A positive response to an offer. Acceptances may be ‘conditional’, ‘express’, ‘implied’ or ‘qualified’, depending on the circumstances of the deal and whether there are any further mitigations, conditions or requirements.
Accident, Sickness and Unemployment Insurance
Insurance cover arranged by the borrower to protect against inability to meet mortgage payments. Unemployment cover is restricted to cover certain events only.
Exclusions to this insurance include dismissal due to professional misconduct or taking voluntary redundancy.
The accident and sickness cover does not cover any act of self-injury or any injury related to the use of alcohol or drugs.
Some lenders will reserve a proportion of the fee charged for the valuation to cover their own costs. If an application does not proceed, this part of the valuation fee may not be refunded, even if the valuation has not taken place. See valuation fee.
Annualised Percentage Rate (A.P.R)
An explanation to identify the true cost of borrowing and a standard in order to provide a method of comparing costs of different loans. It is a legal requirement that a true APR figure be provided with any loan.
The process of applying for credit, or other products. The vast majority of credit applications need to be made in writing, although it may be possible for some services, such as an overdraft extension, to be arranged over the phone. Even internet based credit applications will usually require you to sign documents before the application is finalised.
The same as reservation, booking and pr
Learn more about arrangement fees on our mortgage fees page.
Association of Mortgage Intermediaries (AMI)
This is the trade body for UK mortgage brokers. It is a not-for-profit organisation funded by its members and industry supporters. AMI presents the collective view of its membership to regulator the Financial Services Authority.
AMI is aligned to the Association of Independent Financial Advisers (AIFA), which offers the same services for those brokers whose remits extend beyond mortgages alone. Websites: www.a-m-i.org.uk, www.aifa.net
Association of Residential Letting Agents (ARLA)
As the professional and regulatory body for UK residential letting agents, ARLA has 1,800 offices around the country. Members must demonstrate a thorough knowledge of their profession and good business practices and comply with a code of practice laid out by ARLA. They must also have professional indemnity insurance to cover themselves in the event of a complaint by a consumer.
These are a set of business accounts that have been ratified by an accountant. Self employed people may need to provide 3 years worth of figures checked by an auditor to be able to get a mortgage.
Base Rate (BBR)
Also known at the Bank of England Base Rate.
The Bank of England Base Rate is the main interest rate for the UK. It is set by the Monetary Policy Committee (MPC) of the Bank of England every month. The MPC consists of a group of independent experts appointed by the Bank of England who meet at the beginning of every month to assess the current economic situation and decide if the Base Rate should go up, come down or remain the same. The rate tends to be changed by a quarter of a percentage point at a time.
The same as arrangement, reservation
Learn more about booking fees on our mortgage fees page.
A fee charged by an intermediary to the applicant for negotiating a loan. If a loan has not completed within six months of the date of introduction to a lender, the maximum fee that a broker may retain is £300, under the Consumer Credit Act.
Building Societies Association (BSA)
This organisation is the trade body for all UK building societies. There are 59 building societies in the UK with total assets of just less than £325bn. Building societies differ from banks in that they are mutual organisations, which means that most of their customers (borrowers, savings and current account holders, etc) are members and have rights to receive information, vote on important decisions and attend society meetings. On the other hand, most banks are listed companies with external shareholders that are paid a dividend out of the bank’s profits.
An essential insurance policy which covers the structure of the building. Where the property is leasehold the buildings insurance will normally be arranged by the freeholder and the cost charged on to the leaseholder within the service charges payable.
Read about buildings insurance in our insurance section.
The act of remortgaging a property based on a higher value compared to the original purchase price. The capital raised is the amount left over after repayment of the original loan is deducted from the new loan. Some lenders will also take into account home improvement projects as part of the remortgage, if they are likely to significantly raise the value of the property.
Capped Rate Mortgages
The mortgage interest rate will not exceed a certain value during a certain period of time, although it may fluctuate above and below the agreed level. Some capped products will have a ceiling and a floor between which the rate payable may move; such loans may be known as cap and collar mortgages.
