection Insurance (MPPI). - Additional Security Fee
See Higher Lending Charge.
- Adverse Credit
This is an umbrella term used of applicants with poor credit history. This may include mortgage arrears, defaults, County Court Judgements (CCJs), bankruptcy, Individual Voluntary Agreements (IVAs) and house repossession. Borrowers with elements of adverse credit are offered higher rates than standard Full Status applicants are, usually with terms and conditions relating to the extent of their adverse credit history.
Often, adverse credit mortgages are Libor-linked rates.
- Annual Percentage Rate (APR)
The APR is a rate calculated using a generic formula applicable to all Lenders, which includes all the costs associated with a mortgage. This allows for easy comparisons to be made between the different mortgage products offered by each Lender.
- Arrangement fee
This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It covers the administrative expenses incurred whilst processing an application.
- Bank of England Base Rate (BoEBR)
Every month the Monetary Policy Committee sets the Bank of England Base Rate, to which all mortgage rates are linked either directly, as Tracker mortgages, or indirectly, in all other cases.
- Booking fee
This fee may be charged on specific products and is either payable in advance, added to the loan or deducted from the advance on completion. It is normally payable in order to reserve funds when a product is likely to sell out quickly.
- Bridging Finance
Bridging Finance
- Buildings and Contents Insurance
This insurance covers damage to the mortgaged property and/or its contents in a variety of specified scenarios. It is compulsory for all Lenders, and if the Lender's own insurance is not taken they will often charge an administration fee. Some Lenders attach mandatory insurance cover to their most attractive rates, although this is increasingly uncommon.
- Buy-to-Let mortgage (BTL)
This is a mortgage for property that will be let by the borrower to other tenants. When Lenders calculate how large a loan the borrower can afford to repay on BTL they do so primarily on the basis of projected rental income, rather than salary income multiples.
- Capital and Interest mortgages
With this method the monthly mortgage repayments pay off both the initial loan amount and the interest that is charged upon it. At the end of the loan term the entire debt will be repaid.
Also known as: Repayment mortgage.
Capital Rest Period: This is the regularity with which a Lender calculates the outstanding balance on mortgages, and hence the size of monthly repayments. It is usually annually, monthly or daily. With Capital and Interest mortgages this can be important; an annual interest calculation means that the borrower will pay interest on capital repayments that have been made in the course of that year. In contrast a daily or monthly interest calculation means that the balance, and consequently the interest charged, will reduce with every capital repayment made.
- Capped rate mortgage
This is a mortgage that is guaranteed not to rise above a specific rate (the 'cap') within a set period. Unless this is combined with another rate, such as a Discount or Tracker, the Lender's SVR will be charged if it is lower than the capped rate; if it rises above this ceiling the rate charged will remain at the capped level. There are often early repayment charges applicable if the loan is repaid within the capped period.
- Cashback mortgage
This is a mortgage in which the Lender refunds a sum of money, either as a percentage of the loan or a flat figure, to the borrower upon completion. With this type of offer the borrower will typically be tied to the Lender's SVR by early repayment charges necessitating repayment of the cashback if the loan is repaid within a set period.
- Completion
This is the moment when a transfer of property has legally taken place, after all legal documentation has been completed and funds have been transferred from the buyer's solicitor to the seller's solicitor.
- Contents Insurance
See Buildings and Contents Insurance.
- Conveyancing
This is the legal process whereby ownership of a property is transferred.
- Current Account mortgage
This is a fully Flexible mortgage combined with a current account. Money in the current account is automatically set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.
- Discounted rate mortgage
This is a variable mortgage that is discounted from a Lender's SVR by a set percentage within a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.
- Discounted Tracker rate mortgage
This is a variable mortgage that is discounted from the Bank of England's Base Rate by a set percentage within a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.
- Early Redemption Penalty (ERP)
See Early Repayment Charge (ERC).
