Mortgage Glossary

Affordability assessment

The checks a lender makes to decide whether you can afford a mortgage. Lenders look at your income, outgoings, debts, credit file and how secure your job is, and under FCA rules they must consider likely interest rate rises unless your rate is fixed for five years or more.

Agreement in principle (AIP)

Also called: Mortgage in principle, decision in principle

A written estimate from a lender of how much it may be willing to lend you, based on some basic checks. It isn't a guaranteed offer, but it can show sellers and estate agents you're a serious buyer.

Annual percentage rate of charge (APRC)

A figure that shows the total cost of a mortgage over its full term as a yearly percentage, including the interest rate and fees. It helps you compare mortgages, but it assumes you stay on the lender's standard variable rate after any deal ends.

Arrangement fee

Also called: Product fee

A fee some lenders charge for setting up a mortgage deal. It can sometimes be added to the loan, but then you pay interest on it too.

Arrears

Mortgage payments that are overdue. If you're worried about falling behind, contacting your lender as soon as possible can open up more options.

Bank Rate

Also called: Base rate

The interest rate set by the Bank of England's Monetary Policy Committee. It influences the rates lenders charge, and tracker mortgages move with it directly.

Booking fee

A fee some lenders charge when you apply for or reserve a mortgage deal. It's often non-refundable, even if the mortgage doesn't go ahead.

Bridging loan

A short-term loan, secured on property, used to "bridge" a gap, for example buying a new home before you've sold your old one. Bridging loans are usually more expensive than a standard mortgage.

Buildings insurance

Insurance that covers the structure of your home. Most lenders require it, and when you buy, it usually needs to be in place from exchange of contracts.

Buy-to-let mortgage

A mortgage for buying a property to rent out. Lenders usually look at the expected rent as well as your income, and the rules differ from a residential mortgage.

Capital

The amount you borrow, as opposed to the interest charged on it. On a repayment mortgage, each monthly payment pays off some capital and some interest.

Cashback

A lump sum some lenders pay you when your mortgage completes. It can help with moving costs, but it's worth comparing the overall cost of the deal, not just the cashback.

Chain

Also called: Property chain

A line of linked sales and purchases, where each one depends on the next. A delay anywhere in the chain can hold up everyone in it.

Completion

The day the money is transferred, the property legally becomes yours and you collect the keys. It usually happens after exchange of contracts.

Conveyancing

Also called: Conveyancer

The legal work involved in buying or selling a home, done by a solicitor or licensed conveyancer. It includes checking the title, ordering searches and transferring the money.

Credit file

Also called: Credit report

A record of how you've managed credit, such as loans, cards and bills. Lenders check it when you apply. You can check your own report for free, and it won't affect your score.

Credit reference agency

Also called: CRA

A company that keeps credit files. MoneyHelper lists four in the UK: Experian, Equifax, TransUnion and Crediva. Lenders may check one or more of them.

Critical illness cover

Insurance that pays a lump sum if you're diagnosed with a serious illness covered by the policy. Some people use it to help with their mortgage if they can't work.

Debt consolidation

Combining several debts into one, sometimes by adding them to a mortgage. It can lower monthly payments but may cost more overall, and it turns unsecured debt into debt secured on your home.

Deposit

The part of the property price you pay yourself. The mortgage covers the rest. Most mortgages need a deposit of at least 5% to 10% of the price.

Discount mortgage

Also called: Discounted variable rate

A variable-rate mortgage set at a discount to the lender's standard variable rate for a period. If the standard variable rate changes, your rate changes too.

Early repayment charge (ERC)

A fee you may pay if you leave a fixed or discounted deal early, or repay more than your overpayment allowance. It's usually a percentage of the balance, and it's shown in your mortgage paperwork.

Equity

The part of your home you own outright: its value minus what you owe on the mortgage. Equity can grow as you repay the mortgage or if the property's value rises.

