Glossary

B

Bonding Scheme

An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.

Buildings Insurance

Insurance cover that protects the holder against damages to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.

Buy to Let

The practice of buying a house or flat for investment purposes. Income is provided by the tenants' rent, and capital growth (if any) by the property's increasing resale value.

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C

Capital and Interest

In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. This involves paying all the interest plus repayment of a portion of the capital each month; interest only is fairly self-explanatory!

Capped Rate

A mortgage that allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.

Cashback

A mortgage that provides a borrower with an immediate lump sum pay out on top of the sum borrowed to buy the property. This has to be paid for one way or the other, so cashback mortgages will typically be at a higher rate than other mortgages and will usually have early repayment charges.

Completion

The final stage of the house buying process. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.

Comprehensive Cover

A policy that covers damage to you, your vehicle and any damage to others.

Compulsories

This is shorthand for compulsory insurance. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance - which needn't necessarily be the most cost effective on the market. Our Mortgage Wizards allow you to select out these products if you wish to (although sometimes a mortgage can be so good that it outweighs the potential disadvantage of taking the compulsory insurance).

Contents Insurance

Insurance cover that protects the personal belongings in your home. In the case of rented accommodation, the landlord is responsible for insuring those contents that he owns, but not those owned by his tenants.

Conveyancing

Normally carried out by a solicitor or licensed conveyancer on the buyer's behalf. Conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property's value.

Council Tax

A local authority charge. Generally, the more valuable your property is, the higher your Council Tax bill will be. Although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council Tax.

County Court Judgement (CCJ)

If a County Court rules against you for defaulting on a debt, the ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

Cover

In the context of insurance, cover describes the specific risk a given policy protects you against. Life cover protects your family against the financial consequences of your death, buildings cover against damage to your property, and so on.

Credit Reference Agency

When assessing your application for most financial products, the provider will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.

Current Account

A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability to use cheque or debit facilities, most pay little or no interest on the balance they contain.

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D

Deeds

The formal written document that lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Deposit

In the context of mortgages, the deposit is the initial lump sum payment that the buyer must contribute to the property's total purchase price. Commonly set at around 5% to 10%. Some mortgages may not need deposits at all.

Deposit-based Savings

A method of saving which pays regular, usually variable interest based on the amount invested (instead of relying, for example, on the returns from stockmarket investment which can go up or down).

Discounted Rate

A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or LIBOR rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount remains constant.

Diversification

The principle that wise investors should spread their risk among many different types of investment. A properly balanced portfolio will contain elements of share, deposit-based and property investments. Fund performance and objective achievement are not guaranteed. Past performance is not necessarily a guide to future performance.

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E

Early Repayment Charge

These were previously known as 'Redemption Penalties'. Many mortgages which include a beneficial period, such as fixed-rate, capped-rate, cashback and discount rate mortgages, commonly carry Early Repayment Charges that can in some cases persist long after the initial special rate itself has expired. This can make it expensive to move to another lender in the first few years of the loan. Bradford & Bingley website shows you the size of any Early Repayment Charges and how it changes over time.

Employment Status

A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status, and Bradford & Bingley website has a wide variety of these in its database. Also see 'Self Certification'.

Endowment Mortgage

A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.

Equities

Another name for ordinary shares.

Excess

The initial amount of an insurance claim that you will have to pay yourself.

Exchange of Contracts

The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that building insurance from this date covers you, because even if the property was damaged badly, you would still have to buy it.

Execution-only

A service that offers no advice and merely carries out the customers request.

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F

Fixed Rate

A mortgage that fixes your interest rate at a specified level, typically for the first few years of the loan.

Flexible Mortgage

A mortgage that allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to re-borrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next.

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G

Gross

Earnings or a sum of money before tax has been deducted.

Growth Strategy

A growth strategy is one that seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income may be reinvested.

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H

Heave

Heave is the opposite of subsidence. The foundations are disturbed by the earth around them swelling due to increased levels of moisture.

Home Insurance

A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.

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I

Illustration

In the context of mortgages, a calculation of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.

