Mortgage

This page has a list of mortgage terms and their meanings to help you understand all the confusing language. If you're unsure about a word, just search for it here. You can even save this page so you can refer to it whenever you need help with your mortgage. If you can't find what you're looking for, feel free to reach out to us and talk to one of our experts.

This is a provisional offer from a lender indicating that you could be approved for a specified amount of money on a mortgage. It's commonly known as a decision in principle (DIP) or a mortgage in principle (MIP). An agreement in principle typically relies on an assessment of your income and credit history, and most sellers or housing developers will require one before accepting your offer to purchase the property. Having an agreement in principle strengthens your position when searching for properties to buy.

The Annual Percentage Rate of Charge, often referred to as APRC is the total cost of the credit to a consumer, expressed as an annual percentage of the total amount of credit.

Upon securing a mortgage, your selected lender will typically impose an arrangement fee to arrange and finalize the mortgage process.

The arrangement fee's expense can differ among banks and lenders, and some may offer the option to include the fee's cost within your mortgage rather than requiring upfront payment.

Falling behind on mortgage repayments or any credit agreement puts you in arrears because you have defaulted by missing a payment.

Having mortgage arrears can leave you vulnerable, as your lender may opt to repossess your property if you continue to miss payments and fail to settle the debt.

AVM stands for Automated Valuation Model. It is a search used by some lenders to establish the value of your property based on recent local sales and value trends. This is instant and means that they do not have to send a surveyor to your property.

The UK's core interest rate, set by the Bank of England. The lender's Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.

This is also referred to as a mortgage arrangement fee and is charged by the mortgage lender for the admin and process or setting up your mortgage.

See Mortgage Adviser.

Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.

The practice of buying a house or flat for investment purposes. Income is provided by the tenants' rent, and capital growth (if any) by the property's increasing resale value.

In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.

A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.

A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a mortgage contract with the mortgage lender.

The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.

This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance - which needn't necessarily be the most cost effective on the market.

On the completion date, the buyer is required to transfer funds to the seller or housing developer in order to complete the purchase, this is done via a solicitor. Keys are exchanged and the buyer can move into their home.

Buy-to-let mortgages that are driven by certain circumstances where the potential borrower (a) did not set out to borrow for business or investment purposes, (b) does not have any other buy-to-let properties and (c) is only looking for a remortgage. For this reason these mortgages are regulated giving you greater protection than with a business buy to let mortgage.

Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.

Normally carried out by a solicitor or licensed conveyancer on the buyer's behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property's value.

A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.

If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.

A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.

The formal written document which lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Your DTI tells you how much debt you have in relation to your income and is calculated by dividing your total amount of recurring debt by your monthly income and then multiplying the answer by 100.

Lenders calculate DTI as part of their assessment of how likely you are to default on your mortgage. If you have a lot of debt and a low income that isn’t enough to comfortably cover your debt plus the mortgage amount you’re applying for, a lender is unlikely to approve you.

In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property's total purchase price. Commonly set at around 5% to 10%.

A mortgage which has an interest rate below the lender's standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.

A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan. 

A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status.

A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.

This is the amount of the property that you own outright so for example, if you bought a house with a market value of £100,000 and you had a 10% deposit, you would own £10,000 worth of equity. Over time as you make mortgage payments and reduce your mortgage debt, you build equity.

Once you’ve paid your mortgage off, you’ll have 100% of the equity.

The terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.

A service which offers no advice, but merely carries out the customer's orders.

A fixed-rate mortgage sets your interest rate at a certain level, usually for the initial years of the loan.

A fixed rate mortgage locks in a specific interest rate for a set period, like 1, 3, 5 years, or sometimes longer. After this period, it typically switches to the lender's standard variable rate.

These mortgages often offer attractive terms, but they come with penalties if you want to switch before the fixed term ends.

The benefit of a fixed rate mortgage is that your monthly payments stay consistent during the fixed term, which helps with budgeting. However, if interest rates drop while you're on a fixed rate, you might end up paying more with early repayment charges if you want to switch.

This is the opposite of a leasehold. A freehold agreement means that you own the building and the land it stands on, whereas a leasehold agreement means you only own the building and not the land beneath it.

This is usually charged to homeowners on a leasehold agreement, typically for flats or new-build properties which require maintenance to shared areas like lifts, car parks, and communal gardens. It’s payable by the leaseholder to the freeholder.

Before tax or deductions.

Guarantors are usually parents or family members who agree to meet your monthly mortgage repayments if you’re unable to. This type of mortgage can be most common with first-time buyers that are struggling to get onto the property ladder. Having a guarantor can reduce the risk of loss to the lender and therefore improve chances of approval.

This is an insurance fee required for some mortgages, typically when the loan-to-value ratio exceeds a certain threshold. It provides some protection to the lender if you fail to make mortgage payments for any reason. It's important to note that while you pay the premium, the lender receives the benefit, and if the pay-out doesn't cover their losses, they may ask you for more money. In many cases, you can add this charge to the loan amount, unless it pushes your loan-to-value ratio above a certain limit. The insurer may also pursue the borrower to recover any money paid out for the lender's claim.

