The following glossary should help you understand some of the more unfamiliar terms you will come across on our mortgage and investment pages.
A-B-C-D-E-F-G-H-I-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z
Administration
Fee - This is a fee charged which is not refundable
if the mortgage application does not proceed.
A.E.R. - Annual Equivalent Rate - This illustrates what the interest
rate would be if the interest was paid onto the account and compounded
each year. As every advert for savings products will contain an AER the
consumer will be able to compare more easily the expected return from
differing products.
Annual Percentage Rate (APR)- This illustrates the true cost of borrowing and adjusts the notional interest rate
to take account of all the initial fees and ongoing costs to reflect the
real cost of borrowing throughout the entire mortgage term.
Arrangement Fee - This is a fee charged in order to access particular mortgage deals. Arrangement fees particularly apply if you are looking for a fixed rate or discounted rate mortgage and these are usually payable up front or added to the loan at completion.
Arrears - Contracted mortgage payment not made by the due
date. Applicants who have arrears on a current mortgage may experience
problems if attempting to arrange a new mortgage through the mainstream
lenders.
Bank of England - Is the UK's central bank who are partially responsible for the regulation
of the banking industry , issuing of money and more recently the control
of inflation, with the formation of the Monetary Policy Committee under
the new Labour government.
Base Rate - The minimum rate at which banks tend to be prepared to lend
money, altered by the central bank's dealing rates with the discount
houses. It forms the benchmark for all other interest rates.
Basic Rate of Tax - The basic rate of income tax as set in the
annual budget.
Base Rate Tracker - A Base Rate Tracker is an investment or mortgage with an interest rate that tracks the Bank of England's base lending rate. Some tracker products revert to the lenders standard variable rate after an incentive period or they can be for the whole of the term. Every time the Bank of England changes its base rate, your interest rate will change by exactly the same amount.
Basis Point - Unit of measure (usually one hundredth of a percentage
point) used to express movements in interest rates, foreign rates or bond
yields.
Beneficiary - The recipient of the assets subject to a Will or
Trust. Essentially the nominated receiver of the benefit from the proceeds
of a Will/Trust usually specified in the documentation.
Bonus - Additional payment of interest if defined conditions are
met, typically if an investment is held for a certain term or if withdrawals
are kept under a certain limit.
BSA - Building Societies Association - The trade association representing
interests of member societies. For more information, visit http://www.bsa.org.uk
Capital and Interest Mortgage - ( see Repayment Mortgage )
Capital - Amount of money invested , not including interest earned
that may have been added to it.
Capital Raising - Normally refers to a Remortgage when additional
funds are taken over and above the amount required to repay the existing
mortgage debt which is then used for personal finance purposes.
Capped Rate - A capped rate has elements of both a fixed and
variable rate. The interest rate is guaranteed not to rise above a set
level within the capped rate period but if the normal variable mortgage
rate is below the capped rate then the variable rate is charged. This
can gives the 'best of both worlds' as the interest rate can fall but will
not rise above the capped rate. However, the level at which the cap is
fixed is usually higher than for a fixed rate mortgage for a comparable
period of time. Sometimes 'Cap and Collar' mortgages are offered and these
impose a minimum payment rate ( the collar ) in addition to the maximum
rate ( the cap ).
Cash Back - This is a product type whereby a cash sum of money
is repaid to the borrower at the start of the mortgage. Cash back deals
are also available in conjunction with some fixed or discounted rates
but the amount of the cash back will normally be reduced in these circumstances.
If a large cash back is being considered then it could, in some circumstances,
be liable to Capital Gains Tax ( refer to your accountant or local tax
office for clarification ). There will normally be early repayment charges
if the mortgage is repaid. Early repayment charges vary depending upon
the amount of the cashback. Typically if a cashback has been opened the interest rate charged to the loan will be the society's SVR.
Consumer Credit Act - An act which regulates lending for personal purposes and prescribes statutory safeguards.
