CeMAP Module 2 key terms

The UK regulator that oversees how mortgage lenders, advisers and brokers behave towards customers. It writes the rules on advice, disclosure, affordability and arrears handling, authorises firms and individuals, and can fine or ban those that breach its requirements.

The part of the Bank of England that supervises the financial soundness of banks, building societies and insurers. For mortgage lending it sets capital and prudential standards, while conduct matters sit with the FCA.

European legislation brought into UK rules in 2016 covering residential mortgage lending. It introduced the standardised disclosure document, a mandatory affordability assessment, rules on foreign currency loans and a right to repay early in certain circumstances.

The FCA rulebook chapter that sets detailed requirements for firms advising on, arranging or administering mortgages. It covers financial promotion, disclosure, responsible lending and affordability, arrears handling, charges and the treatment of customers in difficulty.

A regulatory framework requiring firms to give named senior individuals clearly defined responsibilities, and to certify each year that staff in significant roles are fit and proper to carry out their work.

A free, independent service that settles complaints consumers cannot resolve with a financial firm within eight weeks. Its decisions are binding on the firm, and it can require compensation for poor mortgage advice or unfair treatment.

A mandatory pre-contract document for regulated mortgage contracts. It presents the loan amount, interest rate, APR, monthly payments, total repayable and key risks in a fixed format so offers from different lenders can be compared easily.

An FCA rule obliging firms to act in good faith and deliver good outcomes for retail customers in four areas: products and services, price and value, consumer understanding, and consumer support. It raises the standard of care expected throughout the mortgage journey.

A mortgage in which every monthly payment covers the interest due plus a portion of the original loan. The balance reduces steadily over the term, so the debt is fully cleared by the final payment with no separate repayment plan needed.

A mortgage where monthly payments cover interest alone, leaving the original loan untouched. The borrower must repay the capital at the end of the term from a separate investment, the sale of the property or other funds, and must show a credible repayment strategy.

A mortgage whose interest rate is set for a defined period, usually two to ten years, so payments stay the same whatever happens to market rates. Early repayment charges normally apply during the fixed period, after which the loan reverts to the lender's variable rate.

A mortgage whose rate moves automatically in line with a reference rate, typically the Bank of England base rate, plus or minus a fixed margin. Payments rise and fall as the reference rate changes, and many trackers carry early repayment charges.

The lender's own default variable rate, which a borrower usually moves onto when a fixed, tracker or discounted deal finishes. The lender sets and can change it at any time, and it is generally higher than initial deal rates.

A mortgage linked to a savings or current account, where the credit balance is set against the mortgage debt each day to cut the interest charged. The borrower keeps access to the savings but earns little or no interest on them.

A low-cost home ownership scheme in which the buyer purchases a share of a property, often from a housing association, and pays rent on the remainder. Further shares can usually be bought later through a process known as staircasing.

A type of equity release available to older homeowners, where a loan secured on the home is repaid from the sale proceeds when the borrower dies or moves into long-term care. Interest can be rolled up, and a no-negative-equity guarantee usually applies.

A loan used to buy or refinance a property that will be rented to tenants. It is normally interest-only and assessed largely on the rental income the property generates, typically requiring rent to cover the mortgage payment by a set margin.

The mortgage amount shown as a percentage of the property's value. A loan of 150,000 pounds on a property worth 200,000 pounds is 75 per cent LTV; higher figures mean the lender carries more risk and usually attract higher rates.

The lender's check that the borrower can sustain the mortgage payments now and if rates rise, based on verified income, credit commitments, essential household spending and remaining disposable income. It is a regulatory requirement for regulated mortgage contracts.

A check that applies a higher assumed interest rate to the proposed payments, to see whether the borrower could still afford the mortgage after a rate rise. Lenders also test whether the borrower could cope with a fall in income.

An early indication from a lender of how much it may be willing to lend, based on limited information and typically a credit search. It is not a binding offer and remains subject to full underwriting and valuation.

The lender's formal, legally binding commitment to lend on stated terms. Issued after valuation and underwriting, it sets out the amount, rate, term, monthly payment and conditions, and usually has an expiry date.

The lender's assessment of an application before agreeing to lend. It verifies income and identity, reviews credit history and existing commitments, tests affordability and considers the property as security, then sets the terms and any conditions.

A fee charged when a borrower repays all or part of the mortgage during a fixed or discounted rate period. It compensates the lender for lost interest and is usually calculated as a percentage of the amount repaid, tapering over the deal period.

A basic inspection commissioned and paid for by the lender to confirm the property is adequate security for the loan. It is not a survey, is not designed to highlight defects to the borrower, and its figure may differ from the purchase price.

Outright ownership of a property and the land it stands on, for an unlimited period. The owner controls the property subject to law, planning rules and any covenants affecting the title, and has no landlord to answer to.

Ownership of a property for a fixed number of years under a lease, with the freeholder keeping the land. The leaseholder pays ground rent and service charges, must follow lease conditions, and should check the remaining term before buying.

A form of co-ownership in which two or more people hold the property as a single unit with no separate shares. If one owner dies, the property passes automatically to the surviving owner, regardless of any will.

A form of co-ownership in which each owner holds a defined share, which need not be equal. A share can be left to someone else in a will rather than passing automatically to the other owners on death.

A promise recorded against the title that limits how the land or property may be used, for example banning business use or further building. It may be enforceable by neighbouring owners and can affect value or mortgageability.

A property officially designated as being of special architectural or historic interest. Works that affect its character need listed building consent, and carrying out unauthorised alterations is a criminal offence, which can complicate lending and insurance.

A mid-level survey, formerly called the HomeBuyer Survey and Valuation. It reports on the property's condition using a traffic-light rating, flags urgent defects and matters needing further investigation, and includes a valuation and reinstatement cost.

The amount of mortgage payment that has fallen due but not been paid. Lenders must treat borrowers in arrears fairly, communicate clearly, offer reasonable options and add only charges that reflect actual administrative cost.

A lender's agreement to vary the mortgage temporarily or permanently to help a borrower in financial difficulty, for example by accepting reduced payments, extending the term or switching to interest-only, instead of moving straight to possession action.

A period agreed with the lender during which the borrower makes no payments, or reduced payments. Interest normally continues to build up, so the balance or the remaining term increases, and missed payments must usually be made up later.

Rules a lender must follow before starting court proceedings over mortgage arrears. The lender must contact the borrower, consider reasonable requests about payment, explain alternatives, signpost free debt advice and allow time to respond.

A court order giving the lender the right to possession but postponing it on terms, usually that the borrower pays the normal instalment plus an agreed sum off the arrears. If the borrower keeps to the terms the order is not enforced.

Moving an existing mortgage to a new lender, or renegotiating with the current one, without moving home. It is typically done to obtain a lower rate, release equity or change the loan structure, and involves a fresh affordability assessment and valuation.

A change to the people named on the mortgage and the title, such as adding or removing a partner after a relationship change. It needs the lender's consent, fresh affordability checks on those remaining, and legal work to amend the title.