Mortgage Terminology A-E

There is a wide range of standard and industry jargon underpinning the mortgage and house buying process. The purpose of this series of articles is to try and provide an understanding of what it all  means.

So what follows will be an A-Z, or glossary of terms.
This will be spread across several posts for ease of access
This first section goes from A-E

Acceptance
This is a document issued by the lender that gives details of their mortgage offer. The term acceptance is used when the borrower signs and returns the document accepting the offer of funding

Additional Security Fee
More Commonly known as MIGPIt is a one-off fee levied by the lender to protect them against the borrower defaulting on the loan. Usually charged on mortgages over 75% of the house value. Also known as MIG, Indemnity Guarantee Premium and Mortgage Indemnity Premium.

Advance
Listed in the acceptance letter. It is the total amount of funding
offered by the lender

Adverse Credit
These issues come to light when credit searches are carried out, it is essentially, where there is a poor credit history. Such issues can be things such as county court judgments (CCJ’s), bankruptcy, mortgage arrears, Individual Voluntary Agreements (IVA’s) and credit card or
other borrowing arrears or defaults.

Agent
This is normally a person/company, organisation that has been appointed and who acts on behalf of a landlord, such as a letting agent, management agent or estate agent.

Applicant
This is simply a term which describes the person/s making the application for mortgage funding etc

Appraisal
Simply stated, it’s an assessment of the property for valuation
by an estate agent

 Annual Percentage Rate/APR
 The total cost of a loan, taking into account interest charges, arrangement fees and other costs, shown as a percentage.

Arrangement fee / Administration fee
More Commonly known as MIGP  It is a one-off fee levied by the lender These are fees which come in a wide range of areas and are usually payable before an action is carried out. Examples include payment which is charged to cover the costs of drawing up a tenancy agreement.

Arrangement fees to the lender for arranging the loan. Things such as charging for reference requests. Fees to secure a specific type of funding scheme. Etc. They are many and varied. Be aware of them

Assignment
Part of the completion process, when the property is signed over

Assured Shorthold Tenancy/AST
This basically gives a landlord the right to reclaim their property back after a specified period of time. Short term tenancies tend to be six months to a year

Banks
A place to go for Mortgages & Loans.

Base Rate
This rate is set by the Bank of England and is used as a benchmark for lenders to set interest rates by. It represents the lowest rate of interest a bank will charge you when it lends you money. This rate is reviewed periodically thorough out the year and can go up as well as down.

Booking Fee
See admin/arrangement fees

Break Clause/Release Clause
Used in conjunction with fixed term tenancies. When the fixed term tenancy period ends, this clause can be added to the tenancy agreement by either the landlord or tenant. It basically allows a cool down period over which the tenant can either agree to renew the tenancy, or end it. This clause will normally allow either party to get out (normally with about 2 months notice) before the end of the new term.

Bridging Loan
Basically a short term expedient, it is a very expensive temporary loan to tide you over when having to buy your new house before
selling your old home.

Broker
This is a person that advises on mortgages etc.  Known as
a mortgage broker.

Building Insurance
This is a type of insurance covers the property in the event of it being damaged or destroyed, and is a requirement. The sum that is insured covers the estimated cost of rebuilding the property.

Building Society
Another place to go for Mortgages & Loans

Buy to let
This is a specific mortgage that allows you to buy a property with the main aim being to find tenants and let it out. The income from renting the property out is taken into consideration by the lender.

Capital
The total amount – sometime referring to sum borrowed in a mortgage – sometimes the amount you have left in a property after the
mortgage has been repaid.

Capital and Interest Mortgages / Repayment Mortgages
With these, all payments. Both the capital and interest monthly mortgage payments are paid back directly to the lender. The advantage being, that at the end of the loan term, the entire debt will be repaid
with nothing outstanding.

Capped Rate
These are interest rate schemes offered to borrowers, that are capped to a certain level of interest over a set period of time. They usually run over the first 3 years of the mortgage starting, but it can be for longer.
The interest rate cannot go any higher than this capped rate during this specified period of time.

Cash Back Mortgage
See Cash Back on completion.

Cash Back on completion
This is where you get a lump of cash from the mortgage lender on the completion of a sale.

Cash on Cash Return
This is the same as Return on investment.

