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Jargon Guide

Jargon Guide - if you're unfamiliar with some of the jargon you read and hear when buying a new home,
this guide should give you a better understanding of what's going on.


Annual Percentage Rate (APR)
Is the interest rate paid over the course of a year. Use it to compare mortgage offers from building societies and other mortgage lenders.
 
Arrangement Fee A fee charged in order to obtain a particular mortgage deal and usually applied to fixed or discounted rate mortgages. Can be payable in advance, added to the loan on completion, or deducted from the loan on completion.
 
Assignment Is the transfer of ownership of something from one person to another. If you are buying a leasehold flat, ownership is ‘assigned’ to you through the contract.
 
Assured Shorthold Tenancy (AST) A tenancy giving a landlord the right to repossession of the property after a fixed period of time. Will be shown in the tenancy agreement. New tenancies are automatically AST’s unless otherwise stated.
 
Bank of England Base Rate
The benchmark lending rate fixed from time to time by the Bank of England Monetary Policy Committee. Also known as the Bank of England Repo Rate.
 
Base Rate The lowest rate at which a bank will charge interest and used as a benchmark to set interest rates for borrowers. Lenders usually charge borrowers a margin above base rate and this reflects their risk on a mortgage deal and their competitiveness in the mortgage market.
 
Building Insurance A policy designed to insure the building rather than its contents and offering protection against the cost of rebuilding or repairing a property following structural damage, for example by flood, fire or storm. Lenders often offer their own policies, but it may be cheaper to shop around and buy elsewhere.
 
Building Regulations Legal requirements designed to ensure the health and safety of building users.
 
Building Survey A technical report made by a surveyor following an inspection of the property. It provides a comprehensive account of the condition of the property, describing any structural or other defects.
 
Bridging Loan A temporary loan designed to bridge the gap in time and money if you have to complete the buying your new home before you’ve sold your existing one. Some lenders only offer bridging loans secured by a solicitor's undertaking. This is a personal legal guarantee by the solicitor that something will be done - usually the repayment of a mortgage or production of title deeds.
 
Capped Rate A capped rate mortgage is a mixture between a fixed rate and a variable rate, where the interest rate is guaranteed not to rise above a set level within the capped rate period even if interest rates rise above the set level. If the variable mortgage rate is below the capped rate then the variable rate is charged.
 
CAT Standard Mortgage The Government laid down CAT standards - Charges, easy Access and Terms - to ‘ prevent confusing marketing and hidden charges’ and help consumers identify mortgages that meet minimum standards. A mortgage that meets the CAT standard doesn’t mean that it is ‘Government Approved’ or the best deal available.
 
Chain The line of buyers and sellers who together are involved in each house move. e.g. while you’re selling your home, you’ll be buying a property from another vendor who is buying from someone else and to complete the ‘chain’ everyone has to wait for everyone else’s deal to complete.
 
Charge The security or collateral a mortgage lender relies on when lending money on property.
 
Collateral An asset pledged as security to a lender until a loan is repaid. If you default on your mortgage your lender could, after legal action, sell your home to get their money back.
 
Completion The day when the seller and buyer finally exchange money via their solicitors making you the new owner and allowing you to move in to your property.
 
Contents insurance A policy insuring household contents against theft and damage.
 
Contract The agreement between the buyer and seller that, once signed, binds both parties to the transaction. Each party signs a separate copy and the two copies are ‘exchanged’.
 
Conveyancing Usually undertaken by a solicitor or licensed conveyancer, this is the legal process in which ownership of the property is transferred from the vendor to the buyer.
 
Deposit
The money you pay on exchange of contracts as part of your initial payment towards the purchase of your home.
 
Discounted Rate A type of mortgage where the standard variable rate is discounted for a fixed period of time. The discount is usually fixed at a certain percentage below the standard variable rate and the interest rate applied to your mortgage moves up and down in line with the variable rate.
 
Early Repayment Charge If you sell your house or change to another lender, you may be paying back your loan early. Most mortgage lenders will charge a financial penalty if you do this, particularly during any period of a fixed, capped or discounted rate.
 
Equity The difference between the amount you owe on your mortgage and the current value of your property. Negative Equity is when the value of your property is worth less than your mortgage.

Excess The amount you are asked to pay before your building or contents insurance policy will cover any claim you might make. For example, if your roof is damaged in a storm you may have to pay the first £150 towards repairs or a new one. The amount varies, usually the more ‘excess’ you are prepared to pay the lower your insurance premium will be.
 
Exchange of Contracts The stage in the property transaction at which legally binding contracts are exchanged between the buyer and the seller. When contracts are exchanged the vendor becomes legally obliged to sell and the purchaser to buy on the terms agreed.

Financial Services Authority (FSA) The independent body that regulates the financial service industry in the UK.
 
First Time Buyer Lenders differ in their definition of a First Time Buyer; usually it only applies to someone who has never owned a property previously. Some lenders include people who have owned a property before but have no property to sell, while others include joint borrowers where just one of them is a First Time Buyer.
 
Fixed Rate Mortgage
The mortgage lender will fix the interest rate that they charge at a set level for a fixed period of time. This can be for a very short period, e.g. six or twelve months - up to the whole mortgage term.
 
Flexible Mortgage A mortgage that offers some flexibility over how you pay it off, a flexible mortgage may allow you to underpay or underpay in some months or years than you have contracted for, allow you to take payment holidays or to pay off your mortgage early, sometimes without penalty.
 
Freehold Property A legal title to land, which means you are the absolute owner of the property together with the land it ’s on. This compares with leasehold property where the property is held for a limited period of time.

Gazumping What happens if your offer is accepted and then the seller pulls out if they receive a higher offer.
 
