The mortgage industry is full of jargon that can make the process feel more complicated than it needs to be. This glossary defines every term you are likely to encounter when buying a property, applying for a mortgage, or managing your home loan. Click a letter to jump to that section.
A
- Agreement in Principle (AIP)
- A preliminary indication from a lender that they would be willing to lend you a certain amount based on basic information about your income and credit history. Also called a Decision in Principle (DIP) or Mortgage in Principle (MIP). Not a guarantee of a mortgage.
- Annual Percentage Rate (APR)
- The total cost of borrowing expressed as an annual percentage, including interest and any mandatory fees. By law, lenders must display the APR so borrowers can compare products on a like-for-like basis. However, APR can be misleading for short-term fixed deals.
- Arrangement Fee
- A fee charged by the lender for setting up a mortgage product. Ranges from £0 to £2,000. Can usually be added to the loan balance, though this means you pay interest on it over the full mortgage term. Also called a product fee or completion fee.
- Arrears
- Overdue mortgage payments. Falling into arrears can lead to legal action and ultimately repossession. If you are struggling to pay, contact your lender immediately — they are required to treat you fairly and explore alternatives before taking enforcement action.
B
- Bank of England Base Rate
- The interest rate set by the Bank of England's Monetary Policy Committee. It influences the rates banks charge borrowers and pay savers. Tracker mortgages are directly linked to the base rate; other mortgage rates are indirectly affected.
- Booking Fee
- A small non-refundable fee (£99–£250) charged by some lenders when you apply for a mortgage. Also called a reservation fee. Not all lenders charge this.
- Bridging Loan
- A short-term, high-interest loan used to "bridge" the gap between buying a new property and selling an existing one. Typically used when timing does not align. Interest rates are much higher than standard mortgages.
- Broker
- A qualified professional who searches the mortgage market on your behalf and recommends suitable products. A "whole-of-market" broker searches all available lenders; a "tied" or "multi-tied" broker only searches a limited panel.
- Buildings Insurance
- Insurance that covers the structure of your property against damage from fire, flood, subsidence, storms, and other risks. Most mortgage lenders require you to have buildings insurance in place from the date of exchange.
- Buy to Let (BTL)
- A mortgage product specifically designed for properties that will be rented out to tenants rather than lived in by the owner. BTL mortgages have different deposit requirements, interest rates, and affordability criteria compared to residential mortgages.
C
- Capital
- The amount you originally borrowed, not including interest. Your monthly repayment mortgage payment consists of part capital and part interest. On an interest-only mortgage, you only pay interest and the capital remains unchanged.
- Capped Rate
- A variable rate mortgage with a maximum (cap) that the rate cannot exceed. Rare in the current market, but provides some protection against rate rises while still allowing you to benefit from rate falls.
- Chain
- A sequence of linked property transactions where each buyer depends on the sale of their current property to fund the next purchase. Chains can cause delays and complications; being chain-free (as a first-time buyer or cash buyer) is a significant advantage.
- Completion
- The final stage of a property purchase when the remaining funds are transferred, ownership passes to the buyer, and the keys are handed over. Completion typically happens 1–4 weeks after exchange of contracts.
- Conveyancing
- The legal process of transferring property ownership from the seller to the buyer. Carried out by a solicitor or licensed conveyancer, it includes property searches, reviewing contracts, and registering the new ownership with the Land Registry.
- County Court Judgment (CCJ)
- A court order issued when someone fails to repay money they owe. CCJs appear on your credit file for 6 years and can severely damage your ability to obtain a mortgage. Some specialist lenders will consider applicants with satisfied (paid) CCJs.
- Credit Score
- A numerical rating calculated by credit reference agencies (Experian, Equifax, TransUnion) based on your credit history. Lenders use this alongside other factors to assess your creditworthiness. Higher scores generally mean access to better rates.
D
- Decision in Principle (DIP)
- See Agreement in Principle (AIP).
- Deposit
- The portion of the property price you pay upfront from your own funds. The remaining amount is covered by the mortgage. A larger deposit means a lower loan-to-value ratio and typically better interest rates.
- Disbursements
- Third-party costs paid by your solicitor on your behalf during the conveyancing process. Includes property searches, Land Registry fees, and bank transfer charges. Typically £250–£450 in total.
- Discount Rate Mortgage
- A variable rate mortgage that charges the lender's Standard Variable Rate (SVR) minus a set discount for a defined period. The rate can change if the lender changes their SVR.
