Mortgage jargon

The legal term for a mortgage lender is heritable creditor but throughout this information the term lender is used instead. Similarly, the term debtor is the term used in the legislation but the term borrower is used here.

Heritable property is the term used in Scots law to describe land, all buildings attached to land, trees and growing crops, mines and quarries, as distinguished from moveable property which covers all other items of value.

An initial loan may be for the purposes of the purchase, repair or maintenance of the property.

In Scotland, the term mortgage is used to describe forms of loan in which a lender requires the borrower to grant a security, over a house or a flat or other heritable property. [1] All loans secured on heritable property are subject to the terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 and must be constituted by means of a standard security, a legal document which gives the lender certain rights over the property.

'Standard security' is the legal terminology for a document which secures a legal obligation (typically a debt) so that, if a debtor defaults on payment, the creditor has a means of enforcing repayment. Clients who are considering granting a standard security in relation to any debt should obtain legal advice to make sure they understand the nature of the legal obligation they are agreeing to.Standard securities are typically used to secure mortgage debts. In other words, if a debtor does not pay the mortgage, the standard security is the legal document relied upon in repossession proceedings. Standard securities are also used in relation to additional mortgages or loans that may be taken out and secured against a person’s home. These securities may be in addition to an existing security, not instead of it.Most commonly, a standard security will be granted by a client in favour of a lender which is a company but this is not always the case. Standard securities can be granted in favour of individuals who loan money to others, or other types of organisations. Basically, anyone who lends money and requires security for repayment of that debt.However, it is important to understand that the term ‘standard security’ is not the legal word for ‘mortgage’. The mortgage is the debt and paperwork relating to the debt (rates of interest, terms and conditions, etc.) are separate to the standard security. The Standard security secures the debt and creates a legal obligation to protect the creditors’ interest in lending the money.Standard securities can be used in a variety of other situations too. For example, they are commonly used in right to buy situations where a person has bought a house from a local authority at a discounted price. In this scenario, the security is granted by the purchaser to the local authority to ‘protect’ the discount and deter the purchaser from selling the house on within a certain timescale. Thus, preventing quick resale for profit.Another use of standard securities is in relation to legal aid payments. In situations where a ‘clawback’ payment is due, the Scottish Legal Aid Board may require a client to grant a standard security in respect of repayments by instalments.All loans secured on heritable property (i.e. property which is not ‘moveable’, such as a house or land) are subject to the terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 and must be constituted by means of a standard security, a legal document which gives the lender certain rights over the property.The standard security contains certain standard conditions, which set out the rights of the lender and borrower, including the borrower's responsibilities to maintain and insure the property, and the lender's rights should the borrower default on the loan. These standard conditions are set out in legislation and can be varied in certain situations.

For the purposes of the information here, the term mortgage will be used to refer to the loan itself and the term security will be used to describe the means by which the loan is secured on the property.

The equity in a house is the amount of the free proceeds of sale after repayment of the loans secured against it, and deduction of the costs of sale.

Negative equity is a term used to describe a shortfall where a property is worth less than the loan secured against it. Borrowers with negative equity may have difficulties in convincing lenders to allow a sale, if debt would remain.

A secured loan or so-called second mortgage is the term used to describe a further loan secured on the property, often obtained from a second lender, and obtained for the purposes of a major purchase, for example a car, or to consolidate multiple debts.