Glossary of Mortgage Lending Terms

A B C D E F G H I J K L M N O P Q R S T U V W X YZ

A
Absolute Title The strongest title that the registered owners can have. It is one of four classes of title which can be registered at the Land Registry.

Additional security
Any security in addition to the house itself, which is known as basic security. Often this is a single premium insurance policy, commonly known as a mortgage indemnity guarantee. This is usually required with loans in excess of 90% of the property's value. A borrower borrowing typically over 75% of the purchase price may have to pay a higher lending charge to the lender. The lender may then use some or all of this to purchase an insurance policy which will protect them in the event of repossession.

All monies deed
A mortgage deed where the property deeds secure all monies owned by a customer not just the mortgage amount borrowed for the property.

Allodial land
Land in Scotland held outside the feudal chain including Crown property, some church land, and udal land in Orkney and Shetland.

All risks
Extra contents insurance including cover for accidental damage and loss personal belongings whilst off the insured premises.

Annual review schemes
Apply to variable rate mortgages where the repayment is set once a year whilst the interest charged varies during that year. This can lead to large payment changes each year when market rates of interest are volatile.

Annual rest
Interest is charged to the account on an annual basis.  If a part capital repayment is made then the account is adjusted accordingly.

Annuity linked mortgage
A repayment method aimed to help older borrowers raise capital on their dwellings.  The annuity raised provides income for the borrowers, part of which is used to pay the interest on the loan.

Annuity method
A once common term for a capital and interest mortgage.

APR
Annual Percentage Rate. This is calculated using a set formula and is the rate of interest charged on a loan.  It was introduced to allow comparison between lenders.

Articles of Association
This is the internal structure of a limited company and sets out conditions relating to officers, meetings etc.

Assignment
The handing over of life policies to lenders taken out to repay capital at the end of the mortgage term. A deed of assignment gives the lender the legal right to cash in the policy in the event of default.

Assured tenancy
A method which provides some security of tenure for the tenant for an agreed period.

B
Bankruptcy
Occurs when an individual is deemed insolvent by a County court under the provisions of the Insolvency Act 1986. This remains in force for three years.  Most lenders have a clause in their mortgage conditions which gives them a right to possession on bankruptcy.  This is seldom acted upon unless the account goes into arrears.

Betterment clause
In property insurance this reserves the right of the insurance company to reduce the amount paid in respect of a claim so that the claimant is no better or worse off.

Building Societies Commission
A body established under Section 1 of the Building societies Act 1986 to regulate the activities of building societies.

Buildmark
The scheme of the National House Building Scheme to protect against defects.

C
Capital adequacy
Determined by looking at the risk profile of an institution's assets, this requirement is laid down by regulators to comply with a specified capital requirement.

Captive insurer
An insurance company with the purpose of providing insurance to its parent company.  Societies can solely own a life assurance company but cannot own more than 15% of a general insurer unless it is in connection with mortgage indemnity guarantees.

Capital reduction
Occurs when a borrower makes a lump sum payment towards the capital owed on a mortgage.  Also known as a partial redemption, it often has a minimum permitted amount.

Centralised lenders
Organisations which lend from a single office or through a network of introducers. 

Chattels
A term used to describe possessions which are moveable, such as furniture.

Cherry picking
Where businesses target specific areas of the market to the exclusion of other less attractive areas.

Classification of assets
There are three classes of assets which Building Societies can hold as laid out in the Building Societies act 1986.  Class 1 assets are fully secured residential loans. Class 2 assets are mostly corporate loans.  Class 3 assets are other loans and the value of investments in subsidiary bodies.

Clogging the equity of redemption
The act of preventing the borrower from repaying the loan early. It is a right of a borrower to be able to redeem a loan at any time, although early repayment charges can be incurred.

Closing
The point at which the mortgage is signed and executed, also known as completion.

Closing date
In Scottish conveyancing the date by which offers for a property have to be received by the vendor's solicitor.

Common property
The Scottish equivalent of tenancy in common, where each person's share in the property is clearly defined. On death the assets pass to the estate not the other parties.

Completion
The point at which the mortgage is signed and executed and all its conditions come into effect. The deeds are handed over to the purchaser and the balance of the purchase price is paid to the seller.