Cash Back Mortgages
Cash back mortgages provide you with a single lump sum of cash immediately on completion. The amount of cash is usually calculated as a percentage of the overall loan amount, though it can be a set figure. The percentage of the loan that is given as cash back can be as high as 5%, though amounts in the region of 1 to 3% are more common.
If payments on a financial agreement are not made, a magistrate may issue a county court judgement (CCJ) in the name of the individual. This greatly affects your credit rating.
See County Court judgements for more.
Code Of Practice
A group of principles and procedures individual employees of an organisation are expected to follow. This will cover such issues as client confidentiality, fairness and courtesy towards customers.
Where the loan is granted for commercial purposes, and is usually secured against commercial property, though residential property may be used. With a commercial mortgage there is a higher rate of interest, as it is a higher degree of risk for the lender.
A table giving comparisons between leading financial or other products to demonstrate which are the best performers under certain criteria. Remember that many such tables are a “one size fits all” covering a range of scenarios, and that the best way to evaluate your own options may be to draw up your own comparison table.
This is the insurance of property within your home i.e. furniture, clothing, personal possessions etc. Contents cover is a separate type of insurance to buildings insurance, which covers the structure of your property.
A fee charge by a solicitor or licensed conveyancer for arranging the necessary legal work in transferring the ownership of a property. The total cost of the legal work also includes profit cost, stamp duty, land registry fees and disbursements.
Shared ownership is a method of purchasing property in partnership with a housing association, where the borrower purchases part of the property and rents the rest from the housing association.
Council of Mortgage Lenders (CML)
The CML represents the mortgage lending industry and its members account for around 98% of residential mortgage lending in the UK. Membership comprises banks, building societies and mortgage lenders, including Abbey, Chelsea Building Society, Halifax and Woolwich. The organisation provides statistics and research on mortgage related topics and maintains data on the top mortgage lenders in the UK market.
An annual fee paid to a local authority to cover essential services such as road maintenance, rubbish collection and leisure centres. Council tax is based on the value of the property according to set bands.
County Court judgement (CCJ)
A county court judgement is a judgement for debt in the county court. This debt does not appear in the credit register if this debt is settled within 30 days of the date of the judgement. Very few lenders are willing to offer loans to anyone with an outstanding or unsettled judgement, and even if the judgement has been settled many lenders are likely to refuse a mortgage or other credit application.
A generalised way of assessing the credit application, carried out by scoring the answers given on an application. It is important that there are no missing answers on an application otherwise the result for the question becomes a negative.
A description of someone who is deemed by a lending institution to be a low risk to lend to (colloquial term). As with blacklisting, there is no such thing as a “perfect credit score”, or someone who is “completely credit worthy”, as there is always some element of risk involved when loans are made, and different institutions use different criteria when evaluating such risk.
Data Protection Act (1988)
Regulations introduced to protect the transfer of personal data within and between different organisations. Remember that every time you apply for a store loyalty card, credit facility or magazine subscription, you are handing over substantial amounts of personal data for organisations to trade in. Whilst this data may enable them to make special offers which “may be of use to you”, it also means more opportunity to sell you products or services you would not otherwise have bought. If you are not the kind of person to say no easily, make sure you always tick the “no marketing material” box.
Replacing a number of existing loans with a single loan from a new lender which may reduce your monthly payments by spreading out a larger loan over a longer period of time, and reducing the interest rate being paid.
Deed Of Covenant
The document expressing the terms of a covenant (a binding agreement), which may typically be imposed by a lender to restrict certain activities, such as use of a house for commercial purposes, or sub-letting.
A letter served by a creditor to the borrower to say that a credit agreement has been breached, and that action must be taken by the individual to prevent the creditor seeking repayment via a County Court Judgement.
A time period on a loan during which no repayments need to be made. This is particularly popular with student and graduate loans, to enable young people to finish their studies, or to travel, before having to start making repayments. “Buy now, nothing to pay until next year” type offers in furniture and other stores also operate with deferral periods.
