Lockhart Grey Financial Planning Ltd

ADVANCE
The loan from a bank or building society in the form of a mortgage.

ANNUAL REVIEW
Your bank or building society may review the interest rate and change your monthly payment once a year.

APR – (ANNUAL PERCENTAGE RATE)
This is the figure that tells you the total cost of a loan. It takes into account the amount of interest you pay, most other charges, and when and how often interest and charges must be paid. The APR is a yearly percentage cost which is always worked out in the same way so you can compare costs. A loan with a high APR will cost you more than a loan with a low APR. For example, a loan with an APR of 10% costs more than one with an APR of 8.9%.

ARRANGEMENT FEE
A charge by the lender to cover the cost of administrative work involved in setting up your mortgage.

ARREARS
Mortgage or rent payments that haven’t been made by the date you agreed in your contract.

ASSIGNMENT
The document used to transfer ownership.

ASSURANCE
English term meaning insurance.

BANKRUPTCY
An order made under the Insolvency Act 1986 against an individual debtor (not a limited company) which signifies that he is unable to pay his debts. As a result of bankruptcy, bankrupts cannot trade or act as a company director.

BASE RATE
The rate of interest set by the Bank of England, reviewed on a monthly basis.

BRIDGING LOAN
If you are unable to sell your existing home before you can buy your new home you may be offered a temporary loan to provide finance until your existing home is sold.

BUY TO LET
Buying a property for the sole purpose of renting it out.

CAPITAL
The amount that you owe to your bank or building society excluding interest and other charges.

CAPPED RATE
An arrangement with your bank or building society which provides an upper limit to the interest rate which can be charged.

If the standard variable rate is lower than the upper limit you will be charged the lower rate but if the standard variable rate is higher than the capped rate you will only be charged the agreed rate.
This is usually offered for a fixed term and allows you to budget your finances.
At the end of this period the interest rate will revert to the standard variable rate at that time.

CASHBACK
Many mortgage providers offer a cash incentive to purchase their products.
Once the mortgage commences you will be given a sum calculated by the provider to spend as you wish.
Although this sum can be useful when considering the costs associated with moving (new carpets etc.
)the borrower should still be aware of the other terms of the mortgage which may cancel out the cash benefit in the long term.

CCJ
County Court Judgement for a debt in the county court. If you have not settled in full within 28 days of the judgement, your CCJ should appear on every credit search made about you for the next six years. Payments made after 28 days will be shown in the register as being satisfied.

CHARGE
The security, for example your house, a mortgage provider relies on when lending money for a property.

COMPLETION
The moment when the money to buy a property is paid by the mortgage provider to the vendor and the buyer legally becomes the owner of the property.

CONTRACT
A written agreement between the buyer and the seller which legally binds both to the sale of the property upon conclusion of missives.

CONVEYANCING
The legal process of buying and selling a property.

CREDIT CHECK
An enquiry about your credit status. It will show details of your credit history and information about credit agreements you may have with other organisations. Two of the largest UK credit reference agencies are: Experian, Consumer Help Service, PO Box 8000, Nottingham, NG1 5GX. Tel: 0870 241 6212 and Equifax, Credit File Advice Centre, PO Box 1140, Bradford, BD1 5US.

DEFAULTS
Payments on a credit agreement that haven’t been made according to a creditor’s payment requirements. Over time, defaults can lead to County Court Judgements.

DEPOSIT
A sum paid to the seller by the buyer at the time of exchanging contracts.
This sum, usually 10% of the value of the property, guarantees that the sale will go ahead.
If, for any reason, the sale falls through the buyer may forfeit the deposit.

DISCOUNTED RATE
Many mortgage providers offer an incentive in the form of a discount on the standard variable rate for an agreed period of time.

For example you could be offered a 2% discount on whatever the variable rate is for 1 year.
this can be helpful when budgeting for the costly first period after a move.
Once the agreed period has ended the “standard variable rate” at that time will again apply.

DORMANT LOAN
More commonly known as an “interest only loan” where the repayments only cover the interest charges rather than the full amount of the mortgage.

At the end of the term of the loan the full amount will therefore be payable.

EARLY REPAYMENT CHARGE
Sometimes a charge is made should the loan be repaid before a specified timespan has elapsed.
This is calculated using a formula specified by the lender and can vary.

More commonly known as a “redemption charge”.

ENDOWMENT MORTGAGE
An interest-only mortgage linked to an endowment policy.
Two payments are made each month, one to pay the cost of the interest charges on the mortgage, the other being the premium on an “Endowment policy”.

ENDOWMENT POLICY
An investment package combined with a life assurance policy which is designed to pay off the cost of mortgage at the end of its “term”.

Your payments are usually invested in stocks and shares, cash and in property in the hope that they will increase in value and allow for the cost of the property to be paid off at the end of the term.
Should this not be the case then you will be required to make up the shortfall.
For this reason and because markets can be highly volatile this is a less popular form of borrowing than in the past.