E
- Early Repayment Charge (ERC)
- A penalty charged by the lender if you repay your mortgage (or overpay beyond the allowed limit) during a fixed or promotional period. Typically 1–5% of the outstanding balance, decreasing each year of the deal.
- Equity
- The portion of your property that you own outright — the difference between the property's current market value and the remaining mortgage balance. Equity increases as you make repayments and/or the property value rises.
- Exchange of Contracts
- The point at which the buyer and seller become legally committed to the transaction. The buyer pays the deposit (usually 10%) and both parties sign contracts. Pulling out after exchange means losing the deposit.
F
- First-Time Buyer
- Someone who has never owned a residential property anywhere in the world. First-time buyers may be eligible for stamp duty relief and access to certain government schemes.
- Fixed Rate Mortgage
- A mortgage where the interest rate stays the same for an agreed period (typically 2 or 5 years). Provides certainty of monthly payments. When the fixed period ends, the rate reverts to the lender's SVR.
- Freehold
- Outright ownership of both the property and the land it stands on, with no time limit. Most houses are freehold. Compare with leasehold, where you own the property but not the land.
G
- Gazumping
- When a seller accepts a higher offer from another buyer after already accepting yours. Legal in England and Wales (but not in Scotland). Taking the property off the market after an accepted offer reduces this risk.
- Gazundering
- When a buyer reduces their offer just before exchange of contracts, knowing the seller is committed. The opposite of gazumping and equally frustrating for the other party.
- Ground Rent
- An annual payment made by a leaseholder to the freeholder (landlord who owns the land). Ground rent amounts vary and may increase over time according to the lease terms. Recent legislation has capped ground rent on new leases at a peppercorn (effectively zero).
- Guarantor Mortgage
- A mortgage where a family member agrees to cover payments if the borrower defaults. The guarantor does not own any share of the property but takes on significant financial risk. Some guarantor products use the family member's savings or property as security instead.
H
- Higher Lending Charge
- A fee charged by some lenders on high-LTV mortgages (typically above 90%). It pays for insurance that protects the lender (not you) if you default. Also called a Mortgage Indemnity Premium (MIP).
- HomeBuyer Report
- A RICS Level 2 property survey that examines the condition of a property, identifies problems, and provides a market valuation. Suitable for most conventional properties. More thorough than a basic valuation but less detailed than a full building survey.
I
- Interest-Only Mortgage
- A mortgage where your monthly payments cover only the interest charges. The original loan amount (capital) remains unchanged and must be repaid in full at the end of the term. Common for buy-to-let but increasingly rare for residential mortgages without a credible repayment plan.
- Interest Cover Ratio (ICR)
- Used in buy-to-let lending, this is the ratio of expected rental income to mortgage payments. Most lenders require an ICR of 125–145% at a stressed interest rate.
J
- Joint Mortgage
- A mortgage taken out by two or more people, typically partners or family members. All borrowers are jointly and severally liable, meaning each is responsible for the entire debt if the other cannot pay.
K
- Key Facts Illustration (KFI)
- A standardised document that lenders must provide showing the full costs of a mortgage product, including interest rate, monthly payments, fees, and total amount payable. Replaced by the European Standardised Information Sheet (ESIS) for regulated mortgages.
L
- Land Registry
- The government body that records ownership of land and property in England and Wales. When you buy a property, your solicitor registers you as the new owner. The register is publicly searchable.
- Leasehold
- A form of property ownership where you own the property but not the land it sits on, for a set period (the lease term). Common for flats. Leaseholders may pay ground rent and service charges to the freeholder. Short leases (under 80 years) can be difficult to mortgage.
- Lifetime ISA (LISA)
- A savings account for people aged 18–39 that provides a 25% government bonus on contributions up to £4,000 per year. Can be used towards a first home (up to £450,000) or retirement savings after age 60.
- Loan to Value (LTV)
- The mortgage amount expressed as a percentage of the property value. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV generally means better interest rates because the lender's risk is lower.
M
- Mortgage Deed
- A legal document that you sign to give the lender a charge (security interest) over your property. It means the lender has the right to repossess the property if you fail to keep up with repayments.
- Mortgage in Principle (MIP)
- See Agreement in Principle (AIP).
- Mortgage Offer
- The formal, legally binding document from a lender confirming they will lend you a specified amount under specified terms. Issued after the full application, credit check, valuation, and underwriting are complete. Typically valid for 3–6 months.
- Mortgage Term
- The total length of time over which the mortgage is repaid. Most common terms are 25 or 30 years, though terms of up to 40 years are available. Longer terms reduce monthly payments but increase total interest paid.