Impaired Credit

Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders' standard products. Loans like these are also known as adverse credit loans.

Income Strategy

An income strategy for investments is one that seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).

Interest

The premium that a borrower must pay a lender in return for use of the lender's money.

Interest-only mortgage

With a mortgage like this, your monthly repayments cover only the interest element of the loan. You will normally need a repayment vehicle, such as an ISA, endowment or a personal pension, to repay the capital.

ISAs

ISAs (Individual Savings Accounts) offer investors tax-efficient growth, generated mainly by stockmarket investment. Due to the investment element of some ISAs, it is important to note that past performance is not necessarily a guide to future performance.

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L

Legal Protection

Legal protection is a common feature of home and car insurance. It normally covers family legal issues and provides financial support and a legal advice helpline. Matters normally covered by this are personal injury or death, contract of employment claims, consumer disputes and claims relating to damage to you or another party.

Letting Agent

A property agent who can help landlords locate suitable properties for purchase, and who finds tenants to occupy those properties and can manage the rental process which follows.

LIBOR

London Inter-Bank Offered Rate - LIBOR - the interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year, but either 1 or 3 months LIBOR is normally used in setting mortgage rates.

Local Search

A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property that could affect its future value or existing restrictions on the site.

LTV - Loan to Value

This is the amount you want to borrow as a percentage of the purchase price or valuation (which ever lower). In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan and the better the deal could be.

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M

MIG

MIGs - Mortgage Indemnity Guarantees (sometimes also called a Higher Loan to Value fee / higher lending charge) are effectively insurance premiums that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure.

Money Markets

The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.

Mortgage

A 'mortgage' is a loan secured against a property which you can own. 'Secured' means that if you do not keep up the payments, the lender can sell your home to get its money back.

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N

Net

Earnings or a sum of money after tax has been deducted.

New for Old

'New for old' is a practice of reimbursing the claimant for the full replacement value of an item, not what its current market value is. However, this will not apply to all items covered by a contents policy, so you need to check the exclusions.

Non-Status Loan

This is where your income is not disclosed and/or you have some adverse credit.

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O

Overpayment

A mortgage repayment bigger than the one needed to meet the loan's minimum requirements. Some mortgages allow these without early repayment charges, and are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money.

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P

Payment Holiday

A short break from regular mortgage repayments sometimes offered with flexible mortgages.

Pension Mortgage

A mortgage whose capital repayment is funded by contributions to a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan's capital at the end of the term. The past performance is not necessarily a guide to future performance. It should be noted that using the lump sum payable under your pension as a mortgage repayment vehicle could reduce your potential retirement income.

Premium

In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

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R

Remortgaging

The process of switching your mortgage loan from one lender to another without moving house.

Repayment Mortgage

A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest simultaneously. The idea is that by the end of term (usually 25 years), the mortgage will be completely paid off.

Repayment Vehicle

The means by which a loan's capital is repaid on an interest only mortgage. Examples include endowment policies, ISAs, and personal pensions.

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S

Secured Loan

A loan, commonly a mortgage, where your property is used as security against the money that you borrow. If you should default on your mortgage, then a lender can ultimately repossess your property to recover their money.

Self certification

Where no proof of income is available, prospective borrowers are sometimes allowed to vouch for their own income. Self-employed applicants who lack the three years' accounts lenders would normally require most commonly use this process, known as self-certification. A small premium may be charged on self-certificated business, to reflect the extra risk involved.

SERPs

The State Earnings Related Pension (SERPS) is now known as the State Second Pension

Standard Variable Rate

This is normally a mortgage lender's main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR).

Status

Shorthand term for the borrower's credit record and employment situation

Structural Survey

An expert examination of the property you are considering buying aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.

Subsidence

Subsidence is where the ground supporting the foundation of a property shrinks due to a reduction in moisture content, causing the foundations to sink.

Surrender

The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date particularly in the policy's early years.

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T

Term

The period of time over which your mortgage will run.

Tracker

Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected.

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U

Underpayment

A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.

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