A type of loan where some or all of the interest owed by the borrower is added to the amount outstanding which therefore causes the borrower to owe much more than originally borrowed.
A method of making automatic payments electronically from a current account. Direct debits may be at fixed intervals – e.g. for a monthly credit card or quarterly fuel bill, and they may be fixed (e.g. a monthly membership fee), or variable, such as for a mobile phone bill. Direct Debits can also be for irregular payments, such as buying shares.
Lenders who operate on lower overheads, through use of call centres, mailing houses, or internet based operations, instead of an expensive branch-based network. Can also refer to lenders who do not sell their products via regulated mortgage intermediaries.
Such products allow for a certain discount to the lender’s Standard Variable Rate (SVR) typically for a set period of time. For example, if your lender’s SVR is 6.75% and you have a three-year discount mortgage with a rate of 4.99%, you will receive a discount of 1.76% for three years and then pay the SVR of 6.75%.
Discount Purchase Price
The price of a property which has been reduced below the open-market value, such as in the case of a right-to-buy purchase or a builder’s discount. Under right to buy legislation, properties are not offered at the open market value, but at a discount, and if the property is resold within a three-year period, some or all of the discount will have to be repaid.
The mortgage interest rate is lower than the current normal standard variable rate, but only for a certain period of time. Usually shown as a fixed percentage reduction to the lender’s normal variable rate e.g. 2.00% discount for 2 years.
Financial Ombudsman Service (FOS)
This body provides consumers with an avenue for resolving disputes involving financial services firms. Set up by the Government, it gives independent advice on complaints in areas including banking, mortgages, pensions, insurance and investments. Consumers must try and resolve their dispute with the relevant organisation before referring to the FOS for advice, however. Decisions made by FOS regarding disputes are not legally binding unless agreed by both parties.
Financial Services Authority (FSA).
This independent, non-governmental organisation regulates the UK’s financial services industry, including mortgage lenders and brokers. Any organisation regulated by the FSA is legally bound to adhere to its rules. The FSA can conduct investigations and has powers to enforce rules upon the organisations it regulates and punish those that fail to adhere. The three main aims of the FSA are to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve business capability and effectiveness. The FSA also has a website for consumers offering information and advice, as well as a number of tools to help with financial decision making.
Financial Services Compensation Scheme (FSCS)
This is the fund of last resort for customers of authorised financial services companies. The FSCS can pay if a firm is unable to pay the compensation for claims made against it.
It is a free, independent service, set up under the Financial Services and Markets Act 2000. It protects deposits, insurance policies, investments, insurance broking (for business on or after 14 January 2005) and mortgage advice and arranging (for business on or after 31 October 2004). The FSCS is funded by levies on authorised firms.
A legal charge used to secure the main mortgage. A lender with a first legal charge over a property has a first call on any funds available from the sale of the property. See also: second charge.
First Time Buyer
A person that is purchasing a property for the first time. Some lenders offer preferential lending terms to first time buyers. A borrower who has owned a property before but has sold this prior to buying again may be offered first time buyer terms by some lenders but this is dependent on the lender.
Fixed Rate Mortgages
A loan where the initial payments, for a certain period of time, are based on a specific interest rate. The rate payable will not change during that period regardless of changes in the lender’s standard variable rate.
Flat Over Shop
Residential habitation situated above retail premises. Some lenders will not lend on this type of security because it is seen as having limited appeal to prospective purchasers and therefore have a lower value compared to an otherwise similar property. Any property that is located above commercial property usually takes longer to sell than properties which do not have any commercial element. A flat above a take-away restaurant is more difficult to arrange a loan on than a flat above a book shop.
Foreign Currency Mortgage
It is now possible to get a mortgage for your property in the UK in a mortgage denominated in a foreign currency. It sometimes gives you the opportunity to borrow money at a lower rate of interest than is possible in the UK.
