| Jargon Buster |
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| Accident, Sickness & Unemployment (ASU) |
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| This is a type of insurance policy designed to pay a percentage of your monthly mortgage payments in the event of accident sickness and redundancy. It does not however cover voluntary redundancy, dismissal due to misconduct or self inflicted injuries. |
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| Adverse Credit |
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| A borrower who has previously had past problems with credit, eg; county court judgements (CCJ's), defaults or late payments, is deemed to have adverse credit. |
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| Agreement in Principle (AIP) |
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| An agreement from a lender to lend money based on the facts supplied by the applicant being verified. An AIP is obtained before the commencement of a full mortgage application. |
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| Annual Percentage Rate (APR) |
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| The APR shows the true cost of borrowing over the entire term of the mortgage / loan. It must appear on all mortgage illustrations. The APR includes repayments on the loan and all fees including arrangement, booking and valuation. |
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| Applicant/s |
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| The person/s applying for the mortgage. |
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| Arrangement Fee |
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| This is a fee charged by mortgage lenders to cover the costs of covering administration and reserving funds for certain types of mortgage. In some cases this may be added to the loan. |
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| Base Rate |
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| The rate of interest set by the Bank of England. |
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| Basic Income |
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| Basic salary before tax without bonuses overtime or allowances added. |
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| Booking Fee |
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| Sometimes known as an arrangement fee. A fee charged by the lender to cover costs to secure funds and process applications for mortgages benefiting from special interest rate deals. |
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| Bridging Loan |
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| A short term loan used to "bridge" the gap between the sale of the old property and the purchase of a new one. |
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| Broker Fee |
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| The fee charged by the broker to locate the most appropriate product and cover the cost for administration incurred throughout the mortgage application process. |
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| Buildings Insurance |
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| A policy that lenders will insist on being in place before legal completion can take place. This insurance covers the cost of repair or rebuilding the property in the event it is damaged or destroyed. |
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| Capped Rate |
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| A mortgage that has a ceiling rate of interest for a specified period. Within this timescale, the rate of interest cannot exceed this level. |
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| Capital |
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| The amount of deposit money you have to put into the purchase of the property. This can also be know as equity. |
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| Capital Improvement |
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| Improvements made to a property that permanently increase the value. |
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| Cash Back Mortgage |
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| An amount of money paid to the borrower by the lender after the loan has completed. This can be used for whatever purpose the borrower wishes. |
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| Commitments |
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| Contracted payments an applicant may have, loans, credit cards, family maintenance. |
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| Completion |
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| Legal completion takes place on the day your solicitor forwards funds received from your lender to the vendors solicitor. After this has taken place, you become the legal owner of the property. |
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| Contents Insurance |
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| Insurance cover for the contents of your home. This can include carpets, white goods etc. |
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| Conveyancing |
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| The legal process of transferring a property between buyer and seller. This is carried out by either a solicitor or licensed conveyancer. |
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| County Court Judgement (CCJ) |
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| A ruling made by a county court for individuals with bad debts. This will show up on your credit file and may go against you when applying for future credit including mortgages. |
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| Credit Check |
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| The procedure used by lenders to assess applicant’s previous credit history. The check will illustrate any CCJ / Defaults the applicant may have. Information is obtained from a credit reference agency that collects and stores financial and public records of individual’s previous history. This information is compiled to create a credit score which will be looked at by lenders to make a judgement on the likely ability of an applicant to meet and maintain the proposed commitment. |
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| Critical Illness Cover / Insurance (CIC) |
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| An insurance policy that usually combines life cover with the provision of a lump sum following diagnosis of a “critical illness.” These will be specified in the policy from the outset. A critical illness could be a heart attack, cancer etc. |
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| Current Account Mortgage |
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| A flexible mortgage that is combined with a current account to allow over payments, underpayments and ease of access to equity in the property. |
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| Daily Interest Mortgage |
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| A mortgage where interest is calculated daily as opposed to monthly or annually. |
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| Deed |
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| Legal documentation that sets out ownership or title to a property. |
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| Deeds Release Fee |
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| A charge made by the lender to cover administration costs in releasing the deeds at the end of the mortgage. Sometimes know as a discharge fee. |
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| Deferred Interest Mortgage |
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| A mortgage where some of the interest is not paid for a specific amount of time. This is usually at the start of the term. |
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| Deposit |
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| In property terms, the deposit is the amount of contribution from the applicant towards the total cost of the purchase. Typical deposit amounts were previously 10% but now mortgages with no deposit required are available. |
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| Discount Mortgage |
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| This type of mortgage benefits from a lower rate of interest than the standard variable rate for a specified period. |
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| Early Repayment Charge (ERC) |
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| A charge lenders impose if mortgages are paid of within a specified timescale. |
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| Endowment Mortgage |
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| A borrower only makes interest payments on the loan for the term. A financial investment product is taken out at the same time and the borrower contributes throughout the course of the mortgage. The proceeds are used to pay off the mortgage at the end of the term. |