Gazundering Gazumping in reverse. Can happen if a buyer in a strong position threatens, before contracts are exchanged, to pull out of the deal unless the price is reduced.
 
Ground rent The annual rent paid by a leaseholder to the person or company who own the freehold. People living in leasehold flats usually pay it to the company owning the land on which the block is built.
 
Homebuyer’s Report
A survey report that is more detailed than a Mortgage Valuation but not as in depth as a Full Structural Survey. The proposed lenders surveyor usually carries out a Homebuyer’s Report and the report can then be used for the lender to replace the Mortgage Valuation. In addition it can be used as a detailed report for the borrower. A Home Buyers report may not be suitable for certain types of property where a Structural Survey may be more relevant.
 
Household Insurance A way of referring to both buildings and contents insurance.
 
Income Multiplier Used to calculate how much a mortgage lender is prepared to lend on a mortgage, typically three-times gross earnings for a single applicant or two and a half times joint salaries.
 
ISA Individual Savings Account, a tax-efficient savings plan that can be used to repay an interest only mortgage.
 
Interest Only Mortgage An interest only mortgage is one where the capital is not repaid until the end of the mortgage. However, they can be supported by an endowment policy, pension plan, etc. that will pay off the capital at the end of the loan period.
 
Key Facts Illustration Sets out details of the mortgage product that a customer is interested in. All lenders are required to set out the details in a Key Facts Illustration in the same format, so that it is easier for you if you need to compare products.
 
Land Register
The Land Register holds a record of all land registrations in England and Wales.
 
Land Registry Fee
Your conveyancer pays this on your behalf to register your details in the Land Registry records once you’ve bought a property or changed your mortgage lender.

Lease A legal document that details the agreement between the freeholder and those who occupy their property for a specified period of time and at an agreed price or rental. An important document to read so you understand the responsibilities the landlord has and what yours are as well.
 
Leasehold
This is the tenure that applies to most flats, apartments and maisonettes in the UK. As opposed to freehold property the rights to the property are owned only for a fixed period of time, with the freehold being held by a third party.  Most residential leases have long terms and are usually set initially at 99 years or 999 years. If the property is old, there may only be a few years remaining on a 99-year lease, so you may loose the property when the lease expires.
 
Legal Completion
The date on which the legal ownership of the property changes hands, it is usually agreed upon at exchange of contracts. This will also be the date at which the mortgage becomes effective (sometimes the mortgage completion date may be a couple of days before this to ensure that the solicitor has funds on the due day).
 
LIBOR Linked Rate The London Inter Bank Offered Rate is the rate at which banks lend money to one another. LIBOR changes daily and a LIBOR linked mortgage will normally be adjusted every three months. LIBOR linked rates are usually a set percentage above LIBOR.
 
Loan to Value (LTV) The total loan size in relation to the value of the property and usually expressed as a percentage, e.g. a mortgage of £300,000 on a property valued at £400,000 would be shown as 75% LTV.
 
Local Authority Search Part of the conveyancing process and carried out by your conveyancer. It gives details of any matters that, from the Local Authorities point of view, affect the property, such as road improvements and details of any planning permission given for the property.
 
Mortgage Deed
A legal document establishing a mortgage on a property.
 
Mortgage Term The number of years over which the mortgage is arranged, up to a maximum of 40 years.
 
Mortgage Valuation The most basic form of survey and the minimum required by lenders in order to ascertain the suitability of the property as security for their loan. Although the borrower will normally receive a copy of this report it should not be relied upon as a comprehensive report on the condition of the property. A more detailed report (either a Home Buyers Report or Structural Survey) should be commissioned when considering the purchase of a property.

Negative Equity Describes the situation where the value of the property has fallen below the outstanding mortgage debt

Portable The ability to move a mortgage from one property to another in the event of a property move. If the mortgage is not ‘portable’ then moving would involve the payment of early redemption charges even if another mortgage was taken with the same lender.
 
Re-mortgage The process by which a mortgage on a property is moved from one lender to another or changed with the same lender. The new mortgage is used to repay the existing mortgage and at the same time additional funds may be raised for other purposes.
 
Repayment Mortgage Also called an Annuity mortgage or Capital and Interest mortgage, your monthly payments gradually pay off your mortgage as well as the interest.

Stamp Duty This is a tax that is levied on the purchase of property. The tax is paid by purchasers and is currently levied at the following rates:
  • 1% of property valued £125,000 - £250,000
  • 3% of property valued £250,001 - £500,000
  • 4% of property valued £500,001 - £1million
  • 5% of property value £1million and above
The appropriate rate is paid on the whole purchase price and not just the excess applying to that band, i.e. a purchase price of £450,000 will attract £13,500 stamp duty, being 3% of £450,000. First time buyers - 0% on properties below £250,000, from 25 March 2010 up to 24 March 2012 inclusive.
 
Structural Survey The most detailed type of survey report undertaken in connection with a House Purchase. It will itemise visible defects with the property that you may be able to use if negotiating the value of the property.
 
Term Assurance This is life assurance that pays out an insured sum on the death of the policyholder. It is a common method to protect the mortgage in the event of death and to ensure that the mortgage debt is repaid.

Tracker Mortgage
The lender agrees an interest rate linked to the Bank of England base rate. If interest rates change the mortgage rate will usually follow this.
 
Valuation Arranged by your lender to find out if the property is worth the amount you want to borrow and is suitable to lend a mortgage on.
 
Variable Rate
The rate varies at the discretion of the mortgage lender and was the traditional way that mortgages were arranged before the introduction of fixed rates, capped rates, etc. A variable rate will fluctuate to reflect the cost of borrowing and may be discounted for an introductory period.

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