Signature Finance

You’ll find most of the legal and technical terms involved in mortgages, buying property and protecting your home, family and income here, however please contact our expert advisers if you need any further explanation or help.

APR (Annual percentage rate)

The true cost of the mortgage over the full term, set out as a yearly rate, including all fees, terms and interest. The calculation assumes that you maintain the mortgage for the full term (for example, 25 years). APR is a standard calculation in the mortgage industry and allows mortgages from all lenders to be compared.

Arrangement fee

It is very likely you will be charged an arrangement fee by the lender when taking out a mortgage – however our advisers will be able to talk you through the conditions that apply.

Arrears

If you go into arrears it means that you have ‘defaulted’ at least once on your mortgage repayments. You will owe a sum of money ‘in arrears’ to your lender. If you find yourself in this situation you should contact your mortgage lender to seek help as soon as possible.

ASU, Accident, Sickness & Unemployment cover

An annually renewable policy providing short term cover if you are unable to work due to sickness, injury or redundancy.

Bank of England base rate

The rate set by the Bank of England, which is reflected in the interest rates charged by lenders.

Building survey

An extensive survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.

Buy to let

A buy to let property is purchased with the sole intention of renting it out to a tenant as an investment. Some mortgage lenders offer special ‘buy to let’ mortgage deals for this purpose. Visit our buy to let section to find out more.

Buy to let mortgage

The main difference with a buy to let mortgage is that the lender takes into account the rent you will earn from the property as the primary source of income. Some may also take the landlord’s personal income into account.

Capital

The amount you have borrowed on the mortgage, on which interest will be charged.

Capped rates

With a capped rate, you will pay a variable interest rate but your payments won’t go above a certain amount for a set period of time.

Cash back mortgages

Cash back mortgages generally pay out a cash lump sum to the mortgage loan borrower upon the completion of the mortgage.

CIC or Critical illness cover

Will pay the policy holder a lump sum on diagnosis of a range of specified illness (refer to specific policy terms and conditions for further details) – the illness may vary but generally include the major illnesses like cancer, heart attack and stroke.

Completion

When you become the legal owner of the property.

Completion fees

Some lenders charge completion fees in additional to an application fee, although these fees are less common. Completion fees are usually charged on the day that the mortgage completes.

Conveyancing

The legal work involved in selling and buying property.

Defaulting

If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as ‘defaulting’. If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession.

Deposit

This is the amount you are required to pay towards the cost of the property yourself. Borrowers typically now have to pay at least 10%+ of the value of their home in the form of a deposit. Typically the more deposit you are able to put down the lower the interest rate is likely to be, and typically there will be a wider range of mortgage deals to choose from.

Disbursements

The fees, such as stamp duty and Land Registry fees which you pay to the conveyancer or solicitor.

Discounted rate mortgage

A discounted rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1% then you will actually end up paying 4.5%.

DTA or Decreasing Term Assurance

A form of life assurance where the sum assured reduces over the term of the policy – often used to protect a repayment (capital and interest) mortgage.

Early repayment charge

The charge some lenders make if a mortgage is paid off early.

Equity

The total value of your property less the amount of the mortgage and any other secured loans you have.

Estate agency fees

These will differ by agent, some will charge upfront fees and some may charge fees at the completion of the sale. The cost is likely to be based on a percentage of the property value, so it is best to get a quote before proceeding. It is best that you speak directly with your chosen estate agent to find out what costs apply in your case.

Exchange of contracts

The point where the property sale becomes legally binding.

External inspection valuation

This is a very straightforward valuation which normally occurs when the amount you’re borrowing is well below the value of the property and is particularly useful for remortgages. The surveyor will estimate the value of the property by viewing it from the road.

Fixed rates

Gives you the security that your monthly payments are the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you’ll be paying each month even if interest rates change.

Flexible mortgages

You can vary the amount you pay each month and take payment holidays in some circumstances. It may help to reduce your mortgage with lump sum payments without incurring an early repayment charge.

