Homeowner Loan

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Glossary of Terms

Pepper Money’s guide to decoding the world of mortgage language.

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Additional Borrowing

Borrowing more money from your lender done through releasing some of the value built up in the property.

Advisor

A person who gives advice in a particular field. For example, a financial advisor will make recommendations on what you could do with your finances and which products are most suitable for your circumstances.

Affordability Check

An affordability check determines whether you can afford to repay a loan if interest rates rise, because a mortgage or a second charge loan are secured against your property, lenders are required to do this by law.

Annual Percentage Rate of Charge (APRC)

This is the total annual cost of the mortgage or loan and considers all the charges included in the loan, it is used to easily compare different products.

Arrangement Fee

Is an administration charge made by lenders for arranging credit – usually for a mortgage or for a business loan.

Arrears

Money that is owed and should have been paid earlier, if your account is in arrears then you are behind with your repayments. Being in arrears can negatively impact your ability to secure credit in the future.

Asset

An item or goods owned by a person or company which has value. For example, property, artwork or shares in a company.

Assured Shorthold Tenancy (AST)

An AST agreement exists to protect both the tenant, and the landlord and sets out the terms required to live in the landlord’s property. The document offers the landlord a guaranteed right to repossess their property at the end of the term as it will be stated in the tenancy agreement.

Authorised

To give official permission for something to happen or permission to do something.

Bank Charge

This covers all charges and fees made by a bank to their customers. The term often relates to charges in respect of personal current accounts or checking accounts.

Bank of England Base Rat

The interest rate set by the Bank of England.

Buildings Insurance

This covers the cost of repairing damage to the structure of your property. This includes the walls, windows, and roof, as well as permanent fixtures and fittings such as baths, toilets and fitted kitchens. It is a requirement when applying for a mortgage.

Buy-To-Let Mortgage

This covers all charges and fees made by a bank to their customers. The term often relates to charges in respect of personal current accounts or checking accounts.

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell something like an asset that’s increased in value. It is the gain you make that is taxed, not the amount of money you receive. For example, if you bought a painting for £10,000 and sold it later for £35,000, you have made a gain of £25,000.

Capped Rate

The maximum rate of interest that your lender can charge you.

Change of Parties

A request to change the name of the individuals named on your mortgage account.

Company Let

An agreement typically taken out by a limited company that intends to use the accommodation(s) for employees and directors.

Consent to Let

A formal, written agreement between you and your mortgage lender, giving you permission to rent out your home for a short period of time.

Conveyancing

The legal process involved when ownership of a property is transferred from the seller to the buyer. It can start when your offer is accepted, up until after the sale is completed.

County Court Judgement (CCJ)

A type of court order in England, Wales and Northern Ireland that is registered against you if you fail to repay money you owe. It is a legal step taken by someone you owe money to as part of their debt collection process. And is often a simple way for creditors to claim back money from individuals that they are entitled to.

Credit Score

A number from 300 to 850 that rates a customer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders.

Creditor

An individual or company that extends credit to another party to borrow money, usually by a loan agreement or contract.

Debtor

A person, country, or organisation that owes money.

Decision in Principle

This is a document from your mortgage lender confirming how much they are willing to lend you for your mortgage, it is not legally binding and is often the first step before proceeding to a Full Mortgage Application (FMA).

Default

When you have failed to make a payment on a loan you have taken out.

Deposit

The initial amount of money you will put down on a property when you first purchase it. The minimum requirement is normally 10% of the overall price.

Early Repayment Charge (ERC)

Is a fee you might have to pay your lender if you want to end your mortgage deal before the end date agreed, not all mortgages have an ERC and those that do usually reduce the closer you get to the end of the deal.

Endowment

A type of interest only mortgage where you pay money into an investment called an endowment, this is then used to pay off the outstanding mortgage balance at the end of the term.

Enquiry Fee

A charge that might occur if your lender requests mortgage details from your existing mortgage lender.

Equity

It is the amount of the property that you own and that you have paid off your mortgage, plus how much you paid for your deposit. If the value of your home has increased, then your equity also includes the difference between the original price and its new value.

Escrow

This is a legal arrangement in which a third party temporarily holds money or property until a condition has been met. For example, paying the full amount on a purchase.

European Standardised Information Sheet (ESIS)

This is the pre-contract disclosure document that is produced by the lender and contains all the legal information relating to the loan.

Financial Conduct Authority (FCA)

The body that regulates the financial services industry in the UK.

First Charge Loan

This is another way of saying your Mortgage and is often used where a borrower has more than one loan secured against their property.

First Time Buyer

An induvial who has not previously owned a property.

Fixed Rate Mortgage

Is a type of mortgage where the interest rate you pay is fixed or stays the same for a set period of time, after this period ends your mortgage payment will revert to a standard variable rate of interest.

Freehold

The freeholder of a property owns it outright, including the land it is built on.

Full Mortgage Application (FMA)

A Full Mortgage Application is a document which is submitted to a lender when you apply for a mortgage to purchase a property. The application contains information about the property, employment history and the financial situation of the borrowers.

Gearing

A common strategy used by property investors to grow their portfolios. For the strategy to work successfully, the income from renting out the property must be able to repay the debt and provide additional cash flow.

Ground Rent

Rent that is paid under the terms of a lease by the owner of a building to the owner of the land on which the property is built on.

Guarantor

Someone who agrees to pay your debt if you do not pay it. For example, a parent or close relative.

High Lending Charge (HLC)

A higher lending charge is applied by lenders when the loan extended to a borrower reaches a higher percentage than the typical percentage of the property. For example, if you borrow more than 75% of the original property value, you may be subject to a higher lending charge which will protect the induvial or company you are lending against if you default on your mortgage.

