The Better-Mortgages uk mortgage terminology glossary (I)

As with any industry, the world of mortgages has it's own language and definitions. Use the definitions in this glossary to look up uk mortgage terminology you are not familiar with.

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Income multiple

The factor by which lenders will multiply the gross annual salary of mortgage applicants in order to determine the maximum borrowing capability. In recent years, many lenders have replaced  the Income multiple by 'affordability' calculations. While this can often be more favourable than income multiples for some people, each lender tends to use their own affordability parameters and so it's no longer as easy to quickly calculate an exact amount of potential borrowing.

Income protection insurance

If you are prevented from earning an income due to accident sickness or involuntary unemployment, Income protection insurance is designed to pay you a monthly income over an agreed period, . If your illness becomes long term, there is a type of income protection insurance which will extends the period of payment until your retirement age.

Income Support - Mortgage Interest ( ISMI )

After a qualifying period, mortgage borrowers who are unemployed can claim support from the government called Income Support - Mortgage Interest to help with mortgage payments.  ISMI is means tested and not available to everyone.

Incorporeal property

Rights which are intangible are called Incorporeal property. these can be items such as debts, shares in a company or a lease.

Independent financial adviser ( IFA )

A person who advises on financial matters including any or all of mortgages, insurance and investments. An Independent financial adviser ( IFA ) cannot be truly regarded as giving independent advice if any part of their income is derived from the providers of the products they recommend, since their may be a conflict of interest between the IFA and their customer regarding the IFA's recommendation and any commission they earn from that recommendation. An independent IFA will always offer a 'fee-only' service option where they charge the customer a set fee and pay all commissions received from the product provider for the product recommended back to the customer.

Index-linked mortgage

A method of repayment which enables the lender to index-link a loan to some measure of inflation, enabling the borrower to obtain a higher loan than would otherwise be possible. The mortgage repayments would also effectively be index-linked, on the assumption that as inflation rises, wages tend to rise, and it becomes easier over time to manage the mortgage repayments. An Index-linked mortgage only really works when the property market is rising.

Index-linking

Most household policies are index-linked to inflation, with the amount insured and the premium adjusted accordingly each year This Index-linking practice assists in avoiding or mitigating the problem of being underinsured.

Individual savings account ( ISA )

This is an account which allows you to save money in a tax efficient environment. You are allowed to set up Individual savings account each tax year up to a maximum of £7000, which can be part in a cash-only ISA (£3000 max) and part in a 'stocks and shares' ISA (£4000 max.) or all in a 'stocks and shares' ISA (£7000 max.). For a cash-only ISA you currently gain tax relief on interest income. For a stocks and shares ISA you currently gain tax relief on capital gains but pay basic rate tax on income from dividend and interest on cash held. This may change in each future Government Budget Review. 

A series of 'stocks and shares'  ISA's taken out in subsequent years can be used to repay an interest only mortgage at the end of the term. The hope is that the long term tax free gains on stock market investment will make enough to cover your mortgage provided you invest in enough ISA's over the term. It is unlikely that investing in a cash-only ISA each year would accumulate enough to pay off any but a relatively small mortgage. If you are considering using cash see Flexible mortgages. 

Insolvency

When a person or organisation cannot discharge their financial obligations within a reasonable time of them falling due, and where total liabilities exceed total assets, they are deemed to be insolvent. It is possible to get Insolvency assistance before these types of issue become too great, otherwise the final option is to be declared bankrupt.

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