Caution
These are entries that are on a land register to protect the
interest of a third part.

Chain
This occurs when the seller needs the sale of their house to occur before they can complete the purchase of another property. The same situation may exist for others in the chain. As a result, the whole chain can collapse if one link breaks.

Chain Free
This is simply when a potential buyer does not need to sell a property in order to buy a new one hence they are “chain free”.
First time buyers are often chain free.

Charge
The term attached to a property by the lender to give security against the asset. It means that they have a right to the property value
should it come to a sale.

Charge Certificate
This is a certificate issued to the lender by the Land Registry that gives evidence of the lender’s charge over the property.

Collateral
The property is what is classed as collateral. It is seen as a guarantee that you will be able to pay the lender the loan. If you aren’t able to repay this loan the property could be sold by the lender in order to recoup the money they originally lent you.

Completion
This is the final stage of the buying process. The ownership is legally transferred from the seller to the buyer.

Compulsory purchase order
Normally issued by local authorities which  enables an authority to purchase a property whether the seller wishes to sell or not.

Contents Insurance
Insurance to cover any loss or damage to your possessions.

Contract Race
This is what sometimes happens when two potential buyers want to buy the same property. The seller will normally be the one to instigate the contract race but it can also be instigated by a buyer. The winner of the race will be the first buyer to be in a position to exchange contracts.

Contracts
The legal documents needed to transfer the ownership of property
they are signed by both the seller and the purchaser.

Conveyancing
Legal process involved in buying and selling a house.

County Court Judgement (CCJ)
Issued by the County Courts for default or non payment of loans. Possession of these can have an adverse effect on obtaining funding for mortgage use. See Adverse credit

Covenants
The covenants are the terms of any given tenancy agreement. They include any obligations or promises made by either the Landlord or the tenant. They are requirements by law on the owner of a property that they will either do or not do something with their property.

Credit Search References
These are references taken regarding a potential tenant. These references can be from sources such as the tenant’s employer. A check of the tenant’s credit history is also often carried out. See Adverse credit

Current Account Mortgage
This type of mortgage is a flexible mortgage that can keep all your finances in one place. It combines your mortgage with a current account and the money in the current account can be automatically set against the mortgage balance and then interest only charged on the outstanding amount of the loan. In practice this should mean that interest payments should be reduced.

Deeds
These are the legal documents associated with a property.

Default
This is when payments have stopped or been missed.

Delayed Completion
Completion is classed as delayed if they take over 28 days to complete after exchange of contracts a delayed completion needs to be agreed before exchange of contracts.

Deposit
This is normally a lump sum paid to the seller towards the overall cost of the property it is normally held by solicitors until completion of contracts.

Direct Debits
Direct debits are used to make payment directly from a bank account.
They work in a different manner from standing orders

Disbursements
Expenses paid by the solicitor on behalf of the buyer.

Discounted Rate
A Discounted rate mortgage will have an interest rate lower than the lender's Standard Variable Rate.

Discounted Tracker Rate Mortgage
This is a variable rate mortgage that is discounted from the Bank of England’s base rate. It is usually discounted by a set percentage for a set period of time. In practice there are usually early repayment charges that will be charged if the loan is repaid within the discounted period.

Early Repayment Penalty / Early Redemption Charge
This is a fee charged on early payment of a mortgage loan

Endowment Mortgage
Type of mortgage where monthly payments are split between the lender and the insurance company running the endowment (life assurance) policy. Interest is paid to the lender, the capital portion of the loan is re-directed into the endowment policy. The loan is paid off in one lump sum at the end of the loan period.

Engrossment
This is the final and formal version of a document that has been prepared by a solicitor in preparation for signing following the agreement of the final draft between parties.

Equity
This is the difference between the market value of a property and the amount of the mortgage that is still owed to the lender on that property.

Estate Agent
Property agents who deal in the buying and selling of property

Excess
The initial sum you have to pay on an insurance claim.

Exchange of Contracts
The point at which buyer and seller are legally bound to the sale and purchase of the property.

Exclusive Mortgage
Mortgage scheme which is only available through a specific Lender.

Execution
This is when a deed is signed, sealed and delivered in front of an independent witness.

This list is not comprehensive will be updated on a regular basis