Glossary of Terms

C

Commercial Mortgages

These are for individuals or companies buying commercial property, such as an office building, retail centre, apartment complex or warehouse.

Commitment Letter

A letter from a lender outlining a formal offer and explaining the terms and conditions of the loan. It is often referred to as a ‘loan commitment’.

Common Areas

Areas to which more than one resident has access (for example hallways, parking areas and gardens).

Comparative Search

Usually carried out by an estate agent, a comparative search reveals the actual sale values of properties with a similar size and location to your own. The aim is to give a realistic idea of what your property can expect to fetch.

Completion

The day you become the legal owner of your new property, and time to crack open the champagne. The completion date is the date that your solicitor forwards the money from your lender to the seller’s solicitor.

Compound Interest

Compound interest is the interest paid on capital plus on any previously accrued interest. For example, £1,000 borrowed for 5 years at 5% p.a. would become £1050 after 1 year, £1052.50 after 2 years and so on.

Contract

A legally binding agreement between the buyer and seller of a property.

Conveyancing

The legal process of transferring the ownership of a property from seller to buyer, carried out by a licensed conveyancer or solicitor. A fee is usually charged.

County Court Judgement (CCJ)

CCJs are rulings issued by a County Court or higher court against those who fail to repay money they owe. The judgement against the individual is recorded and will show up during lenders’ credit checks. Anyone with a CCJ will need the help of a specialist broker when applying for a mortgage.

Covenants

The various agreements and undertakings governing a property, usually outlined in the title deeds or lease.

Credit

This is when one party (the borrower) receives money, or an asset such as property, on condition that they repay the other party (the lender) at a specified point in the future.

Credit Check

The review of a person’s credit history as part of the mortgage application process. These checks are carried out by dedicated companies on behalf of the lender, and usually focus on any outstanding debts, arrears, credit card repayments and CCJs.

Credit History

The full history of a person’s paid and unpaid debts. These help lenders assess the ability of prospective borrowers to meet their mortgage repayments.

Credit Rating

Normally based on a person’s credit history, this is an assessment of whether or not they will be able to keep up repayments on a loan.

Credit Reference Agency

A company that holds financial records relating to the payment history of a prospective borrower. Almost all lenders will use such an agency during a mortgage application.

Credit Report

The findings issued by a Credit Reference Agency that details a person’s credit history, used by lenders to assess a mortgage application.

Credit Scoring

The process whereby a lender assesses the likelihood of mortgage applicants being able to meet their mortgage repayments.

Critical Illness Cover (CIC)

CIC pays out a tax-free lump sum to policyholders if, during the term of the policy, they are diagnosed with one of a number of listed ‘critical’ illnesses or conditions, such as cancer, Parkinson’s Disease, Multiple Sclerosis or paralysis following a heart attack or stroke.

Current Account Mortgage

Current Account Mortgages (often referred to as CAMs) have many of the facilities that apply to a standard current account and, when combined with a flexible mortgage, allow payment breaks and both over- and under-payments.

D

Deeds

The legal documents that prove ownership of a property, usually held by the lender.

Deposit

This is the money used as a down payment on a property.

Disbursements

These are the fees, such as stamp duty and land registry, paid by the buyer’s solicitor on the buyer’s behalf.

Discount Rate

Usually relating to the initial period of a mortgage, this is when the interest rate you pay is discounted by a certain percentage from the standard variable rate for an agreed period.

E

Early Repayment Charge/Fee

Charged by some lenders when borrowers pay off their mortgage before the agreed date, often because they are moving to another lender. These fees almost always apply to fixed and discounted rate mortgages.

Equity

Very simply, the amount of value in a property that isn’t covered by a mortgage. To work it out, simply subtract the mortgage from the value of the property.

Equity Release

Equity release is a means for homeowners to convert a proportion of the value of their homes into cash without having to sell. This could be a lump sum or a steady income stream. It’s often used to carry out refurbishments or to improve the quality of a person’s retirement. It must be repaid at a later date.

Exchange of Contracts

The exchange of contracts comes in the latter stages of the house buying process. Once both buyer and seller have signed, they are then legally bound to complete the transfer, meaning that if either party pulls out prior to completion they may have to pay compensation.

F

Financial Services Authority (FSA)

The independent watchdog set up by the government to regulate financial services. All lenders must be authorised by the FSA, and all brokers must either be authorised directly or be agents of other authorised firms.

Fixed Rate Mortgage

The interest rate on a fixed rate mortgage is set at an agreed rate for a specified period. It is a useful option for people who want to know exactly what they are paying each month, as the amount cannot be affected by any changes in the base rate. The downside is that fixed rate mortgages often come with heavy penalties if they are redeemed early; and if interest rates are lowered, you may end up locked into a higher rate.

Fixtures

Any item that is deemed to be attached to and therefore legally part of that property.