Equity release

Ways for older homeowners to take money from the value of their home without moving, usually through a lifetime mortgage. It can reduce what you leave behind, so it's worth getting specialist advice.

Exchange of contracts

Also called: Exchange

The point when the purchase becomes legally binding. You usually pay your deposit at exchange, and after it, pulling out can be very costly.

Exit fee

A fee some lenders charge for closing your mortgage account when you repay it or move to another lender. It's different from an early repayment charge.

First-time buyer

Someone who has never owned a home, in the UK or abroad. First-time buyers may qualify for Stamp Duty relief and some savings schemes, depending on the rules at the time.

Fixed-rate mortgage

Also called: Fixed rate

A mortgage where the interest rate stays the same for a set period, often 2, 5 or 10 years, so your payments don't change during that time. When it ends, you usually move to the lender's standard variable rate.

Freehold

Owning both the building and the land it stands on, with no time limit. Most houses in England and Wales are freehold.

Further advance

Borrowing more from your existing lender, secured on your home. The lender will check you can afford the extra borrowing.

Gazumping

When a seller accepts a higher offer from someone else after already accepting yours, before contracts are exchanged. It can happen because offers aren't legally binding until exchange in England, Wales and Northern Ireland.

Gross income

Your pay before tax and National Insurance. Lenders normally work out income multiples on gross income, then check affordability against your take-home pay and outgoings.

Ground rent

A yearly charge some leaseholders pay to the freeholder. Lenders look at ground rent terms when deciding whether to lend on a leasehold property.

Guarantor mortgage

A mortgage where a family member agrees to cover the payments if you can't. The guarantor takes on a real financial risk, so it's worth them getting independent advice.

Income multiple

How many times your yearly income a lender may lend. MoneyHelper says lenders typically cap borrowing at around 4.5 times income, and most people are offered less.

Income protection

Insurance that pays part of your income if you can't work because of illness or injury. It can help keep up mortgage payments while you recover.

Interest-only mortgage

A mortgage where your monthly payments only cover the interest. The full loan is still owed at the end of the term, so you need a credible plan to repay it.

Joint mortgage

A mortgage taken out by two or more people. Lenders look at everyone's income, and each person is responsible for the whole debt, not just their share.

Land Registry

Also called: HM Land Registry

The government body that records who owns land and property in England and Wales. Your conveyancer registers you as the new owner after completion and pays a registration fee.

Leasehold

Owning a property for a fixed number of years under a lease, while someone else owns the freehold. Most flats are leasehold. Lenders check how many years are left on the lease.

Lender

The bank or building society that lends you the money for your mortgage.

Life insurance

Insurance that pays out if you die during the policy. Many homeowners use it so the mortgage could be paid off if the worst happened.

Lifetime ISA

Also called: LISA

A savings account for people aged 18 to 39 to save for a first home or later life. You can pay in up to £4,000 a year and the government adds a 25% bonus, for a first home costing £450,000 or less. Rules can change, so check GOV.UK.

Loan-to-income (LTI)

The size of your mortgage compared with your yearly income. Borrowing £180,000 on an income of £40,000 is an LTI of 4.5. The Bank of England limits how much lending happens at 4.5 times income or more.

Loan-to-value (LTV)

The size of your mortgage as a percentage of the property's value. A £180,000 mortgage on a £200,000 home is 90% LTV. A lower LTV can open up a wider choice of deals.

Monetary Policy Committee (MPC)

The Bank of England committee that sets Bank Rate. It meets eight times a year, and its decisions can affect tracker and variable mortgage rates.

Mortgage Charter

A set of commitments made by many UK lenders to help borrowers, such as letting you lock in a new deal up to six months before your current one ends. Not every lender has signed it.

Mortgage offer

The lender's formal confirmation of how much it will lend you and on what terms. Offers usually last three to six months, so check yours won't run out before you complete or switch.