Guaranteed Earned Income
Is income that you receive along with your basic salary that is not part of your normal basic pay under the terms and conditions of your employment but which you are guaranteed to receive.
Higher Lending Charge (HLC)
An insurance premium which insures the lender against any loss of money, e.g. If you default on your loan or get repossessed. This usually applies only if you borrow more than 75% of the price asked for the property you are buying. Even though you have to pay for the insurance premium, it does not mean that you are covered by the insurance, the lender is.
The homebuyer’s report is a less stringent report than a full structural survey.
House or Flat Buyer’s Report
A more thorough survey than the simple valuation carried out on the property by the lender. If your lender does not offer this as an alternative to the basic valuation, you can negotiate with the surveyor carrying out the valuation for the fuller inspection and this may cost you less than a separate inspection.
A body of trustees or company that is established for the purposes of providing, building, improving or managing, or facilitating, or encouraging the construction or improvement of, housing accommodation. It does not trade for profit. Anyone wanting help with housing puts his or her name down on the housing association list which acts in the same manner as council house lists.
(Also known as Permanent Health Insurance (PHI) Income protection provides long-term protection for an agreed sum if you are unable to make payments on an outstanding agreement, such as a mortgage or other bills.
Individual Voluntary Arrangement (IVA)
IVAs were introduced under the insolvency act 1986 with the intention of allowing an individual to avoid bankruptcy and make maximum possible restitution to creditors. An IVA is seen as preferable to bankruptcy as the debtor can retain his tools of trade and, in the case of a professional person, continue to practice, or hold company directorships.
Interest Only Mortgages
An interest-only mortgage offers a cheaper way to purchase a property than with a capital repayment mortgage, because borrowers are only paying off only the interest and not the capital. For example, a £150,000 homeloan at 5% over 25 years would cost £625 per month interest-only, and £877 per month capital repayment.
But at the end of the mortgage term, the interest-only loan will have paid off only the interest – leaving the orginal £150,000 debt to be repaid, whreas the repayment mortgage would have cleared the debt.
Also known as the rate of interest, mortgage rate or product rate
The rate of interest on your mortgage denotes the amount you are paying the lender to borrow funds. The rate is expressed as a percentage and calculated by the lender to ensure it receives the original loan amount back by the end of the term (or before if you repay early), plus a profit. Use our mortgage calculators to work out the repayments for any mortgage rates you are considering.
Intermediary Mortgage Lenders Association (IMLA)
This organisation represents mortgage lenders who channel their business through mortgage intermediaries, or brokers. Its membership includes banks, building societies and subsidiaries of overseas banks. IMLA is involved in a range of activities, including communicating its members’ views to the Council of Mortgage Lenders and supporting new product development.
Individuals employed within the public sector who deliver an essential public service in areas such as health, education and community safety are classed as Key Workers by the Government. Depending on the area in question, specific examples can include:
NHS staff (except doctors and dentists)
community support officers
probation service staff
psychologists and therapists
Ministry of Defence staff (some, not all)
Lawyers/solicitors (not all lenders will consider barristers)
Land Registry Fees
A fee payable to the land registry to change an entry in their records following a transaction involving registered land. This can be following a change of ownership or just a change of mortgage.
The means by which lenders enforce their rights to a property, and is recorded at the land registry. There are various different types of legal charge and the type used will vary from lender to lender. A primary mortgage will normally be secured by a first charge.
The amount to be borrowed.
Loan To Value (LTV)
The ratio of the loan amount to the property valuation expressed as a percentage. So if a borrower is seeking a loan of £100,000 on a property worth £200,000 it has a 50% loan to value rate.
Local Authority Search
A search of local authority records to confirm the status of the property. Local authority searches should reveal any proposed changes in the area, the details of the planning permission for the subject property and whether any enforcement notices have been served by the local authority.