- Early Repayment Charge (ERC)
This is a penalty charged on traditional (i.e. non-Flexible) mortgages when the loan is repaid in full within a set period. Usually it applies on a pro rata basis when capital repayments are made outside of the agreed monthly payments. Many Early Repayment Charge periods are linked to those of offers, such as Capped, Discounted or Fixed rate periods. However, some mortgage rate have extended Early Repayment Charges which tie-in borrowers even while they are paying the Lender's SVR.
Also known as: Early Redemption Penalty (ERP); Redemption Penalty.
- Endowment
A repayment vehicle associated with Interest Only mortgages.
- Exchange of Contracts
This is the stage in England, Wales and Northern Ireland that the deposit money is paid and both parties are legally bound to fulfil the agreed conditions of sale and purchase.
- Exclusive mortgage
This is a mortgage only available to intermediaries through a specific packager, in
conjunction with a Lender who provides the funding. - Fixed rate mortgage
This is a mortgage that is charged at a fixed rate within a set period. There are often early
repayment charges applicable if the loan is repaid within the fixed period. - Flexible mortgage
As its name suggests, this is a type of mortgage that offers considerably more flexibility than
traditional mortgages. Although specific details vary between Lenders, the core features of Flexible mortgages
are:- daily or monthly capital rest
- ability to make overpayments at any point of the loan term without an early repayment charge
In addition, many Flexible mortgages allow borrowers to:
- defer payment by taking payment holidays
- drawback overpayments
- drawdown further advances
- underpay without penalty (often only to the amount of any previous overpayments)
- Freehold
The buyer of a Freehold property owns both the property and the land it stands on indefinitely. See also Leasehold.
- Full Status
This term describes borrowers with a good credit history who are not self-certifying their income.
- Gazumping
This is when a prospective purchaser has an offer for a property accepted, before another potential buyer puts in a higher offer for the same property.
- Higher Lending Charge (HLC)
This is a premium charged by Lenders in order to indemnify themselves, and NOT the borrower, against any financial shortfall they may incur in the event of repossessing a property which must then be sold at a loss. It is applicable if the amount required is higher than a certain percentage of the property value, usually 75% LTV; often the Lender will pay the cost of this insurance themselves between 75% and 90% LTV. The charge may either be added to the loan or deducted from the advance on completion.
Also known as: Additional Security Fee; Indemnity; Mortgage Indemnity Guarantee (MIG).
- Homebuyers' Report
See Valuation Fee.
- Income Multiples
These are the multiples that Lenders apply to borrowers' income in order to determine the maximum loan they will offer them.
- Indemnity
See Higher Lending Charge.
- Individual Savings Account (ISA)
A repayment vehicle associated with Interest Only mortgages.
- Interest Only mortgages
With this method the initial loan amount remains the same throughout the term of the loan, while the monthly mortgage repayments only pay off the interest being charged on this amount. For this reason, Interest Only mortgages are tied to investment in one of a number of different repayment vehicles, which, ideally, should cover the initial loan amount at the end of the loan term. These repayment vehicles include endowment policies, personal pensions, ISAs etc.
- Introducer fee
See Procuration Fees.
- Key Facts Illustration (KFI)
A Key Facts Illustration or KFI as it is sometimes known ,is a quotaion document that tells you everything you need to know about the proposed mortgage or insurance quote.
- Leasehold
The buyer of a Leasehold property owns the property for a set number of years, but doesn't own the land on which it stands. See also Freehold.
- Let to Buy mortgage (LTB)
This is a mortgage where the borrower's current property is let to other tenants and the rental income is used to cover the mortgage repayments on a new property, bought as the borrower's main residence. When Lenders calculate how large a loan the borrower can afford to repay on LTB they do so primarily on the basis of projected rental income, rather than salary income multiples.
- Libor-Linked mortgage
This is a variable mortgage that is either above or below the London Inter-Bank Offered Rate by a set percentage within a set period. The Libor rate is set independently every 3 months. It is often associated with Lenders that offer loans to borrowers with elements of adverse credit.