Consent to mortgage form
Lenders require this form for any resident over the age of 17 who is not party to the mortgage.  It waves any right of residence they may have, enabling the lender to obtain vacant possession in the case of default.

Consolidation
The right of a lender in whom two or more mortgages are vested to refuse one mortgage to be redeemed unless the others are also redeemed. This protects the lender.

Consumer Credit Act 2004
This regulates the sale of certain secured and unsecured lendings below £25,000 and not including loans for house purchases. There are set procedures for pre loan administration, cooling off periods and default arrangements.

Contributory mortgage
Where there is more than one lender.

Conveyance
A method of transfer of property.

Cooling off periods
A period before finalisation of a loan in which the borrower has time to reconsider, and where the lender is not allowed to contact him.

Corporeal property
Physical property which can be seen and touched.  Tangible property.

Council of Mortgage Lenders
A trade body which represents building societies, banks and other mortgage lenders, providing a powerful lobby group on lending issues.

Court of Protection
A court which appoints a person to represent those who are mentally incapacitated.

Covenants
Enforceable promises contained in deeds. They can be positive where the person must do something, or negative where they must not do something.

Credit bureau
An organization which keeps credit histories of people in order to advise relevant parties as to their credit status.

Credit Scoring
This is used to estimate the degree of risk involved in lending to a particular person.

Curator bonis
A person appointed under Scots law to represent the interests of the mentally incapacitated.

D
Deed of postponement
An agreement where the second mortgage postpones the priority of its mortgage in favour of a further charge taken by the first.

Default notice
Where the borrower is in default on a regulated mortgage this notice must be issued by the lender in accordance with the Consumer Credit Act 1974.  It sets out the nature of the default and how the borrower can rectify this.

E
Early repayment charge>
This is charged often on early repayment of a loan, often as a percentage of the amount being paid to redeem.

Easement
Rights of the owner of land over the land of another.

Endowment mortgage
This is an interest only mortgage where the borrower pays into an endowment policy in the hope it will pay off their mortgage balance at the end of the mortgage term.  This is not so popular in recent years.

Enforcement Order
An order issued by a local authority to carry out alterations to a property.

Enfranchisement
When a leaseholder buys the freehold of the property he is leasing.

Equity of redemption
An interest in the land of the mortgagor has.  The mortgagor has the right to redeem the mortgage or sell the land.

Excess
An amount of an insurance claim which has to be met from the policy holder's own resources.

Exclusion
A condition attached to an insurance policy where specific things are excluded.

F
Feudal estate
The principal form of land tenure in Scotland.

Forfeiture
Where a leaseholder does not comply with all the terms of the lease and thereby forfeits all rights of ownership of that lease.

Freehold
The highest and most secure type of land ownership rights.

Foreclosure
A legal remedy on default which is not used often in the UK. A foreclosure order meant the lender would keep any profit from a sale of property.

Full endowment mortgage
An interest only mortgage through which capital is repaid via the proceeds of an endowment life assurance policy.

Full structural survey
A comprehensive report by a qualified surveyor on the condition of a property you are interested in purchasing, which gives peace of mind as all matters affecting value and condition are reported on.

Fungibles
Assets which can be measured and replaced by equal quantities of the same e.g. cash.

G
Good leasehold
One of four classes of land which can be registered at the Land Registry. There is no guarantee however that the lease has been validly granted.

Ground rent
A sum paid by a leaseholder to the freeholder in respect of a leasehold property.  It is usually paid annually.

Guardian
In Scots law a person who can enter into a contract on behalf of a minor.

Guarantor
A person who promises to be answerable for the debt of another.

H
Heritable security
The main way of securing rights over property in Scotland.

Higher Lending Charge
A borrower borrowing typically over 75% of the purchase price may have to pay a higher lending charge to the lender. The lender may then use some or all of this to purchase an insurance policy which will protect them in the event of repossession.

Home Buyer's Report
A report on the condition of a property you are interested in purchasing by a qualified surveyor or similar person. This is less thorough than a full structural survey but is reasonably detailed.

Home free scheme
An advisory scheme in Scotland set up to provide advice to buyers and sellers of property.

Housing Associations
Non profit making organizations which provide housing for sale or rental.

I
Income multiple
The number by which lenders multiply gross annual salary in order to determine the maximum borrowing capability of an applicant.