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| Equity Release |
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| The process of taking out a mortgage on a fully / partly paid off property in order to utilise the capital tied up in it. |
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| Excess Payments |
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| Payments made in excess of the normal monthly payment. Some lenders will impose limits on the amount of excess payments that can be made. |
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| Exchange of Contracts (England / Wales) |
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| The stage before completion where buyer and seller agree on terms and legally commit to their sale / purchase. If either party withdraws after exchange, there could be significant legal implications. |
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| Expatriate |
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| An individual working in a country that is neither their country of birth or nationality. |
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| Financial Services Authority (FSA) |
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| The Financial Services Authority is the regulator of the UK financial services industry. |
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| First Charge |
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| A legal first call on the property a lender will require in the event the borrower defaults on their mortgage payments. |
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| Fixed Rate Mortgage |
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| A mortgage where the interest rate is fixed for a specified term. |
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| Flexible Mortgage |
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| A mortgage that allows the borrower to make over / underpayments and on some occasions take payment holidays. |
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| Foreign Currency Mortgage |
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| A mortgage that is taken out in a currency other than Sterling. Typically carries higher risks due to interest rate fluctuations. |
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| Freehold (England & Wales) |
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| An owner of a freehold property will own both the property and land on which it is built. |
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| Gross Annual Income |
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| An applicants total annual income before deduction of all taxes. |
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| Guarantor |
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| If an applicant cannot meet the normal requirements of the mortgage lender, they may request a guarantor. The guarantor will basically be guaranteeing that they will meet the mortgage commitments of the borrower should they default. |
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| Higher Lending Charge |
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| A fee sometimes charged by some lenders when the loan to value (LTV) ratio, exceeds a certain percentage threshold. |
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| Homebuyer Survey |
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| The next survey above a basic valuation report. It is more extensive than a basic valuation, but not as comprehensive as a full structural survey. |
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| Income Multiplier |
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| Lenders use income multipliers in accordance with their lending criteria to assess how much they will lend to a prospective borrower. Income multiples vary between lenders. |
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| Income Protection |
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| Can take various forms including permanent health insurance (PHI), accident sickness and unemployment (ASU), critical illness cover (CIC). |
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| Inflation |
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| The general rise in prices over time. |
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| Interest Only Mortgage |
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| A type of mortgage where only the interest on the loan is paid. At the end of the mortgage term the full initial loan amount will need to be paid in full. |
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| Investment |
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| Savings that are designed to pay off an interest only mortgage at the end of its term. |
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| ISA (individual savings account) |
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| A tax efficient investment product with maximum saving ceilings. |
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| Joint Mortgage |
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| Where two or more borrowers are party to a mortgage contract. |
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| Key Facts Illustration |
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| A customer specific document that illustrates all key information (including fees) relating to a mortgage. All KFI documentation will be presented in the same format to ease comparison of information between different products. |
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| Leasehold (England & Wales) |
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| Ownership where the individual owns the property, but not the land it is built on. Ground rent is usually paid to the freeholder. |
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| Legal Charge |
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| Details of legal charges are held by the Land Registry. |
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| Level Term Assurance (LTA) |
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| A life insurance policy that pays out in the event the borrower dies during the mortgage term. The term “level” refers to the fact that the sum assured will remain constant throughout term of the mortgage. |
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| LIBOR |
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| London Inter Bank Offered Rate, the rate at which London banks buy and sell money between each other. |
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| Life Insurance |
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| An insurance policy that pays out in the event of the death of the policy holder. |
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| Loan to Value Ratio (LTV) |
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| The proportion of the properties value the lender is prepared to lend. |
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| Mortgage |
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| The legal document pledging the security of a property to a lender in exchange for the loan. |
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| Mortgage Disability Insurance |
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| An insurance policy to cover monthly mortgage payments for a specific period in the event the policyholder suffers a disability. |
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| Mortgage Types |
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| Various types of mortgage include, fixed, capped, variable, discount, tracker, foreign currency. |
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| Mortgage Valuation |
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| A simple assessment to determine the valuation of the property for mortgage purposes. The most basic requirement required by a lender. |
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| Mortgagee |
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| The lender. |
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| Mortgagor |
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| The borrower |
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| Non Status Mortgage |
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| A mortgage offered by lenders with no proof income required. |
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| Other Income |
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| Income received by the applicant in addition to their basic salary. This could include bonuses, income from rental property etc |
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| Outgoings |
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| Contracted liabilities such as loan payments, maintenance payments etc |
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| Overpayment |