Current Account - Another name for an instant access account offering
banking facilities such as cheque book , cash card, guarantee card and
automated payments (standing orders, direct debits etc). At present the
Society has no plans to introduce this type of account.
Conditional Insurance - This refers to insurance products which
some lenders will impose as a condition of their mortgage offer. This
could mean that the lender insists that accident, sickness and unemployment
cover is taken out or that combined buildings and contents insurance is
taken, or on their own.
County Court Judgment (CCJ) - A judgment for debt recorded at
a County Court. These judgments will be shown when the lender carries
out a credit search. If the debt has been repaid, subsequent to the judgment
being recorded, then the entry will be marked 'satisfied'. The appearance
of CCJ's on the credit register will greatly reduce mortgage options and
most lenders will insist that they are satisfied before considering
an application. Even with the judgment(s) satisfied few lenders are prepared
to consider lending other than for the most minor judgments.
Daily Interest - Interest is calculated on the balance of the account at the end of each day. Interest is then accrued daily and added to the account balance on the last day of every month. This means every cleared payment that is made reduces the mortgage balance and interest is recalculated on the reduced balance.
Discounted Rate - The lender agrees to reduce the standard variable rate by a certain percentage for a guaranteed period of time. The discounted rate will move up and down with the normal variable rate but the payment rate will retain the agreed differential below the variable rate for the agreed period of time. If a discounted rate is taken the lender will normally impose early repayment charges if the mortgage is repaid. Early repayment charges vary depending upon the amount of discount opened.
Early Repayment Charge - An additional charge made by the lender if the mortgage is repaid within a pre-agreed period of time. These have become increasingly common with the growth in fixed rate and heavily discounted products. They are generally applied to compensate the Society for the costs incurred in arranging the fixed rate or discounted mortgage schemes. The costs are spread over the term of the initial fixed rate or discount period and are recovered over the period of the fix or discount. Normally expressed as a percentage of the mortgage debt i.e. 5% of the mortgage outstanding if redeemed within the first seven years but can also be expressed as a number of months interest within a set period of years i.e. 6 months interest if redeemed within the first seven years.
Endowment Mortgage - An interest only mortgage supported by an
endowment policy. During the term of the mortgage monthly payments covering the interest charged on the
mortgage is paid to the lender. At the same time premiums are paid into
an endowment policy which should mature at the end of the mortgage term with the intention to repay the capital borrowed. There are no guarantees that the return at the end of the policy will repay the loan
Escalating - Interest rate that increases during the term of the
account, on defined dates and by agreed amounts.
Exchange of Contracts (NOT SCOTLAND) - This is the stage in the
property transaction at which legally binding contracts are exchanged
between the buyer and the seller. Once contracts are exchanged the vendor
becomes legally obliged to sell and the purchaser to buy on the terms
agreed.
Existing Liabilities - This term is used by lenders to define all
other finance commitments apart from the existing mortgage. This will
take into account such items as bank loans, HP, credit cards, maintenance
payments( to ex-spouse ) etc. Most lenders will take these items into
account when assessing how much they are prepared to lend and will usually
deduct 12 months payments from gross annual income before applying their
normal income multipliers.
Financial Services Compensation Scheme - This scheme is devised to protect private investors from loss as a result of the collapse of an investment company. Aditionally the Financial Services Compensations Scheme also covers mortgage advice and arranging. The Newcastle Building Society is a participant of the Financial Services Compensation Scheme established under the Financial Services and Markets Act 2000. Most investors are covered, including individuals and small firms. A small number of categories of shares and deposits are not covered (for example deferred shares - permanent interest bearing shares). Although most shares and deposits are denominated in sterling, all other currencies are covered. Find out more...
First Time Buyers (FTB) - Where a mortgage product is offered to first time buyers only. A first time buyer is a borrower who has never owned a property previously.