- Life Policy
See Term Assurance.
- Loan to Value (LTV)
This is a percentage figure of the loan amount in relation to the property value. For instance a £100,000 property bought with a mortgage of £70,000 has an LTV of 70%. The higher the LTV, the higher the interest rate charged will be; above certain LTVs a Higher Lending Charge comes into effect.
- Mortgage Indemnity Guarantee (MIG)
See Higher Lending Charge.
- Mortgage Payment Protection Insurance (MPPI)
See Accident, Sickness and Unemployment Insurance (ASU).
- Non-Conforming
See Adverse Credit.
- Offset mortgage
This is a fully Flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purposes of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.
- Overpayment
This is when an unscheduled capital repayment is made or when monthly payments are increased, in order that the mortgage is repaid before the end of the mortgage term, saving considerable sums in interest. Many traditional (i.e. non-Flexible) mortgages include early repayment charges if overpayments are made within a set period. In contrast, Flexible mortgages allow unlimited overpayments without penalty and, increasingly, mortgages are semi-Flexible, allowing borrowers to overpay a certain percentage of their loan each year without incurring early repayment charges.
- Pension
A repayment vehicle associated with Interest Only mortgages.
- Personal Equity Plan (PEP)
A repayment vehicle associated with Interest Only mortgages.
- Portability
A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the Lender will be prepared to offer depends on whether the loan amount increases or decreases. If the latter, early repayment charges may apply.
- Procuration Fee
This is commission paid by Lenders to intermediaries for introducing business to them. If the intermediary receives more than £250 they are obliged under the Mortgage Code to disclose to the borrower the exact amount they received.
Also known as: Introducer Fee. - Redemption Penalty
See Early Repayment Charge (ERC).
- Repayment mortgage
See Capital and Interest mortgages.
- Right to Buy (RTB)
This is when a tenant living in a council-owned property purchases it at a discount, the size of which depends on the length of their tenancy.
- Self Build
This is a mortgage for property under construction. The loan is paid out in stages as the property is completed, in order to ensure the LTV does not rise too high at any point.
- Self Certification mortgage (S/C)
This is a mortgage where a borrower states their income and signs a confirmation of their ability to repay a loan,without having to provide evidence such as accounts, payslips or bank statements. Consequently, S/C rates are often higher than standard Full Status mortgages.This is a mortgage where a borrower states their income and signs a confirmation of their ability to repay a loan, without having to provide evidence such as accounts, payslips or bank statements. Consequently, S/C rates are often higher than standard Full Status mortgages.
- Shared Ownership
This is a scheme operated by a Housing Association where the borrower owns part of a property, and pays the mortgage on this, while a Housing Association owns the rest of the property, and the borrower pays rent on this.
- Split Loan
This is a mortgage that is taken partly on a Capital and Interest basis and partly on an Interest Only basis.
- Stamp Duty
This is a government tax charged on the sale of properties. The tax is calculated as a percentage
based on the value of the property above a threshold set in the Chancellor's annual budget. The tax rate is
divided into bands with the percentage increasing with the value of the property. It is not payable on
remortgages. - Standard Variable Rate (SVR)
This is a variable rate determined entirely at each Lender's discretion. Unless linked to Libor or the Bank of England Base Rate, the SVR is the reverting rate at the end of any special offer period, such as a Capped, Discounted or Fixed rate.
- Term Assurance
This insurance repays the mortgage in the event of the insured person's death.
Also known as: Life Policy.
- Tracker mortgage
This is a variable mortgage that is either above or below the Bank of England's Base Rate by a set percentage within a set period.
- Valuation Fee
Whether purchasing or remortgaging the Lender undertakes a valuation of the property to ensure it provides adequate security. The charge is borne by the borrower and increases exponentially with the valuation/purchase price. There are 3 levels of valuation: in order of increasing detail these are Basic, Homebuyers' Report, and Structural survey. The more stringent the valuation, the higher the fee.