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| Payments made to a mortgage in addition to the normal monthly payments to help repay the loan early. Check before making overpayments as some lenders may pose a penalty for this. |
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| Payment Holiday |
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| Some flexible mortgages allow you to take a payment holiday for a mutually agreed term. |
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| Payment Protection Insurance (PPI) |
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| This insurance is specifically designed to pay a loan off in the event of the borrower being unable to. Similar terms as per ASU will usually apply to this type of insurance. |
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| Pension Mortgage |
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| An interest only mortgage that will rely on a pension as a means of paying off the loan at the end of the term. |
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| Permanent Health Insurance (PHI) |
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| A type of insurance policy that pays out a monthly income in the event the policyholder develops an illness and cannot work. |
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| Portable Mortgage |
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| A portable mortgage refers to a product that is transferable between properties when the policyholder moves home. |
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| Quotation |
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| Also know as a key facts illustration (KFI) |
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| Redemption |
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| The term used to express full repayment of a mortgage at the end of its term. |
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| Refinancing / Remortgaging |
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| The paying off of one mortgage with another. The original property will still be used as security for the new loan. |
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| Repayment Method |
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| An alternative method of repaying a mortgage. Monthly payments will repay both the interest and the capital itself. |
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| Repayment Period |
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| The number of years / term over which the mortgage will be repaid. |
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| Repossession |
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| If the borrower defaults on the mortgage the mortgagee (lender) will use this legal procedure to initiate a forced sale at auction of the property concerned. The borrowers rights to the property will be forfeit. |
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| Retention |
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| The ability of a lender to hold back / retain, a portion of the mortgage requested until certain criteria stated are met. |
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| Right to Buy |
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| Local authorities sometimes offer this incentive to individuals who have been living in their accommodation. The amount of discount will depend on how long the individual has resided in the property. |
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| Second Charge |
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| A subsequent charge placed on a property after the first charge. The holder of the second charge has a legal call on the property if the borrower defaults on the repayments of the loan. However, their entitlements can only be claimed after all of the liabilities of the first charge have been settled. |
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| Self Build |
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| Mortgages that are taken out on properties still under construction. Most loans are paid out in stages to tie in with the relevant stages of construction. |
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| Self Certification |
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| A mortgage where an applicant may not be able to prove their income in a way that an employed applicant may be able i.e; payslips / accounts. Some lenders do not require any proof at all, but will reserve the right to verify income. The lender may charge a higher rate of interest or require a bigger deposit. |
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| Shared Equity |
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| A scheme designed to help those on lower incomes to get onto the housing ladder. A portion of the property is purchased by the applicant and the other by a third party, ie housing association. No rent is payable as per Shared Ownership to the 3rd party, but any future increase in the value of the property is also split proportionately between the two. |
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| Shared Ownership |
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| As per above, but the borrower will also have to pay a monthly rental (determined by the percentage of ownership) in addition to their mortgage payment. |
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| Sole Occupancy |
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| A property that is occupied by only the applicant and their directly related family. |
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| Stamp Duty Land Tax (SDLT) |
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| Government tax payable on all property transactions over £125,000. In some “disadvantaged” areas, the threshold extends to £150,000. The first band up to £250,000 is chargeable at 1% of property price. From £250,001 to £500,000, 3% is chargeable. Anything above £500,001 is chargeable at 4%. |
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| Standard Construction |
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| A building constructed using conventional methods. This may include a brick / stone construction with a tiled / slate roof. |
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| Standard Variable Rate |
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| Every lender sets their own standard variable rate. This rate usually but not always increases / decreases inline with the Bank of England base rate. The rate is usually payable at the end of any fixed / discounted period. |
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| Structural Survey |
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| The most expensive of the 3 surveys on offer. This is the most in-depth and will be carried out a qualified surveyor. The surveyor will be responsible if any defects in the property are not found and are subsequently discovered. |
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| Surveyor |
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| A professional individual, qualified to assess the value and condition of land / property. |
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| Term |
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| The period of time between the start and end of the mortgage / insurance period. |
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| Term Assurance |
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| A life insurance policy that pays out a lump sum in the event of the death of the policyholder subject to all premiums due, being up to date. The policy will run for a specified period but will have no encashment value at anytime. |
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| Tracker |
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| A mortgage product that will follow / track another specified interest rate / index. In most cases this will be either the Bank of England base rate or the lenders standard variable rate. |
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| Underpayment |
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| Some flexible mortgages will allow underpayments subject to prior approval of the lender. Payments may be reduced for a specified period of time. |
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| Unencumbered |
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| A property that does not have any mortgage or other loans secured on it. |
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| Unit Linked |
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| A type of life insurance that is “linked” to the value of investment in shares. This can be either through the life company, or its unit trust. |
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| Valuation |
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| The most basic of surveys required by a lender to assess suitability of security for mortgage purposes. This report is only carried out for the benefit of the lender. |
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