Fixed Rate (Mortgages) - The lender will fix the interest rate that they charge
at a set level for a fixed period of time. There are normally a whole
range of fixed rate products available which vary in terms from very short
periods (3 - 6 months ) up to the whole 25 year mortgage term. The lender
will normally charge early repayment charges if the mortgage is repaid.
Early repayment charges vary depending upon the mortgage product being
sold.
Fixed Rate (Investments) - The account holder receives a pre-determined
and unchanging rate of interest , usually on a bond or term account ,
giving the investor a known return for his capital deposit. The rate will
not change even if general base rates change.
Freehold (NOT SCOTLAND) - This describes the tenure of a property where ownership of the property and land is held indefinitely by the purchaser. A freehold gives the buyer the right to do as they like with their home, subject to law and planning controls.
FSA - Financial Services Authority. Financial Regulator answerable to HM Treasury, that ensures financial institutions comply with the Financial Services and Markets Act. For more information
visit http://www.fsa.gov.uk.
Further Advance - This is an additional loan made by the existing mortgage lender and secured by the first charge on the property. The Further Advance can be used for a variety of purposes ( subject to the lenders approval ) such as home improvement, purchase of freehold or purchasing a partners share of the equity in your home.
Gross Interest - The contractual rate of interest without or before
the deduction of any income tax liability. If interest is received gross
the investor takes the responsibility for discharging any tax liability
due to the Inland Revenue. However the interest will generally be paid
net unless a registration form is completed to comply with Inland Revenue
regulations.
Gross Monthly Payment - This is the monthly mortgage payment. This
figure will be shown on the mortgage offer and will represent the actual
payment to be made.
Guarantor - A guarantor is a person other than the borrower who
guarantees the mortgage repayments. A Guarantor can sometimes be used
to support a borrower who has insufficient income to qualify for a mortgage
in their own right. The Guarantor will normally need to have sufficient
income to support the new mortgage in its entirety after taking into account
any existing mortgage and other commitments they have personally. The
Guarantor becomes responsible for the whole mortgage debt if the borrower
defaults.
Her Majesty's Revenue and Customs (HMRC) - Government department responsible for assessment
and collection of direct taxation on items such as income, capital gains,
stamp duties, inheritance etc.
Higher Lending Charge - The higher lending charge, formerly known as a mortgage indemnity guarantee (MIG), is a fee charged by a mortgage lender where the amount borrowed exceeds a given percentage of the value of the property. This fee may be used by the lender to purchase an insurance policy designed to protect them against loss in the event of the borrower defaulting and ceasing to repay your mortgage. The fee may be insisted on by the lender at the start of the loan.
Higher Rate of Tax - Currently the highest rate of UK income tax. Not charged by the Society as we deduct tax under the lower rate of tax.
Home Buyers Report - A type of survey report which is more detailed than a Mortgage Valuation but not as in depth as a Full Structural Survey. A Home Buyers Report is often carried out by the proposed lenders surveyor and the report can then be used for the lender to replace the Mortgage Valuation in addition to acting 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. If in doubt talk to the surveyor you propose to use.
Home Reversion - A home reversion plan allows the borrower to surrender some or all of the ownership of your property in exchange for a lump sum of money and the right to remain living in the house, rent free, for as long as you live.
Incentive rate - A rate of interest charged for an initial period
to attract business to the provider. Typically this might be a lower APR
on credit cards for the first six months if existing balances are transferred
to them. After the incentive period the rates will revert to the normal
rates prevailing at that time.
Income Multiplier - Income Multipliers are used as one calculation
in determining how much mortgage lenders are prepared to lend on mortgage.
Individual Savings Accounts (ISA's)- Started on
April 6th, 1999 and replaced PEP's and TESSA's as a way of saving tax-free.
The main features are:
- ISA's are free of savings tax when invested via a Cash ISA.