Income Support - Mortgage Interest (ISMI)
Support paid by the government after a qualifying period to unemployed borrowers.  It is means tested.

Incorporeal property
Rights which are intangible, such as debts.

Index linked mortgage
A method of repayment where the size of the loan is index linked and therefore the repayments are index linked also.  This means the loan borrowed can be higher than it might have been otherwise.

Index linking
Where household policies are linked to inflation with adjustments each year accordingly.

Insolvency
When a person or organization cannot meet its financial obligations when they are due, or when assets are smaller than liabilities.

J
Joint property
In Scots law, property where two or more people have ownership.  E.g. a joint bank account.  On death the property passes to the surviving party.

Joint tenancy
Where two or more people own a piece of land in common. On the death of one party the land passes to the other owners.

Jura in re aliena
A Scots law term to describe the rights of someone over the property of another.

L
Land charges
Various different classes of charge can be registered at the Land Charges Registry if the title of the property is unregistered.

Land Charges Registry
Where rights over unregistered land may be noted. When such land changes hands this must be searched to determine whether rights exist over the land.

Land Registry
The body responsible for recording details of land in England and Wales.

Land Register of Scotland
The body responsible for recording details of land in Scotland. 

Lands Tribunal of Scotland
A body to which disputes over land ownership or rights over land can be referred.

Leasehold
A form of land tenure where a person has rights over a piece of land for a specific period, known as the lease term. Leases can be extended if necessary, and leaseholders have the right to buy the freehold if the lease is over 21 years in length.

Legal charge
The main type of mortgage deed in England and Wales.

Legal date of redemption
Many powers or mortgagees only come into force when the legal term of redemption has passed.  This is a date shortly after the mortgage is completed.

Low cost endowment policy
The most commonly used policy used to pay off a mortgage during the 1980s but now not so popular.

M
Memorandum
The document via which a limited company or building society defines its powers and relationship with the outside world.  In lending it determines if the firm can borrow and how much.

Modifying agreement
An agreement regulated by the Consumer credit act 1974 which regulates the conditions of a loan.

Mortgage approval certificate
A certificate issued to indicate approval for a mortgage on condition a suitable property is found.

Mortgage deed
The legally binding contract between lender and borrower.

Mortgage protection
Diminishing term life assurance which is designed to pay off the mortgage in the event of death.

Moveable property
Anything other than land, i.e. things which can be moved.

Miras
This was withdrawn in April 2000 and stood for mortgage interest relief at source. It meant borrowers paid interest net of tax relief to the lender.



Mortgagee
The lender.

Mortgagor
The borrower.

N
National House Building Council
The NHBC is a builder's federation which provides protection against building defects on new houses.

Negative equity
Where the outstanding loan is higher than the market value of the mortgaged property .

Negligence
A tort which arises when a person owing a duty of care to someone breaches that duty, which results in loss or damage to that person.  The outcome can be an award for damages.

New for old
A feature of some insurance policies where goods can be claimed for at replacement rather than historic cost.

Non est factum
A basis of a claim which can be made to deny a contract by one seeking to avoid its conditions.

Non-fungibles
Assets which cannot be replaced exactly e.g. works of art.

O
Offer of advance
The formal statement by a lender to a mortgage applicant of the loan amount it is prepared to make and the terms and conditions of that loan. It is non binding.

Office of Fair Trading
A government body responsible for ensuring fair trading. The OFT regulates activities governed by the Consumer Credit act 1974.

Official Receiver
A public servant appointed to administer cases of insolvency.

Other security
Forms of security over and above the property itself. Most commonly this is an MIG.

P
Panel valuer
An independent valuer with whom a lender will arrange inspections of property to determine the adequacy of security of loans.

Part redemption
Occurs when the borrower makes a lump sum capital repayment in part settlement of a loan.  There may be a minimum allowable amount which can be part redeemed.

Pension mortgage
An interest only mortgage where the capital is paid off through the proceeds of a lump sum from a personal pension. The arrangement provides for a pension after the mortgage is redeemed.

PEP/ISA mortgage
A mortgage where the capital is repaid via the proceeds of a personal equity plan, or an individual savings account which replaced PEPs.  This is a tax efficient method of repayment.

Positive covenant
A condition applying to land which specifies certain actions to be taken by the owner, such as maintenance of the boundaries.