EQUITY
The difference between the value of your property and the amount that you owe on your mortgage.
If, for example, your property is worth £40,000 and you owe £25,000 on your mortgage then the equity is £15,000.
However, should the value of your property fall below £25,000 then the figure is known as “Negative Equity”.

EXCESS
Should you make an insurance claim under your building or contents policy then an agreed amount may have to be contributed by yourself.

For example, many policies have an excess of £1000 for subsidence claims in which case the claimant would have to pay a £1000 contribution to the cost of the work.

FIXED RATE
Many banks and building societies offer mortgages which are fixed to a certain rate for an agreed period of time.

This means that if the “standard variable rate” goes up then the repayments will still stay the same.
However, if the standard variable rate goes below the fixed rate then no savings will be offered.
It is a good way of budgeting for the initial term of the mortgage after which the prevailing standard variable rate will apply.

You must however consider the total cost of the package to ensure that you are not paying over the odds in the long term.

FREEHOLD
The term used to describe ownership of both the property and the land on which it stands.
Most houses are sold with the land which is usually freehold, whereas many flats are sold with a lease which was issued by the freeholder (or the owner of the land) to the original leaseholder.
The flat is then effectively owned by the leaseholder for an agreed period of time.

GUARANTOR
Should the mortgage provider not be entirely satisfied with the financial credentials of the borrower they may require that a more financially secure person promises to pay the borrower’s debt should problems arise.

Many parents offer to fulfil this role, especially for first time buyers.

HIGHER LENDING CHARGE
If the amount you borrow is more than, say, 75% of the value of the property, you may be charged a higher lending charge.

HOME-BUYER’S REPORT
A report, paid for by the purchaser, and prepared by a surveyor.
This is less extensive and therefore cheaper than a structural survey prepared by a surveyor.

INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
An IVA is a less formal alternative to bankruptcy, and its flexibility will vary from case to case. An IVA will enable an individual to pay the whole of the debt or a part over a period of time. It is a way of working with your creditors to achieve a way forward rather than suffer the stigma of bankruptcy.
An IVA is a formal insolvency procedure and was a new concept introduced by the Insolvency Act 1986. It was designed to be an alternative to bankruptcy in that the debtor could avoid bankruptcy or alternatively have a Bankruptcy Order annulled through a voluntary arrangement.

INTEREST ONLY MORTGAGE
During the term of this type of mortgage, payments are only made to cover the cost of interest charges.
At the end of the mortgage term or when the property is sold the full amount borrowed will have to be repaid.

LAND REGISTRY FEE
This is paid to the solicitor by the purchaser and allows for the cost of transferring the land registration to the new owner.

If the land is unregistered then the fee will be higher.

LEASEHOLD
Leasehold is a form of property tenure where one party buys the right to occupy land or a building for a given length of time. As a lease is a legal estate, a leasehold estate can be bought and sold on the open market. Until the end of the lease period (often measured in decades and where a 99 year lease is quite common) the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner.

LESSOR
A person who grants a lease.

LIBOR
London Interbank Offered Rate. The rate at which banks borrow and lend money to each other.

LIFE ASSURANCE
An insurance policy that pays a lump sum to the beneficiaries when the insured person dies.

( Assurance is peculiar to some English Insurance companies but means the same as insurance where life insurance is concerned).

LOAN TO VALUE (LTV)
The percentage of the loan against the value of the property.
For example, if a property is valued at £100,000 and the loan required to buy the property is £90,000 then the loan to value will be 90%.

LOCAL AUTHORITY SEARCH
Before a mortgage will be issued enquiries have to be made to the relevant local authority to ensure that there are no problems with the property regarding sewage and drainage provisions, prospective building plans for the area and to ensure that all previous work carried out to the property is within the law.

MORTGAGE
A loan secured against a property.

MORTGAGEE
A bank or building society that lends someone money, in the form of a mortgage, against the security of a “charge” over the property to be purchased.

MORTGAGOR
A person who borrows money, usually to buy a home, and “charges” the property to the lender as security for the mortgage.

MORTGAGE TERM
The time over which the mortgage is to be repaid, (usually 25 years).

NEGATIVE EQUITY
Should the property be worth less than the value of the mortgage then the difference is known as Negative Equity.

This most commonly occurs during a downturn in house prices.

NO CREDIT HISTORY
If you have no previous or existing credit agreements it may be difficult to obtain credit or a mortgage because lenders are unable to assess whether you are a reliable payer or a good risk.

PAYMENT PROTECTION
An optional insurance policy which covers the cost of mortgage repayments for an agreed period of time in the event of sickness, injury or unemployment.