A concessionary bonus (usually by way of a temporary reduction in interest) payable for maintaining a satisfactory account with a lender for a period of years. Alternatively, loyalty bonuses may be offered to existing customers who return to the lender for a new mortgage. In which case the bonus may be dealt with by way of a reduction in the set-up costs of the new loan or a lump sum payable upon completion.
National Association of Estate Agents (NAEA)
This is the UK’s leading professional body for estate agents across the UK. It has a total of 10,000 members, who deal in all aspects of property both in the UK and abroad, including residential and commercial sales and letting, property management, business transfer, auctioneering and land.
Founded in 1962, the NAEA provides assistance, guidance and representation for its members. All agents have to formally qualify to become members of the NAEA and must comply with its code of conduct.
National Landlords Association (NLA)
An independent national organisation for private residential landlords. It represents over 13,000 fee-paying members throughout the UK, from full-time landlords with large property portfolios to those who own single-bedroom flats. It helps landlords understand the legal and regulatory environment in which they manage their lettings and makes them aware of their statutory rights and responsibilities.
It also counts some of the largest buy-to-let lenders among its members and over 60 local authorities recognise the importance of membership.
The income of a company or self employed business after making full allowance for the expenses of running the business. This should be the amount available to the owners of the business for their own benefit. It is the figure that can be used to calculate their ability to service a mortgage.
The essential principle of an offset is simple: you set your savings against your mortgage debt and by giving up earning interest on the former you don’t pay it on the same amount of your mortgage debt.
Over a 25 year mortgage this can save you thousands and is highly tax efficient
The pension mortgage is an interest-only mortgage where the capital will be repaid from the tax free cash sum that can be received from the pension fund at maturity. This option is only suitable for those anticipating very large pensions.
A fee charged by a lender for setting up the loan. Normally payable upon completion but may sometimes be added to the loan.
A property, the construction of which is controlled by the borrower; not a finished unit. Loans on self build properties will normally be advanced in stage payments and are subject to strict limits on loan to value. A qualified architect will need to be involved.
An individual who runs their own business or works for themselves – such as a freelancer, contractor or sole trader. For mortgage purposes this will include partners in unlimited liability businesses and professional practices.
A method of property purchase in partnership with a housing association. The borrower purchases part of the property and rents the remainder from the housing association. Also known as co-ownership, this arrangement is designed for people who could not otherwise become homeowners. Under most arrangements, the minimum purchase amount is 25% of the property value with the remainder available to be purchased in blocks of 25%.
A person having a legal right of occupation, even if the property changes ownership, and who is able to apply to the local authority to set a fair rent. Properties with sitting tenants are generally worth at least 30% – 40% less than their open market value with vacant possession.
A tax payable on property purchase, charged at 1% on properties costing £125,000 to £249,999; 3% on properties from £250,000 to £499,999, 4% on properties over £500,000, and 5% on properties costing over £1m will. First-time buyers are temporarily exempt from paying any Stamp Duty on properties costing up to £250,000 until 2012
The most comprehensive form of inspection that can be undertaken by a chartered surveyor. In the case of properties with movement, lenders may require a structural engineer’s report. This is a different type of survey carried out by a chartered building engineer and should not be confused with a structural survey.
An inspection carried out for the benefit of the mortgage lender to make sure that the property forms a good security for a loan. This inspection and should not be relied upon on when deciding whether to purchase a property or not. Purchasers should be advised to obtain either a house or flat buyer’s report or a full structural survey before proceeding with a purchase.
This is the simplest form of life assurance. The insured person is covered against death within a fixed period depending up on the payment of the premiums. If an insured person dies within the policy term the sum assured is paid out. If the insured person survives the term the premium has been spent and the insurance ends with nothing being paid to the policyholders.
An adviser or agent who may be part of a particular financial organisation or estate agent, or tied to them. Therefore they are not fully independent and can only offer mortgages from their partner business.
Top Up Loan
A form of second mortgage, used to provide an overall loan in excess of the loan to value ratio allowed by the primary lender. Top up loans will invariably be charged at a higher rate than the first mortgage.