- ISA's are available to UK residents aged over 16
Initial Interest - This figure is usually shown on the mortgage completion statement and refers to the amount of interest charged from the date that the funds are drawn down to the first repayment date. This has the effect of increasing the first mortgage payment and the amount of the initial interest payable will depend on the time in the month when the mortgage is completed.
Instant access - An account that allows withdrawals to be made
at anytime from investment accounts, without having to give any prior warning or notice and without
incurring any charge or interest penalty.
Interest Rate - The amount paid on the money deposited or the price
paid for borrowing money. The way it is debited or credited will vary
but the rate will usually be linked directly or indirectly to base rates.
Investment limit - The maximum amount that can be credited to an individual account. Usually if the limit is shown as £250,000 for example , this would be per person so that a joint account could attract up to £500,000. However this may not be the case for limited issue accounts.
Interest Only Mortgage - Interest only mortgages have become increasingly
popular in recent years. Interest only mortgages can be supported by an
endowment policy, pension plan or Pep in which case they are normally
referred to as an endowment, pension or Pep mortgage. An interest only
mortgage may, however, be arranged without the support of any particular
repayment vehicle. Many lenders will now accept payment of interest only
on the basis that the borrower makes their own arrangements to repay the
capital at or before the end of the mortgage term. This could be done
in a number of ways such as inheritance, sale of the property or from
the realisation of other assets.
Land Registry Fee - This is a fee charged by the Land Registry
to record a change in the registered title of Registered Land. The change
will normally be notified to the Land Registry by the solicitor acting
in the house purchase (or Remortgage ) and as such the Land Registry fee
will normally be payable to the solicitor and accounted for in his final
account.
Leasehold (NOT SCOTLAND) - This is the tenure that applies to most
flats and maisonettes in the UK (excluding Scotland). 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. The lease outlines
the responsibilities of the various lessees in a block and determines
the arrangements to be adopted for such things as upkeep of the common
areas and insurance of the property. Because these cross covenants are
required to avoid disagreements and confusion between the lessees only
leasehold flats and maisonettes are mortgagable. This should not be confused
with the situation where the freehold is owned by all the lessees in a
block and this will commonly be advertised as 'share of freehold'. Providing
individual leases exist for each lessee then this would normally be acceptable
to mortgage lenders. If in any doubt always take legal advice before proceeding.
Legal Completion - This refers to the time at which the legal ownership
of the property changes hands. This date will usually be 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 - LIBOR is the London Inter
Bank Offered Rate and is the rate at which banks lend money to each other.
LIBOR changes daily and a LIBOR linked mortgage will normally be adjusted
every three months. LIBOR linked rates are usually quoted as X% above
LIBOR.
Lifetime Mortgage - A lifetime mortgage allows the borrower to release a lump sum from the value of your property, with the amount released plus any interest accrued repaid out of your estate when you pass away or move into long-term care.
Loan to Value (LTV) - The loan to value is expressed
as a percentage and represents the relationship between the size of the
mortgage and the value of the property. For example a mortgage of £30,000
on a property valued at £40,000 would be shown as 75% LTV. This
is an important figure to look at when considering the various mortgage
options as the higher the LTV required the fewer the options.
Maturity date - Date on which the fixed interest or special conditions on an account end.
Maximum balance - See Investment limit.
Minimum balance - This indicates the minimum initial investment
acceptable to the account. Some accounts may allow the balance to fall
below this once it is operational.
Monthly Payment - This figure will be shown on both the mortgage
offer and mortgage completion statement and shows the actual amount of
the mortgage payment you will pay.
Mortgage Term - This is the number of years over which the mortgage
is arranged. If a capital and interest mortgage is being considered then
it is worth looking at shorter terms than the traditional 25 year mortgage
as considerable interest savings can be made by reducing the mortgage
term by even a couple of years.
Mortgage Valuation - This is the most basic form of survey and
is 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.
Mutual Society - An organisation owned by its members and run for
their benefit e.g. building societies, friendly
societies and some life insurance companies.
