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Agreement in principle (AIP)
A document from a mortgage provider approving that you will be able to borrow an amount. You can use this to verify to a seller that you are able to afford to buy their property.
A statement from your financial services product provider sent to you once a year, showing how much you’ve paid, what your plan is worth (and if it’s in relation to a loan, what you still owe).
Annual percentage rate: the total cost of a mortgage, counting the interest and fees. It assumes you will have the mortgage for the entirety of the term, so may or may not be a useful way to compare deals
Asset allocation is the process of putting your investment into a range of different investments such as equities, gilts, property and bonds. By diversifying the assets into which you invest, you can protect against any reduction in value of any one or more asset class. Asset allocation depends on your investment plans and attitude to risk.
This is a set-up fee for a mortgage. Most mortgage lenders will allow you to add this fee to the loan but means you pay interest on it for the whole mortgage term.
To go into arrears, means you have ‘defaulted’ at least once on your mortgage repayments – you have missed a month’s payment. Contact your lender as soon as possible if you think you may go into arrears.
A rate of interest set by the Bank of England, which tracker mortgages and standard variable rate mortgages usually follow.
A beneficiary is a person named in a will or under a trust as entitled to receive a bequest or benefit.
A kind of mortgage set-up fee.
Insurance which covers damage to the structure of your home. A lender will require you to have this in place when you take out a mortgage. Read more on buildings insurance.
Buy-to-let properties are bought with the sole purpose of letting it to tenants. Because this is essentially a business move, most mortgage lenders offer special buy-to-let mortgage deals for this purpose.
Money borrowed to buy a property.
Capital gains tax (CGT)
If the value of assets that you own increase in value, then you may need to pay Capital Gains Tax (CGT). For example, selling shares for more than you paid for them could involve paying some CGT. You get an annual allowance for capital gains and only pay CGT on any gain over this amount.
If your mortgage deal has a capped rate, the interest rate charged by your lender will on no occasion surpass the upper ‘capped’ limit, irrespective of rises to the Bank of England base rate.
County Court Judgement. This is the judgement which could befall you for non-payment of debt – making it much harder to get a mortgage because your considered higher risk.
If in the event your mortgage deal has a collar, your interest rate will not fall any lower than the definite amount. So, if rates go down to 3.75% and your deal is ‘collared’ at 4%, you must miss out on the savings that this new, lower rate would bring.
The legal procedure you are required to go through when you buy or sell property. This is done by a solicitor or licensed conveyancer.
These are Bonds that are issued by companies when they need to borrow money. As an investment, they often offer higher rates of return than banks and building societies but with a varying amount of risk depending on the financial security of the company issuing the bond.
Current account mortgage (Cam)
All your mortgage, credit card and loan debts and your current and savings account balances are combined into one account, creating an overall balance. Your credit balances are offset your debts, meaning that you only pay interest on the difference. These are generally more expensive than conventional mortgages but could be the best option in the right circumstance.
Defined benefit pensions
In this type of pension scheme, members receive a set pension income on retirement – based on their final salary, how many years they’ve been working for the company. It’s also known as a final salary scheme.
Defined contribution pensions
In this type of pension scheme, the amount of money you will have in your retirement fund depends on the amount of money you put in, where the money was invested and how much it grows. It’s also known as a money purchase scheme.
These are payments that are made to shareholders by a company from any profits that the business has made.
This is the amount you must put down yourself with your own towards the cost of the property. The minimum deposit you will usually need is 5%, but the more you must put down the better – as the cheapest deals are available to people who can pay a deposit of at least 40%.
A discounted-rate deal is when the interest rate that 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%, the discount is 1% – you will pay 4.5%.
Early repayment charges (ERCs)
These are penalty fees you need to pay in order to leave a mortgage during a specified period, usually the period of the initial deal.
This is a form of interest-only mortgage where you also pay money into a type of investment called an endowment to pay off the mortgage at the end of the term. Read more about interest-only mortgages.
For inheritance tax (IHT) purposes, an individual’s estate is calculated as being his or her total assets less any liabilities at the time of their death. Proper estate planning could save your family hundreds of thousands of pounds, because IHT (sometimes called ‘death duty’) will be charged on what you leave behind, over the IHT threshold at time of death. Currently, IHT is due at 40% of the value of all the assets you leave behind on death above the IHT threshold.
The amount of the property that you own outright, i.e. your deposit plus the capital you’ve paid off on your mortgage.
Equity release scheme
An equity release scheme allows older homeowners to release money tied up in their property. There are two varieties: a lifetime mortgage and home-reversion schemes. These schemes should only be taken out after getting an independent financial adviser. Read more about equity release schemes.
An executor is a person, named in a will, who is charged with administering the deceased person’s estate and distributing the assets to beneficiaries.
The Financial Conduct Authority (the FCA) is the UK’s financial services regulator.
This is when an offer was made and accepted by the seller, but then another party makes another, higher offer which is accepted by the seller regardless.
Group Personal Pension
If you work for a company, you may have a Group Personal Pension. It’s the name given to a group of personal pension plans offered by employers to employees.
A third party who agrees to meet the monthly payments of the buyer if they are unable to pay, this is a most common party with first time buyers, the guarantor is usually a parent or guardian. Read about guarantor mortgages.
Family offset mortgage
This is used by family members (mainly parents) who want to assist first-time buyers get onto the property ladder. Your savings are balanced against your child (or other family member)’s liability, the volume that they owe and pay in interest is lowered.
The mortgage interest rate stays constantly the same for the initial period of the deal, which can be anything from one year to 10 years. Meaning that you can be sure of exactly what you will be paying on your mortgage each month, as your rate won’t go up – or down – with the Bank of England base rate.