N
- Negative Equity
- When the outstanding mortgage balance exceeds the current market value of the property. This can happen if house prices fall after purchase. Negative equity makes it difficult to remortgage or sell without making up the shortfall.
- Notice of Correction
- A statement of up to 200 words that you can add to your credit file to explain unusual circumstances (such as a missed payment during illness). Lenders are required to consider it when making credit decisions.
O
- Offset Mortgage
- A mortgage linked to a savings account. Your savings balance is offset against your mortgage balance, reducing the amount on which you pay interest. You do not earn interest on the savings, but the tax-free mortgage reduction can be more valuable.
- Overpayment
- Paying more than your required monthly mortgage payment. Most lenders allow overpayments of up to 10% of the outstanding balance per year without penalty during a fixed period. Overpaying reduces the total interest paid and can shorten the mortgage term.
P
- Portable Mortgage
- A mortgage that can be transferred to a new property when you move, without penalty or having to reapply from scratch. Portability is subject to the new property meeting the lender's criteria and passing a valuation.
- Product Transfer
- Switching to a new mortgage deal with your current lender without moving to a different lender. Often simpler and faster than a full remortgage, as it may not require a new valuation or credit check.
R
- Redemption
- Paying off your mortgage in full. Can happen at the end of the term, when selling, or by remortgaging to a different lender. Some lenders charge a small redemption or exit fee.
- Remortgage
- Replacing your existing mortgage with a new one, either with the same lender (product transfer) or a different lender. Usually done to secure a better interest rate, release equity, or change the mortgage terms.
- Repayment Mortgage
- The most common mortgage type, where each monthly payment covers both interest charges and a portion of the original loan amount (capital). By the end of the term, the entire mortgage is paid off.
- Retention
- When a lender withholds part of the mortgage funds until specified work is completed on the property (such as damp treatment or roof repairs identified in the valuation). The retained amount is released once the work is done and verified.
- Right to Buy
- A government scheme allowing eligible council tenants in England to purchase their home at a discount of up to £102,400 (£136,400 in London). Discount depends on length of tenancy and property type.
S
- Shared Ownership
- A government scheme where you buy a share of a property (25–75%) and pay rent on the remaining share to a housing association. You can buy additional shares over time (staircasing).
- Stamp Duty Land Tax (SDLT)
- A tax paid to HMRC when you purchase property in England or Northern Ireland above certain price thresholds. First-time buyers benefit from higher nil-rate thresholds. Scotland has LBTT and Wales has LTT instead.
- Standard Variable Rate (SVR)
- The lender's default interest rate, set at their discretion. You revert to the SVR when a fixed, tracker, or discount period ends. SVRs are typically significantly higher than the best available deal rates.
- Stress Test
- A calculation used by lenders to check whether you could afford repayments if interest rates were to rise. Lenders typically stress test at rates 2–3% above the product rate or at a minimum threshold (often 5.5–7%).
- Survey
- A professional inspection of a property's condition carried out by a qualified surveyor. Available at three levels: Level 1 (Condition Report), Level 2 (HomeBuyer Report), and Level 3 (Building Survey). Separate from the lender's valuation.
T
- Tenure
- The legal basis on which you own the property: freehold (you own the property and land outright) or leasehold (you own the property for the length of the lease but not the land).
- Title Deeds
- Legal documents proving ownership of a property. Most properties in England and Wales are now registered with the Land Registry, which holds electronic records. Original title deeds are less common but may exist for very old properties.
- Tracker Mortgage
- A variable rate mortgage that tracks the Bank of England base rate at a set margin. If the base rate is 4.5% and your tracker is base rate + 0.75%, your rate is 5.25%. Payments change automatically when the base rate moves.
U
- Underwriting
- The lender's detailed assessment of your mortgage application. An underwriter reviews your income, employment, credit history, the property valuation, and your overall financial position to decide whether to approve the loan.
V
- Valuation
- An assessment of a property's market value, usually carried out on behalf of the lender. The lender uses this to confirm the property is worth at least the amount being lent. This is not the same as a survey and does not check for defects.
- Variable Rate Mortgage
- Any mortgage where the interest rate can change during the term. Includes trackers (linked to base rate), discounts (linked to SVR), and the SVR itself. Payments may go up or down.
W
- Whole-of-Market Broker
- A mortgage broker who searches across all available lenders and products, rather than being limited to a specific panel. Provides the widest possible range of options for your circumstances.
Could we be missing a term? Let us know and we will add it to the glossary.