Net interest - Gross interest rate less the variable tax liability
for a basic and lower rate tax payer.
Non refundable / Not reclaimable - Tax status of account where interest
is paid net of basic rate tax but the tax cannot be reclaimed by non-taxpayers.
No Notice Account - An account where withdrawals may be requested
without having to give a notice period but where the receipt of funds
may be delayed due to the nature of the account i.e. postal and telephone
operated accounts which rely on the post or bank transfer system to deliver
the funds after a withdrawal request is made. This title is used to separate
these accounts from Instant Access accounts which again do not require
any notice on withdrawal but the funds can be received on demand at a
branch or cash machine.
Notice - Period of written notification that needs to be given
to make a withdrawal from an account. There is often a facility for earlier
access with an interest penalty.
Negative Equity - Appeared in the late 80's as a result of the
slump in property prices. This describes the situation where the value
of the property is less than the outstanding mortgage debt.
Offset Mortgage - An offset mortgage allows you to offset the interest usually earned on your savings to reduce the interest charged to your mortgage. By reducing the interest paid on your mortgage this could reduce the term of your loan. And because no interest is paid to your savings account there is no tax involved therefore offering a great benefit if you are a tax payer.
Ombudsman- The person responsible for settling any dispute or complaint
that is referred to them or escalates to them because the companies own
internal procedures have not resolved the problem. The Financial Ombudsman
Service can be contacted on 0845 080 1800 or visit http://www.financial-ombudsman.org.uk/.
P.C. Banking (or Internet Banking) - Facility to access your account via a computer modem
link. This usually allows you to check your balance, order statements
, cheque books etc
Part Endowment - This describes a mortgage where only part of it
is covered by an endowment policy. The balance could be arranged on an
interest only basis or more commonly on a capital and interest basis.
Payment Protection or A.S.U. - Accident, sickness and unemployment
insurance (sometimes referred to as A.S.R. - accident, sickness and redundancy
insurance ). This is an insurance policy which is taken out by the borrower
and protects against the borrower being unable to work for these reasons.
The policy will usually pay a percentage of the normal monthly mortgage
repayment (plus insurance) if the borrower is unable to work due to accident
/ sickness or unemployment / redundancy. These payments will normally
only be made for a limited period of time - typically 6/12 months or until
the borrower returns to work. The terms of these policies and the cost
vary considerably from company to company.
Personal allowance - The amount of income that can be earned before
the individual becomes liable to income tax. Personal allowances are set
each year by the Chancellor in the annual budget.
Postal Account - An account where any withdrawals or investments are made via the post. The bank or building society normally supply prepaid envelopes for this and some may offer additional facilities to enable instructions to be given via the telephone or fax.
Portable - This describes the ability to
move a particular mortgage product from one property to another in the
event of a property move. This is particularly important if a fixed, capped,
cash back or discounted product is taken where early repayment charges
are levied. If the product is not 'portable' then a house move would involve
the payment of early repayment charges even if another mortgage was taken
with the same lender. A portable mortgage means that the same scheme is
transferred to the new mortgage for the remainder of the original term
e.g. a 5 year fixed rate is taken which has early repayment charges within
the first five years. If the borrower decides to move after two years
then the same five year rate will apply to the new mortgage for the balance
of the remaining three years. If the original product was not portable,
however, then early repayment charges would be paid on repayment of the existing
mortgage and a new product would have to be taken for the new mortgage.
R85 - HMRC form that needs to be completed by UK Resident non-taxpayers
in order to receive payment of gross interest onto their accounts i.e.
without basic rate income tax deducted.
Remortgage - This is the process by which a mortgage on a property is moved from one lender to another. The new mortgage is used to repay the existing lender and at the same time additional funds may be raised for other purposes. Re mortgaging has become an increasingly popular way to take advantage of the competitive deals offered by lenders to attract new business. If a Remortgage is being considered then careful attention should be paid to the costs associated with arranging the Remortgage as well as the savings to be made on the monthly repayment ( the costs can sometimes erode any savings to be made ). A check should also be made with the existing lender to ensure that there are no early repayment charges.