Guarantor

If your income isn’t enough to secure a mortgage in your own right, you could ask a guarantor to guarantee the mortgage repayments for you. Your guarantor is fully liable for repaying the mortgage if you default on the loan.

Higher lender charge

Not all lenders charge these, but if you borrow a high percentage e.g. if you borrow more than 75% of the price of the property, you may have to pay this type of fee.

Home information packs

Home Information Packs were a set of documents relating to the property being sold e.g Local Authority Search, Title Documents, Energy Performance Certificate, Sale Statement. These packs were suspended in May 2010 and are due to be abolished. Is a measure of the property’s efficiency and its impact on the environment. It is required when selling or letting a property.

Homebuy schemes

These are government schemes designed to help existing tenants and key workers (nurses, teachers and social tenants) to get onto the property ladder.

Homebuyer survey

This service includes a valuation but also contains a report on the condition of the property, highlighting any defects that the surveyor has spotted.

Index linked

Where the level of cover provided under a policy increases over time – this is often used to ‘inflation proof’ cover and often linked to the Retail Price Index.

Interest

The money you are charged for borrowing.

Interest-only mortgage

With this type of mortgage you are only paying interest each month. This means that although your payments will be lower the amount you borrow will still be outstanding at the end of the mortgage term. You’ll need to make alternative arrangements to pay off the mortgage to avoid the property having to be sold, such as taking out an ISA.

Joint life

Where a life insurance policy is covering two individuals.

Joint life 1st death

The sum assured is paid on the death of whichever of the two lives dies first. In this case, the two lives assured are normally also joint policy holders, and the sum assured would be paid direct to the policy holder.

Land Registry fee

A fee paid to the Land Registry to register ownership of a property.

Lease

A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.

Lender

Provide the loan to buy the property.

Life assured

The person on whose life or death the payment of the sum assured depends. The life assured is not always the same person as the policy holder.

LTA or Level Term Assurance

A form of life assurance where the sum assured under the policy remains constant over the policy term.

Mortgage

A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.

Mortgage application fees

Fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.

Mortgage deed

The legal agreement which gives the lender a legal right to the property.

Mortgage term

The length of time over which the mortgage will be repaid.

MPPI or Mortgage Payment Protection Insurance

Fundamentally the same thing as ASU (Accident, Sickness and Unemployment cover).

Offer of advance

The formal offer of a mortgage from a lender.

Offset mortgages

Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe. You are unlikely to earn interest on your savings which are offset against your mortgage.

On risk

The point at which your policy comes into effect.

Policy holder

The policy holder is the owner of the policy and responsible for paying the premiums. The sum assured will be paid to the policy holder unless other arrangements are made.

Portability

Your mortgage broker or lender will be able to tell you if your mortgage is portable or not. A portable mortgage may enable you to transfer borrowing from one property to another, sometimes to avoid additional fees or keep a specific discounted rate.

Provider

The company providing the cover i.e. life asurance or buildings and contents.

Redemption

Paying off a mortgage.

Remortgage

If you are looking to change your mortgage to a different deal, but you’re not looking to move home then you are ‘remortgaging’.

Renewable premiums

Where the premium is subject to review and potential increase over the term of the policy.

Renewable Term Assurance

A term assurance of life assurance policy that contains an option, which can be exercised at the end of term, to renew the policy for the same sum assured without further medical evidence.

Repayment mortgage

With this type of mortgage (also known as capital and interest) you repay part of the amount borrowed together with the interest being charged each month. In the earlier years, the majority of your monthly repayment is made up of interest, however towards the latter part of your mortgage term the situation is reversed with the majority of your monthly payment reducing the amount borrowed.

Reservation fees

This is a ‘front end’ charge levied by several home lenders. The idea is you’re asked to pay the fee (typically £100 to £300) to secure the funds you are intending to borrow. It is sometimes described as an administration or booking fee.