Combined cover includes both buildings and contents insurance. You might purchase these policies separately or together from the same insurer, which can often lead to cost savings or simplification.

Also referred to as a house share and a term typically used by landlords who rent out a house to more than 3 tenants, who have their bedrooms but share facilities such as the bathroom or kitchen.

In the context of mortgages, a lender's estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.

Impaired credit mortgages are specialized loans designed for customers who are disqualified from using standard products offered by mainstream lenders due to credit issues. Some lenders specialize in these types of loans, which are also referred to as adverse credit loans.

An income strategy for investments aims to generate a minimum level of income from the investment to cover day-to-day expenses, often utilized by retired individuals.

Independence for mortgage advisers, according to the FSA, means providing advice covering the entire market and offering clients a fee-only option. This means the adviser can't accept any payments other than those charged directly to the client, which helps avoid potential conflicts of interest.

The premium which a borrower must pay a lender in return for use of the lender's money.

An interest-only mortgage, or interest-only remortgage, involves paying the lender only the interest on the loan while investing enough each month in an investment vehicle. The goal is to accumulate a sufficient fund to repay the principal amount of the mortgage when it becomes due at the end of the agreed term.

An adviser who can help you arrange a mortgage, also known as a mortgage broker. They have access to a wide range of lenders and search for the best suited to deal for the borrower.

A court-approved agreement that requires you to repay your debt over an agreed period of time. This can be an alternative to bankruptcy.

A mortgage taken out by two or more people to purchase property, either to live in or to rent it out to tenants.

Joint mortgage applicants don’t necessarily have to be partners and it’s common for parents, siblings, and even friends to apply for mortgages together.

Having more than one income to repay a mortgage can put you in a stronger position when trying to get approved because it could be perceived that there’s less chance of you defaulting.

The official body responsible for maintaining details of property ownership.

A property sold under a leasehold agreement provides ownership of the property but not the ground beneath it. Leasehold agreements can span between 90 to 999 years. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Find out more about buying a leasehold property.

This mortgage allows you to borrow money to buy a new property, while your existing property is let out to tenants.

Subject to you passing eligibility criteria and affordability assessments, you would need to convert your existing residential mortgage for your current home into a buy-to-let mortgage while obtaining a new residential mortgage for your new home.

A property agent assists landlords in finding suitable properties for purchase and locates tenants to occupy those properties. They also manage the rental process that follows. For more information on letting your property, refer to our landlord guide.

This type of equity release product lets you (the homeowner) access equity built up in your property.

A lifetime mortgage is secured against your home, with no repayments in your lifetime. The mortgage is paid off when you pass away or if you decide to move into full-time care.

This is the ratio of the amount you want to borrow to the purchase price. Essentially, it indicates the size of your deposit. Typically, the lower the loan-to-value ratio, the more secure the lender perceives the loan to be.

See search.

The interbank offered rate (LIBOR) is the interest rate at which top banks lend to each other. It's occasionally used instead of the base rate to establish the benchmark for a tracker mortgage. LIBOR rates vary for different periods, typically up to a year, but "1" or "3" months LIBOR is typically utilized in determining mortgage rates.

A firm/ individual with permission for advising on regulated mortgage contracts.

This is usually a bank or building society. If you meet and agree to the terms of their mortgage agreement, they’ll agree to lend you a percentage of the cost of a property with the understanding that you’ll make repayments on time and in full.

MPPI is a type of insurance that covers your mortgage if you can’t work due to accident, sickness, or unemployment. Some providers also cover homeowners for involuntary redundancy but not all. You might have also seen it referred to as ASU insurance.

A mortgage term refers to the entire duration of a mortgage, typically ranging from 5 to 40 years based on the chosen mortgage product. Some mortgage terms are limited by a maximum age rather than a set number of years. By the end of your mortgage term, you're expected to have fully repaid your mortgage. For interest-only mortgages, this repayment is typically made as a lump sum at the end, while for repayment mortgages, it's through monthly payments. It's common to switch to a new mortgage product before the end of the current term to avoid being placed on the lender's standard variable rate (SVR). Many people choose to remortgage multiple times during their mortgage term to secure the best deal available.

This can happen when the market value of your home is less than the amount remaining on your mortgage. If you owe more money than your house is worth, you and your lender could potentially be at risk for loss as you could no longer sell your house to repay your mortgage in full.

This might not be a problem if you’re working and able to meet your repayments but if you are suddenly unable to repay your mortgage, perhaps because of a job loss or illness, selling your property would still leave you with debt to repay.

After tax or deductions have been deducted.

This is a building that has recently been built or is in the process of being built. Usually designed and sold by housing developers, New Builds typically come with 10-year warranties which are split into two periods. The defects insurance period covers the first two years and the structural insurance period covers years three to 10.

A new build developer purchases the land and obtains the necessary permits to create plots and newly built homes, to be sold. When you buy a new build, the developer is paid either in cash or with a mortgage.