Mortgage term

Also called: Term

How long you take to repay your mortgage, often 25 years or more. A longer term lowers monthly payments but means paying more interest overall.

Mortgage valuation

Also called: Valuation

A check the lender arranges to make sure the property is worth what it's lending against. It isn't a survey, so it won't tell you much about the property's condition.

Negative equity

When you owe more on your mortgage than your home is worth. It can make it harder to move or remortgage until the gap closes.

Net income

Also called: Take-home pay

Your pay after tax, National Insurance and other deductions. Lenders look at it, alongside your outgoings, when they check you can afford the payments.

Offset mortgage

A mortgage linked to your savings. Instead of earning interest, your savings reduce the balance you pay interest on, which can lower your payments or shorten your term.

Overpayment

Paying more than your normal monthly payment. MoneyHelper says many fixed-rate deals let you overpay up to 10% a year without a fee. Going over your allowance can mean an early repayment charge.

Payment holiday

An agreed break from mortgage payments, offered by some lenders. Interest usually keeps building up, so you may pay more overall. It's worth speaking to your lender first.

Porting

Also called: Portable mortgage

Taking your existing mortgage deal with you when you move home. Most mortgages are portable, but porting is treated like a new application, so you need to pass the lender's checks.

Product transfer

Moving to a new deal with your current lender, usually when your existing deal ends. If you're up to date with payments and not borrowing more, you may not need a new affordability check.

Redemption statement

Also called: Redemption figure

A statement from your lender showing exactly how much you'd need to pay to clear your mortgage on a given date, including any early repayment charge.

Remortgage

Moving your mortgage to a new deal, usually with a different lender, without moving home. People often remortgage when a fixed rate ends.

Repayment mortgage

Also called: Capital and interest

A mortgage where each monthly payment covers the interest and part of the loan, so you've paid it all off by the end of the term.

Repossession

When a lender takes back a property because the mortgage hasn't been paid. It's usually a last resort. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Reversion rate

The rate your mortgage moves to when a fixed, tracker or discount deal ends, usually the lender's standard variable rate. It's often higher than the deal rate.

Searches

Also called: Conveyancing searches

Checks your conveyancer orders when you buy, for example with the local council and water company, to find out about things that could affect the property.

Service charge

A regular charge leaseholders pay towards maintaining shared parts of a building, such as the roof, stairs and gardens. Lenders count it as an outgoing.

Shared ownership

A scheme where you buy a share of a home and pay rent on the rest, usually to a housing association. You may be able to buy more shares later.

Stamp Duty Land Tax (SDLT)

Also called: Stamp Duty

A tax you may pay when you buy property in England or Northern Ireland. Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax instead. It must be paid within 14 days of completion.

Standard variable rate (SVR)

A lender's own default interest rate. It can change at any time and is usually higher than its deals. You can usually leave an SVR without an early repayment charge.

Stress test

A check of whether you could still afford your payments if interest rates rose. Lenders must consider likely rate rises under FCA rules unless your rate is fixed for five years or more.

Subject to contract

Also called: STC

Shown on a property that has an accepted offer but where contracts haven't been exchanged yet. Either side can still pull out at this stage.

Survey

Also called: Level 2 or Level 3 survey

A check of the property's condition that you arrange yourself. A more detailed survey can uncover problems the lender's valuation won't look at.

Tracker mortgage

Also called: Tracker

A variable-rate mortgage that follows Bank Rate plus a set margin. If Bank Rate goes up or down, your rate and payments usually follow.

Transfer of equity

Adding someone to, or removing someone from, the ownership of a property, for example after marriage or separation. The lender usually needs to agree if there's a mortgage.

Underwriting

Also called: Underwriter

The lender's detailed check of your mortgage application, including your income, documents and credit file, before it decides whether to make an offer.

Variable-rate mortgage

Also called: Variable rate

A mortgage where the interest rate can go up or down, so your payments can change. Trackers, discounts and standard variable rates are all types of variable rate.