Self certification mortgage

Also known as ‘self cert’, these mortgages were developed for self-employed people. Applicants who ran their own business or don’t technically have an employer were granted a mortgage without having to confirm their income by way of a P60, payslips, accounts, etc. In the current economic climate, these mortgages have virtually disappeared but they might re-appear again in the future. These types of mortgages are no longer available.

Shared ownership

Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so. The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder. The portion that is owned will vary depending on the circumstances.

Solicitor/conveyancing fees

Conveyancing is the legal process to transfer the ownership of a property from the seller to the buyer. If you are buying a property, your solicitor generally works on behalf of the mortgage lender, who usually insists on certain searches before they will release them money for your property.

Stamp duty

When you buy property, you may need to pay stamp duty. Following the March 2010 budget, the stamp duty threshold has changed to: Up to £125,000 – 0%, £125,001-£250,000 – 1%, £250,001-£500,000 – 3%, £500,001-£1,000,000 – 4%

Standard variable rate

This is a rate set by the lender, your payments may rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount or at all. Your lender may not necessarily pass on the change in base rate immediately.

Structural survey

This is a detailed report that’s tailored to your needs and can include tests on drains or utilities. It could be very useful if you’re buying an older or unusual home or you’re thinking about building an extension.

Sub prime/non-conforming

A sub-prime mortgage, also known as a non-conforming mortgage, is geared towards those with a less than perfect credit history. This could be bankruptcy or county court judgements (CCJs), or you could have fallen into arrears in the past. These products, because of their circumstances, have higher rates, but mean that those who couldn’t otherwise obtain finance for their property purchase can do so. It is now much harder to get a mortgage if you have had credit problems than before the credit crunch. These types of mortgages are no longer available.

Subject to survey and contract

Wording included in any agreement before the exchange of contracts. This wording allows the seller or buyer to withdraw from the property sale.

Terminal illness cover

An option included in life assurance policies whereby the life company will pay out if the policy holder is terminally ill – this should not be confused with Critical Illness Cover (CIC).

Tie-in period

This is the period during which you are ‘locked in’ to your mortgage deal and will pay an early repayment charge to move your mortgage elsewhere – for example, if you have a 2 year fixed, your tie-in period might be for 2 years. Once an initial deal is up, you will typically move from your introductory rate to your mortgage lender’s standard variable rate (SVR), which is usually higher, so if you don’t have to pay early repayment charges to switch to a new deal at this point you may well save money by doing so.

Title deeds

The legal documents which set out the ownership of a property.

Tracker rates

Tracker rates are usually linked to the Bank of England base rate, which means they’ll change in line with changes to the base rate.

Trust

If a policy is written in trust, then you can help determine who should benefit from the policy when it is eventually paid.

Underwriter

The role of the underwriter is to look at individuals based on knowledge of that individual – e.g. medical history, hereditary illnesses, occupation, sporting activities. For the life assurance, they will assess the risk and decide whether to offer cover and if so at what price. For mortgages they will decide whether to lend.

Utmost good faith

Is a minimum standard that requires both the parties (life company and life assured) to act honestly towards each other and to not mislead or refrain from providing critical information to the other.

Valuation

This is the most basic type of survey and is the mortgage lender’s inspection of the property to assess whether it is suitable for a mortgage.

Valuation and survey fees

You will need to get a valuation and survey carried out on the house you want to buy. A valuation will value the property and tell you how much it is worth, whilst a survey will tell you about the structure of the property and any faults that it may have. There are 3 levels of valuation / surveys 1. A basic valuation, 2. Homebuyers survey, 3. Full structural survey.

Waiver of premium (WOP)

Is an additional option that can be taken out with most forms for protection. The insurance company will pay the premiums due on a life assurance policy if the policy holder is unable to do so because they are unable to work due to accident or illness. The insurance company will pay the premiums for you until you are able to return to work.

Will

If you do not make a will then you will die Intestate and will lose control over the proceeds of your estate. It is a legal declaration of how you wish to dispose of your property on your death. In order for it to be valid it must comply with certain requirements.