You may hear some of the following terms used when applying for a loan or mortgage.
Adverse credit risk
If a borrower has a poor credit history this is known as adverse credit risk. A poor credit history can be the result of county court judgements (CCJs), bankruptcy, or late payment on credit arrangements.
Arrangement fee
This is a fee charged to you on completion of a mortgage application. Arrangement fees are common on fixed rate and managed rate mortgages.
Arrears
This is used to describe the amount of repayments a borrower has missed.
Bankruptcy
Is an inability to pay debts which is recognised via court proceedings. A company or individual will be declared bankrupt once they’ve surrendered assets to an appointed third party, such as administrators.
County Court Judgement
This is a ruling made by a County Court against a person who has not satisfied payments to their creditors. Once the ruling has taken place it will be held on record for seven years and will appear each time a credit search is made on that person. If a person has a CCJ against them, they will find it difficult to get a mortgage and they will pay a higher rate of interest if they do.
Credit rating
Is a formal evaluation of a person or company’s credit history and their ability to repay borrowings. In the UK, the main credit rating companies are Experian – www.experian.co.uk, Equifax – www.equifax.co.uk and CallCredit – www.callcredit.plc.uk. For a small fee (between £2 and £2.50) you can access your credit file.
Debt consolidation
The process of bundling all debt into one loan, usually repayable at a more favourable rate of interest.
Default
Failure of an individual or company to make payments on a mortgage on the due dates, or to meet other terms of the mortgage contract.
Deferred interest
Interest owed on money borrowed is paid at a later date. This leads to an increase in the total owed, but can be a useful way of financing short term debt.
Endowment mortgage
A mortgage with an interest payment and a separate payment into an endowment investment product designed to repay the mortgage at the end of the term.
Fixed rate mortgage
A mortgage with an interest rate payment that doesn’t change for the life of the fixed term.
Interest only mortgage
A mortgage where the borrower only repays the interest arising on the principal amount borrowed. The principal amount borrowed is repaid at the end of the term, usually via an investment product such as a pension, life insurance product or stock market investment.
Leasehold
A mortgage taken out on a leasehold property means that you are buying a property for an agreed period of time, but not the land the property is built on. A leasehold period normally ranges from 99 years, but can be for as long as 999 years for commercial property. At the end of the lease the property reverts back to the landowner, unless the leasehold is renewed. The value of a leasehold property can fall significantly as the end of the leasehold approaches. Leasehold rules in Scotland are applied differently.
London Inter Bank Rate Offered (LIBOR)
This is the amount of interest banks in the City of London pay each other for loans
LTV - Loan to Value
The value of the loan as a percentage of the appraised real market value of the property.
Mortgage term
The period over which the mortgage must be repaid.
Mortgage valuation
The assessed market value of a property made by a professionally qualified surveyor.
Negative equity
The situation where the market value of a property has fallen to less than the amount of the outstanding loan still owed.
Payment holiday
A feature of some mortgages that allows the borrower to defer interest payments without incurring fines or penalties.
Payment Protection Insurance
An insurance product that will repay the outstanding debt on a mortgage if the borrow is unable to repay due to a number of specific problems – ill-health, business failure or death.
Personal loan
A personal loan is the generic term for a loan. It can either be secured against your property or unsecured depending on your personal circumstances and preferences.
Principal
The amount of debt outstanding, excluding interest.
Real estate
Refers to land or any structure permanently fixed to the land, whether above or below ground level - such as buildings, plumbing and lighting.
Remortgaging
The process of paying off one mortgage with the proceeds from a new mortgage in order to release capital, or reduce interest payments.
Repossession
The legal process by which a borrower in default is deprived of their interest in a property. The process usually means the property is sold or auctioned off with the proceeds going to the lender.
Survey
An assessment of the buildings structural status completed by a chartered surveyor.
Valuation
An assessment that the asking price of a property is a true reflection of market value.
Valuation fee
The fee paid to the lender or surveyor who conducts valuation.