House in Multiple Occupation (HMO)

This is also known as a ‘house share’ where a property has at least 3 individuals who are renting a room but share the same facilities such as the kitchen or bathroom.

Individual Voluntary Arrangements (IVA)

This is a voluntary agreement between you and your creditors to help you pay off your debts at an affordable rate.

Interest Only Mortgage

This type of mortgage means that your monthly payment covers only the interest charges on your loan. However, at the end of the contract you will still ow the original amount that you first borrowed from your lender. This could be paid in one lump sum.

Intermediary

An intermediary is another term to describe a ‘broker’ who advises you on applying for a mortgage.

Joint Mortgage

A mortgage that has been taken out by two or more people.

Land Registry

A government department with which titles to or charges upon land must be registered with.

Leasehold

Rather than owning the property forever, this lease gives you the right to live in the property for an agreed amount of time.

Let To Buy

This is when you rent out your existing home and buy a new one to live in. It involves having two mortgages at the same time.

Loan To Value (LTV)

A percentage that shows the value of the mortgage compared to the value of the property. For example if a property value is £100,000 and you have a £20,000 deposit, you’ll need to borrow £80,000, your LTV will be 80%.

Monthly Repayment

This is the set amount you pay to your mortgage lender every month.

Mortgage Deed

A mortgage deed is a legal document outlining the terms of a mortgage on the property.

Mortgage Offer

Or Offer as it is sometimes known, this is written confirmation from your mortgage lender confirming that your application has been checked and fully approved. The document will show how much your lender is willing to lend you. A mortgage offer is typically valid for between 3 to 6 months.

Negative Equity

A property is in negative equity if the worth is less than the mortgage you have taken out on it. This is normally due to a fall in property prices.

Net

The amount of money earned or paid after any deductions have been made such as tax and national insurance.

New Build Property

A property that has been built within the last two years.

Outstanding Balance

The amount of money owed to your lender on your mortgage.

Overpayment

This is when you pay an additional amount towards your loan over your agreed monthly repayment, any overpayments will shorten the total length of the borrowing and won’t reduce monthly payments.

Owner Occupier

A person who owns the property in which they live in.

P11D

A form to report your end of year expenses on and benefits from employees who earned £8,500 or more.

P60

This form explains how much you have earned over the tax year. You give this to your new employer, so they know what tax bracket you are in.

PCM

Per calendar month.

Phishing

A technique that fraudsters use to gain sensitive data, such as passwords and bank details through sending emails that look like real in the hopes to catch the person out.

Private Company

A private company/organisation that has been set up to run a business whose owners are legally responsible for all of the finances of the company.

Prudential Regulation Authority (PRA)

Is a UK financial services regulatory body responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms.

Remortgage

The process of changing your mortgage without moving from the property. This could be for a number of reasons such as to finance an extension by releasing equity from your property.

Rental Income

The total amount of money collected by a landlord from the tenants.

Repayment mortgage

This is a type of mortgage where the borrower pays back both the initial loan amount as well as the interest from that borrowing, if you maintain all your payments, by the end of the mortgage you will have paid off the full balance.

Repayment vehicle

Also known as a ‘repayment plan’, which is your plan to cover the final balance you will owe to the lender.

Residential Mortgage

A residential mortgage is a large loan taken out to help individuals buy a property to live in.

SA302

A form issued by the HMRC showing proof of your earnings.

Second Charge Mortgage

This is a loan which is taken out or secured against your current property without impacting your first charge mortgage, the value of your property and how much equity you have will determine how much you can borrow. If you take out a second charge mortgage you will have to pay back both your first charge and your second charge as per the terms of the loans.

Secured Credit

This is a loan or line of credit that is guaranteed by an asset, in mortgage lending that asset is the property and enables the lender to recuperate their loan should the borrower not be able to repay it, this is done by selling the asset.

Self Employed

When you are not employed by a company or an organisation and work for yourself in your own company or freelance.

Self-Assessment

Self Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax.

Shared Ownership Mortgage

This is a type of mortgage only available to First Time Buyers. You will buy a percentage of the property via a mortgage and then pay a subsidised amount to a housing association. Because the mortgage is smaller, the borrower usually requires a lower deposit which can be difficult to save for.

Stamp Duty

Tax you pay when you buy a property for more than £125,000.

Standard Variable Rate (SVR)

This is a variable rate of interest, which means your monthly payment could go up or down. All lenders have one and it is the rate that most products move to once the initial term ends.

Subject to Contract

An agreement that is not yet legally binding.

Switching

Moving to a new mortgage with the same lender.

Term

The amount of time it will take you to pay back your mortgage.

Tie In Period

The period of time that you are locked into your mortgage contract. If you leave your mortgage before the end of this period, you have to pay an early repayment charge.

Title Deeds

A legal document that proves that you own your property.

Tracker Mortgage

A type of variable rate mortgage which “tracks” a base rate – usually the Bank of England’s base rate.

Underpayment

A reduction in your mortgage repayments that was agreed between you and your lender.

Unsecured Credit

An unsecured line of credit is not guaranteed by any asset; one example is a credit card. Unsecured credit always comes with higher interest rates because it is riskier for lenders.

Valuation Survey

To ensure the property is worth the amount you are going to be borrowing a check is carried out. The survey will also look to see if there any issues with the property that could result in hidden costs, this is an important part of the process to ensure that all parties are protected.

Variable Rate Mortgage

Depending on the current market the mortgage interest rates could increase or decrease. This will also impact the repayments amount that you will pay back to your lender.

Yield

The rental income from the property calculated as percentage of its value.

Information

Mortgage Service Levels

Intermediary Mortgages

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