Many mortgage borrowers have savings, even if they're modest, and utilizing these funds to offset mortgage debt is a sensible approach. Offset mortgages operate on this principle. By paying interest only on the difference between savings and mortgage debt, you achieve a similar outcome as making extra payments toward your home loan. However, you maintain the flexibility to access the saved funds if necessary.

A mortgage overpayment is when you pay more than the minimum required amount to repay your loan. Mortgages that permit overpayments without penalties can be beneficial for individuals who receive periodic bonuses or other large sums of money due to their type of employment. You can use our mortgage overpayment calculator to estimate the potential savings from overpaying your mortgage.

Also known as shared ownership. If you decide to get a part buy/part rent property, you’ll buy a share in a property, likely from a housing developer, and pay capped rent on the part you don’t yet own.

You don’t have to purchase additional shares but some developers may provide you with the option to purchase shares of 1% of the property’s market value at a time.

A temporary pause from regular mortgage payments, occasionally provided with flexible mortgages. This feature can be beneficial for individuals with irregular income, such as the self-employed.

A pension-backed mortgage is one where the repayment of the loan's principal is supported by funds from a personal pension. The favorable tax incentives provided for pension savings encourage higher contributions by treating them as gross income instead of net income after tax. Borrowers have the option to withdraw a lump sum, typically up to 25% of the total value of their pension fund. This lump sum is intended to repay the mortgage's principal at the end of the loan term.

A portable mortgage allows you to transfer your borrowing from one property to another if you move, without paying arrangement fees.

In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

This refers to the overall sum paid by a mortgage lender to a mortgage adviser or intermediary, either directly or indirectly, for facilitating customer applications to enter into regulated mortgage contracts with the lender.

The process of switching your mortgage loan from one lender to another without moving house.

A mortgage loan that is repaid through regular monthly payments, designed to cover both the capital and interest, typically over a 25-year term (although this can be shorter if desired).

The practice of buying a house or flat for investment purposes. Income is provided by the tenants' rent, and capital growth (if any) by the property's increasing resale value.

Originally intended to enable tenants of council houses to buy the homes they lived in, this is now being opened up to housing association tenants too. Read more about the Right to Buy scheme.

A local authority search involves reviewing local planning records to identify any forthcoming developments near the property that may impact its future value or existing site restrictions.

If you fail to meet your mortgage payments, the lender has the right to take possession of your property to recover the money owed. This is why the loan is referred to as "secured" on the property. A second charge mortgage is a form of secured loan.

A self-certification (or self-cert) mortgage is designed for self-employed individuals who lack pay slips or regular income to verify their earnings to a lender.

In the past, self-certification mortgages in the UK often came with higher interest rates because lenders viewed this sector as riskier. Nowadays, by comparing options, it's possible to secure a competitive self-certification mortgage with many of the same benefits as mortgages for regularly employed individuals.

With a self-cert mortgage, you declare your annual earnings, and in most cases, the lender won't require proof of income. This can be particularly advantageous for self-employed individuals who may struggle to provide detailed accounts or for those with additional incomes not typically included in traditional income assessments.

A self-build mortgage is tailored to assist you in funding the construction and ownership of a house that you plan to build. The UK self-build mortgage sector is specialized because you're requesting lenders to provide funds for an asset that doesn't exist at the project's outset.

The fee paid to a managing agent for the ongoing maintenance of a leasehold property is usually higher for flats that have more shared areas like lifts, shared gardens, or hallways.

You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association.

Stamp duty, also known as stamp duty land tax, is the government tax imposed on property purchases. The amount of stamp duty you'll owe varies based on factors such as whether you're a first-time buyer and the type of property you're purchasing—whether it's a primary residence, secondary residential property, or a buy-to-let investment. For the most up-to-date stamp duty rates, utilize our stamp duty calculator.

The Standard Variable Rate (SVR) is the primary interest rate offered by a mortgage lender. When special offer periods end, fixed-rate and discount loans typically transition to the SVR. In contrast, tracker mortgages shift to a fixed percentage above the Bank of England Base rate (or LIBOR).

Surrendering an unwanted endowment policy involves cashing it in with the insurer who originally sold it to you. However, this process often results in a low return on the money invested during the policy's initial years.

A professional inspection of the property you intend to purchase, conducted to uncover any structural defects or necessary repairs that you might have overlooked.

This is the period during which you are 'locked in' to your mortgage deal. You'll have to pay an early repayment charge if you leave your mortgage during this period. Seek advice about mortgages that tie you in after your introductory rate has ended.

Tracker mortgages are tied to a benchmark, such as the Bank of England base rate, determining the interest rate you pay, which fluctuates in accordance with the chosen benchmark.

A mortgage payment that is less than the agreed regular amount. Some flexible mortgages offer this option, which can be beneficial for individuals with irregular income.

Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you're paying for it. You should always have your own survey done too, to check for structural problems.

The interest rate you’re charged on a variable rate mortgage can change (go up or down) in line with inflation or changes to the BOE base rate.