PENSION PLAN MORTGAGE
Similar to an “endowment mortgage” except that the capital is supposed to be paid at the end of the mortgage term by a ‘lump sum’ from a pension plan rather than from an endowment policy.
Tax relief is also currently available on the contributions made to a pension plan.
Not everyone is eligible for this type of mortgage.

PORTABLE MORTGAGE
Should you move home during the term of a mortgage it should be possible to transfer this type of mortgage from one property to another even if discounted or capped rates still apply.

REDEMPTION
The time at which a mortgage is paid off, either at the end of the term or when the property is sold.

REDEMPTION CHARGE
A charge can be made should the loan be repaid before a specified timespan has elapsed.

This is calculated using a formula specified by the lender and can vary.
This charge can also apply to any lump sum payments made against the mortgage.

REGISTERED LAND
Land where the title is registered at HM Land Registry and usually guaranteed by it.

REMORTGAGE
When a borrower takes out a new mortgage with a different lender but on the same property in order to repay the existing lender.

Usually used to obtain a better deal from the new lender or to increase the size of the mortgage to raise funds.

REPAYMENT MORTGAGE
One payment is made each month to cover both the interest charges and the repayment of the “capital”.
Initially the monthly payments will be largely against the interest but as the mortgage term progresses then more of the capital will be paid off.

REPOSSESSION
When you fail to keep up with repayments on a mortgage or remortgage, a lender can take possession of your home and sell it to recover the debt owed.

RIGHT TO BUY (RTB)
Under the Right to Buy scheme, you can buy your council property at a price lower than the full market value. This is because the length of time you have spent as a tenant entitles you to a discount.

RISK CHARGE
Should the borrower need a mortgage which is above a certain percentage of the property value then a charge will be incurred to provide insurance cover for the lender against possible losses in the event of a default.

SEALING FEE
A charge paid to the lender to cover administrative costs when redemption occurs.

SELF-BUILD MORTGAGE
Available to borrowers who wish to build their own home or renovate or convert their existing home.
The funds are released in stages as the work progresses.

Repayment, endowment, interest-only and pension plan options are all available under the scheme.

SELF CERTIFIED
The key feature of self certification mortgages is that the borrower does not have to give the lender proof of income – you just declare your earnings and the lender may accept this. Self certified mortgages were designed to cater for people who are self employed and also those who may be employees with unpredictable income – for example those in seasonal jobs, or people working on successive short term contracts. Sales people getting a high proportion of their income through commission will also be considered.

SELF EMPLOYED
An individual who operates a business or profession as a sole proprietor, partner in a partnership, independent contractor or consultant.

SCHEME FOR MAXIMUM ADVANCES (SMA)
Should the borrower require a mortgage which is in excess of 75% of the total value of the property then a charge can sometimes be made to insure the lender against the higher risks associated with a loan of this size.

Sometimes known as an indemnity premium or mortgage guarantee premium.

STAMP DUTY
Government tax on the purchase price of a property which currently stands at: 1% between £60,001 and £250,000 3% between £250,001 and £500,000 4% on £500,001 and above These rates are subject to change by the government.

STRUCTURAL SURVEY
A full inspection of a property, paid for by the purchaser, and prepared by a surveyor.
This is very detailed and many banks and building societies will insist on it especially for older homes.

SURVEYOR
The person who carries out surveys of properties.
Must be a member of the Royal Institution of Chartered Surveyors (RICS).

SVR (STANDARD VARIABLE RATE)
The interest rate usually charged by a mortgage provider.
They reflect the rates set by the Bank of England and other financial institutions but are not the same.
They can go up or down which will cause the monthly payments to go up or down.
They can vary from lender to lender.

TERM
The length of time the mortgage runs before it must be fully repaid. (Usually 25 years).

TITLE
The legal right to ownership of property.

TITLE DEED
The legal document that provides proof of ownership of a property.

TOTAL AMOUNT PAYABLE (TAP)
The total cost of repaying a mortgage including all interest and associated charges.

TRANSFER DEED
The document which transfers ownership from the seller to the buyer.
This must be sent to the Land Registry for registration by your conveyancer.

UNIT TRUST
A type of investment, which can be used in place of an “endowment or pension policy or ISA” to repay the capital on an “interest-only” mortgage.

The return is not guaranteed and borrowers could be left with a shortfall at the end of the mortgage term.

UNREGISTERED LAND
Land whose ownership is established by deeds which show the passing of a title.

VALUER
The person who carries out valuations of properties.
Must be a member of the Incorporated Society of Valuers and Auctioneers.

VALUATION
An ‘inspection’ of the property to be purchased carried out by a valuer acting on behalf of the lender to ensure its suitability as security against the mortgage.

VARIABLE RATE
Your payments go up and down as the mortgage rate changes (mortgage interest rates tend to move in line with the base rate set by the Bank of England, but there is sometimes a delay). Lenders set their own standard variable rates of interest.

VENDOR
The person who is selling the property.