We understand that the world of finance may be a little bewildering. This Glossary is designed to help you by clarifying terms which you may find in our application and legal processes.
- A
-
Amortised Repayments
Repayments of capital and interest which will fully repay the outstanding loan over the agreed term. The loan payment consists of a portion which is used to pay the interest on the loan, with the remainder of the payment being applied to the capital. The interest portion will decrease as the loan balance decreases, and the amount applied to capital increases so that the loan is paid off (amortised) in the specific time (loan term). Providing the interest rate does not change the total amount of the repayment will be the same throughout the loan term.
-
Assignment
An Assignment of a life policy will usually be required for loans to sole practitioners or a husband and wife partnership. Once assigned any proceeds that become payable from the policy will be applied in reduction or repayment of the loan as opposed to being paid to the policy owner. In order to assign the life policy to the lender, The General Practice Finance Corporation, the policy owner will need to sign a deed of Assignment and forward us the original life policy document. We will then advise the Insurance Company of the Assignment. In the event of the loan being repaid early or by some other means, the life policy will be reassigned to the policy owner and the life policy document returned to them.
- C
-
Completion
The day on which the loan legally completes. The legal documents relating to the loan will be dated with this date and repayment of the loan will begin.
-
Composite Rate
A fixed interest rate which is calculated when a borrower wishes to adjust the terms applied to an existing fixed rate loan. The composite fixed interest rate ensures that the present value of the mortgage remains the same before and after the alterations.
-
Cross-charging
A legal process whereby loans are linked together to give the lender wider powers of recourse. Hence if a shortfall was seen on the sale of one property this could be made up from surpluses seen on other loans within the cross charge. It is also a useful underwriting tool in that a shortfall in one loan’s cashflow can be supplemented by surplus rent from a property in another loan within the cross charge.
- D
-
Deed of Priority
A legal document which will be needed if the surgery premises being charged to us for the loan are already charged to another lender. The purpose of the Deed of Priority is to regulate priority between the existing lender and us so that in the unlikely event of default under either legal charge and repossession of the surgery premises it is clear which of the two loans will be repaid first out of the sale proceeds. The Deed of Priority will need to be signed by us, the existing lender, the Doctor(s) taking out the loan and, if different, the Doctor(s) taking out the loan and, if difference, the property owners.
- E
-
Early Repayment
Early repayment means repayment of all or any part of the Loan prior to the end of the loan term. An early repayment fee may be payable on fixed rate loans depending upon the prevailing interest rates at the time of repayment.
- F
-
Fees
Arrangement fee - is the commitment or administration fee payable to us, as lender, for underwriting the mortgage and reserving the mortgage funds.
The arrangement fee can vary from lender to lender but generally is a fraction of a percent of the loan amount.
Legal fees - cover the surveyor’s cost of preparing the valuation report(s) for the property (properties) which are to be taken as security for the mortgage. These are payable by the borrower direct to the surveyor.
Valuation fees – cover the surveyor’s cost of preparing the valuation report(s) for the property (properties) which are to be taken as security for the mortgage. These are payable by the borrower direct to the surveyor.
Fixed Interest Rate – The interest rate will be fixed at a margin above the gross redemption yield on an appropriate government stock. The rate will remain fixed for the term of the loan and, should you wish to repay the loan prior to the end of the term, you should be aware there may be an early repayment fee.
- G
-
Gilt Stock
Gilts are UK Government securities issued by HM Treasury and listed on the London Stock Exchange. They are denoted by their coupon rate and year of maturity e.g. Treasury 4.75% 2020 gilt.
They form the basis of our fixed rate lending. At completion, interest rates are fixed for the whole duration of the loan and comprise a margin added to the interest rate applicable for the relevant gilt on the date of completion. The gilt used is the closest linked to the average term of the mortgage.
-
Guarantor
A person who enters into a secondary agreement to become liable for the debt of the borrower(s) if the borrower(s) defaults.
- L
-
Loan offer
A legal document offering to advance the loan amount, and detailing the terms and conditions, which is issued to the applicant(s) once a loan application has been approved.
-
Loan to value
The relationship between the loan outstanding and the value of the property charged as security, e.g. loan £700,000 and value of security £1m = LTV of 70%. Loans will normally be limited to 100% of the surgery valuation for Group practices and up to 90% for sole practitioners and husband and wife partnerships.
- M
-
Margin
The margin used represents the return/premium we receive for our funders, in return for the higher risk of investing in commercial property rather than directly in gilt edged securities.
-
Maturity
The maturity date is the end date of the loan term.
-
Money Laundering Regulations
As a Financial Services provider, we are required to verify the identity and address of all applicants. For full details of our requirements.
- P
-
Privity of Contract
The rules of Privity of Contract were changed by the Landlord and Tenant (Covenants) Act 1995 which came into force on the 1 January 1996.
For Leases granted before this date, the original tenant remains liable for the covenants in the lease throughout the term of the lease, even after assignment of the lease to a third party.
For Leases granted after this date, the tenant is only liable for the covenants in the lease for the duration of the first assignment to a third party and no further assignments.
-
Property Insurance Questionnaire
A questionnaire included with most loan offers requesting basic information regarding any existing buildings insurance policy.
- R
-
RPI Uplifts
Where the lease contains rental uplifts which are linked to the retail price index.
- S
-
Security
We will require a Legal Charge over the freehold or long leasehold (with at least 35 years unexpired on the head lease at the end of the mortgage term) practice premises where at least 60% of the property is occupied for surgery use. Any mandatory life assurance will be charged as collateral security.