Repayment Mortgage - Also called a Capital and Interest mortgage. With this type of mortgage the monthly
repayment includes an element of the capital sum borrowed in addition
to the interest charged. In the early years of the mortgage the majority
of the monthly repayment consists of interest with only a small part repaying
the capital. However, as the debt gradually reduces the element of capital
increases and the interest element reduces, so although the monthly repayment
stays the same ( assuming interest rate remain unaltered ) the debt starts
to reduce more quickly as the term of the mortgage progresses. On a 25
year term mortgage it would not be unusual to still owe over 50% of the
original debt after the first 15 years. Providing the correct monthly
repayments are made on their due dates this mortgage will guarantee to
repay the total mortgage debt at the end of the mortgage term.
Retention - This relates to monies withheld by lenders until certain
mortgage conditions are met. This will normally relate to repairs or improvements
to the property that the lender is insisting on.
Self Assessment - Tax system introduced in April 1996 where certain
individuals are responsible for working out their own tax liability and
reporting to the Inland Revenue. Those affected are typically the self-employed,
partners, pensioners and company directors and higher rate tax payers.
Stamp duty - This is a tax which is levied on the purchase of property.
The tax is paid by purchasers and is currently levied at the following
rates :
Nil up to property value of £125,000
1% of property value £125,001 - £250,000
3% of property value £250,001 - £500,000
4% of property value £500,001 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 £350,000 at 3% will cost £10,500 in stamp duty.
Standard Variable Rate - A standard variable rate mortgage offers the option of paying the lender's standard variable rate (SVR) throughout the mortgage term. This rate increases and decreases usually in line with the Bank of England's base rate. With a standard variable rate mortgage the borrowers interest payments are likely to rise or fall every time there is a change in the Bank of England's base rate. However, the lender may not pass on the change in base rate immediately. Most borrowers are transferred to their lender's SVR once their initial incentive rate period comes to and end.
Structural Survey - This is the most detailed type of survey report
normally undertaken in connection with a House Purchase. If a Structural
survey is opted for then the lender will also need to have a mortgage
valuation carried out for their own purposes and the borrower will be
responsible for both fees. An alternative may be a Home Buyers Report
which will cover both the borrower and the lender but advice should be
taken from a qualified surveyor who will be able to advise on individual
properties and circumstances.
Tax-free - Interest earned or credited without any savings tax liability.
Tax Return - Annual return supplied by the individual to the Inland
Revenue detailing all incomes , from employment, investments, benefits
and perks, in addition to allowable expenses. The tax return forms the
basis on which the individual's tax liability is calculated.
Term - Length of time for which an account has to be held or for which attracts an agreed amount of interest.
Transfer - Movement of account from one provider to another or
from one account to another with the same institution.
Trustee - Person responsible for administering the assets for the
benefit of the beneficiaries.
Term Assurance - This is life assurance which pays out the insured
sum on the death of the policy holder providing it occurs within the policy
term. This is a common method to protect the mortgage in the event of
death and to ensure that the mortgage debt is repaid. The most common
types of this insurance are Mortgage Protection or Level Term Assurance.
Mortgage protection is normally used in connection with a capital and
interest mortgage and the level of the insured cover reduces in line with
the reduction in the mortgage debt. Level Term assurance is more likely
to be used in connection with an interest only mortgage as the level of
cover remains constant as does the mortgage debt. With Term Assurance
cover there is no payout if the policyholder survives the policy term
and the policy simply lapses with no value. This factor makes this type
of cover relatively inexpensive.
Variable Rate - This is the traditional way that mortgages were
arranged before the concept of fixed rates. A variable rate will fluctuate
up and down to reflect the true cost of borrowing. Some variable rates
may be discounted for a period of time.