A flexible mortgage deal is one that allows you to overpay, underpay or even take a payment holiday from your mortgage. This can assist in you paying off your mortgage early to save money on interest, however flexible mortgages are usually more expensive than conventional ones.
You own all the property and the land it was built on.
Help to Buy
Help to buy is an initiative launched by the government which involves various scheme designed to help first time buyers get onto the property ladder. This includes equity loans, mortgages guarantee, ISAs and specific schemes for Wales and Scotland.
Help to Buy ISA
This is a tax-free savings account, into which the government will pay a cash bonus towards a deposit. Please ask for details.
Higher lending charge (HLC)
This is a charged which is charged by a mortgage lender if you are borrowing more than 75% of a total property value. It protects a lender against someone defaulting on their mortgage.
Individual Savings Account (ISA)
There are two types of Individual Savings Account (ISA): Cash ISAs, and Stocks and Shares ISAs. Each tax year, you can put money into both types up to the annual limits. ISAs aren’t an investment in their own right, they’re a tax-free ‘wrapper’ in which you can shelter investments.
Inheritance tax (IHT)
Inheritance tax (IHT) is charged on an estate after a person’s death. It’s currently charged at 40% on amounts above the IHT threshold, which can change every year. A person’s estate includes the total of everything owned, less any liabilities at the time of their death. If this amount is less than the threshold, no IHT is payable.
This is when you only pay off the interest on a mortgage each month, without paying off any of the loan itself. The idea here is that you build up enough money to pay off the mortgage at the end of this term in another way.
A ‘joint life’ policy is one that’s taken out by two or more people. Joint life policies can be useful for protecting a family in the event of either or both parents dying.
This is when a mortgage is taken out by two or more than two people. This could be used if you are buying a house with a partner, friend or a family member. It can also be used by parents who want to help their children buy a property.
The official organisation where land and property are registered.
This is when you own the building – but not the land it stands on, you own this for a set period, this could be anything up to 999 years). You could find it hard to get a mortgage if there are fewer than 70 years left on the lease of a property that you want to buy.
This is the size of your mortgage as a percentage of the property’s value. The cheapest deals of these incline to be accessible for people who are borrowing 60% or less.
This is the amount you pay your mortgage lender each month. If you’re on a repayment mortgage (the most common kind), this payment will cover a proportion of your mortgage plus interest.
This is when you change a mortgage without moving to a new house This can be done to save money – to change to a different type of mortgage without moving to a new house. This is done to save money to a different type of mortgage or to release equity from your home.
This is an official contract between lender and the borrower, this outlines the legal obligations of the borrower and the rights the lender has if a borrower fails to make a repayment.
Mortgage payment protection insurance (MPPI)
This is insurance that will cover your mortgage usually for a year – if your unable to work due to accidents, sickness or unemployment. Its also known as the ASU insurance.
This is the amount of time that you are taking the mortgage out for.
This is when the value of your home falls below the value remaining on your mortgage.
An offset mortgage serves to link saving and a current account. Credit balances are often offset against a mortgage debt, so you only pay interest on the difference. This is also true for paying off the capital.
An area of law governing the payment and the protection of pensions.
A personal allowance is the amount of income that you can earn each year before you start paying tax.
This is a portable mortgage, you can transfer your borrowing from one property to another if you move. Without paying arrangement fees.
Probate is the process of obtaining legal authority to deal with the affairs of someone who has died and getting the will certified so that the executors can carry out the wishes and instructions contained within it in order to wind up the estate.
This is the cost of rebuilding your home if it’s destroyed.
This is when you pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any of the repayments, you are guaranteed to have paid off this mortgage by the end of the term.
This is required by lenders if you take out an interest only mortgage – this is the means of which you’re going to pray back to mortgage by the term’s bed, this could be another property or a stocks and shares portfolio.
Right to Buy scheme
This was originally intended to enable tenant so the council houses to but homes that they ae being lived in, this is being opened to housing association tenants also.
The Retail Prices Index (RPI) measures the change in the cost of a basket of retail goods and services.
A service charge is paid to a managing agent for the ongoing maintenance of a leasehold property.
Self Invested Personal Pensions (SIPPs)
A Self Invested Personal Pension is a type of plan that allows you, or your appointed fund manager, to make choices from a wider range of investments than other personal pension schemes normally offer.
You can buy a share of a property (this is usually somewhere between 25% and 75%). And pay rent of the remaining share. Which is owned by the local housing association.
A professional who provides legal advice and services to individuals and businesses on a wide range of issues, for example divorce, conveyancing, contract law and employment law.
A stamp duty land tax is payable when you buy a property for more than a certain value and other specific criteria.
Standard variable rate (SVR)
The default mortgage interest rate that a lender will charge after the initial mortgage deal period comes to an end. This could be higher or lower than an original rate.
A sub-prime or a non-conforming or mortgage is geared towards people who have credit problems. Its much harder to get a sub-prime mortgage than before the credit crunch.
This is a period during which you’re Locked in to your mortgage deal. You’ll have to pay an early repayment charge. If you leave your mortgage during this time. You should avoid mortgages which tie you in after an introductory rate.
The interest rate on a mortgage tracks back to the base rate set by the Bank of England – by a margin above or below it.
Lenders always carry a valuation survey to check whether a property is worth roughly the amount that you’re paying for it. You should have your own survey done too.
Interest on your mortgage can go up or down according to your lenders’ standard variable rate.
Yield is a general term for the rate of income that comes from an investment, expressed as an annualised percentage and based on its current capital value.
Our status as Chartered Financial Planners demonstrates our commitment to the highest standards of excellence.