Possession
The right of the mortgagee to take possession of the property to protect his position.

Possessory title
An occupier of land can register this title at the Land Registry. The occupier then has "squatter's rights" to the land if his position is unchallenged for 12 years following the registration.

Power of sale
A legal remedy of a mortgage where the debt is repaid by selling the property.

Protected loan
Prior to 1988 any number of people occupying a property could claim Miras relief, except married couples. Entitlement has now changed but loans completed before that date continue to attract relief on the original basis unless circumstances change.

Provisions
Amounts set aside in anticipation of bad debts and losses in the accounts of the lender.

Puisne mortgage
A legal mortgage not supported by the deposit of title deeds.

Q
Qualified title
One of four classes of title which can be registered at the Land Registry. Qualified indicates some defect in the title.

R
Receiver
One who acts on behalf of a lender in respect of a repossessed property. The receiver has to collect income due and these funds must be applied to the mortgage account.

Redemption
The act of paying off a loan.

Red lining
The practice of refusing business from certain geographical areas considered to be high risk.

Register of Sasines
The register of heritable security in Scotland.

Release of part security
When the lender agrees to release part of the security for an advance. E.g. to permit widening of the road.

Remortgage
A mortgage which replaces a previous mortgage.

Restrictive covenant
A condition applying to land which specifies things an owner is not allowed to do.

Retention
Where a lender holds back a portion of the advance pending work to be carried out by the mortgagor.

Rules
The internal constitution of an organization including a building society.  They sey down various conditions such as election of officers etc.

S
Scottish Homes
The regulatory and supervisory body for housing associations in Scotland.

Searches
These are usually carried out by the solicitor acting for the purchaser of a property. The purpose is to establish whether there are any concerns which might adversely affect the value of the property.

Secured second advances
A term used when a top up loan is taken out as a separate item from the original loan.

Settlement
Completion of the mortgage, from when the contract becomes effective.

Settlement fees
Fees charged for early redemption of fixed rate mortgages.

Shared ownership
Enables a mortgagor to buy part of a property when the rest is owned by a housing association. Rent is paid on the part owned by the housing association. The borrower is usually able to buy further portions of the property in what is known as staircasing.

Specialised mortgage houses.
Another term for centralised lenders.

Squatter's rights
See possessory title

Stabilised payment mortgage
The borrower selects an interest rate from within a given range. The loan is then recalulcated at a future date and any under/over payment is made good.

Staircasing
See shared ownership mortgages.

Stamp duty
A tax paid by the purchaser of the property on conveyancing.  It is related to the price paid by the purchaser.

Standard security
The main type of mortgage deed used in Scotland.

Status
A generic term referring to anything affecting credit worthiness of a borrower.

Subrogation
The substitution of one person or thing for another. E.g .in insurance the insurer who has to pay out can subrogate the lender and sue the borrower for the amount paid out.

Sue on personal covenant
The right of the mortgage to sue a borrower for any outstanding debt.

Surety
Another name for guarantor.

T
Tenancy in common
Where property is owned by more than one person in a specific ratio. They have undivided possession but several freeholds. On the death of one person his share passes to the estate not the other tenants in common.

Transfer of equity
Adding or removing a party from a mortgage, such as in a separation.

Transfer of mortgage
Transferring the rights of the lender to another institution.

TSM
Transfer subject to mortgage, which means transfer of equity.

U
Ultra vires
"Outside the powers". This is relevant when lending to corporate entities which may not be allowed to borrow under their Memorandum of Association.

Undertaking
An undertaking is a condition of mortgage where the borrower is obliged to carry out certain works by a certain date on completion of the mortgage.

Unit linked endowment policy
The capital element of the mortgage is repaid by the proceeds of a unit linked policy. These are high risk but can give high performance.

V
Vacation
The release of the borrower from covenants in the mortgage when the borrower redeems the loan.

Valuation
The assessed value of the property offered as security to the mortgage.

Valuer
Usually professional architects, or chartered surveyors, this is the person appointed to value a property on behalf of the lender.

Vicarious liability
An institution can be found to be liable for negligence if one of its employees is negligent.

Voluntary housing sector
Housing associations, housing societies, and similar organisations.

Z
Zero coupon (interest) mortgages
The return is expressed in terms of a higher amount of capital payable at the end of the mortgage term than that which is borrowed.