It’s not just first-time buyers struggling to decode the array of acronyms sprinkled throughout the mortgage industry.
Next-time movers and buy-to-let investors who’ve purchased property previously all come to us with questions about the common phrases used during the mortgage process.
We don’t expect you to know your LTVs from your DTIs - after all, that’s our job, but knowing the basics can help you glide through your application quicker and with the confidence that you’re signing an agreement you wholeheartedly understand.
We’ve explained the A-Z of mortgage jargon in this handy glossary but as always, you can contact us if you have any queries of your own that need answering.
Some people remortgage every few years to move to a better interest rate and when doing so, they may decide to borrow more money on top of their current mortgage, perhaps for home improvements, to gift to a child, or pay off other debts.
This is the check that lenders carry out to assess whether your mortgage amount would be affordable.
They’ll look at lots of factors to make their decision including your credit history, the regularity of your income, and of course, how much income you have against your outgoings, including any debt repayments.
Agreement in principle (AIP)
This is a conditional offer from a lender that states you may be accepted for an agreed amount of money on a mortgage.
You might have also heard this referred to as a decision in principle (DIP) or a mortgage in principle (MIP). An agreement in principle is usually based on a check of your income and credit history and most vendors (a seller/housing developer) will want you to have one before they accept an offer from you to buy the property.
Having an AIP puts you in a stronger position when looking for property to buy.
Annual percentage rate (APR)
An APR is the total annual cost of your mortgage, so the lower the APR, the less you pay for your mortgage.
Rather than just referring to the interest rate to see how much you’ll pay, an APR includes mortgage broker fees, product fees, and the interest rate.
If you change the terms of your mortgage agreement, i.e. you remortgage to borrow more or repay some of your mortgage early your APR will change so it’s important to calculate your APR before making any decision that could affect your mortgage repayments.
When you successfully obtain a mortgage, your chosen lender will likely charge an arrangement fee to organise and complete the mortgage.
The cost of an arrangement fee can vary between banks and lenders and some may allow you to include the cost of the fee within your mortgage rather than you having to pay it upfront.
If you fall behind on mortgage repayments or any credit agreement, you’ll be in arrears because you have defaulted (missed a payment).
Having mortgage arrears can put you in a venerable position as your lender may decide to repossess your property if you continue to miss payments and not settle the debt.
Bad Credit is generally a term used for clients with missed payments, a CCJ, IVA, Debt Management Plan or, Bankruptcy. Having bad credit or credit issues can reduce your choice of lenders and some may decline a mortgage application altogether if the borrower has current or previous debt.
Usually, though not always, recent and outstanding debts can be treated as severe whereas credit issues that occurred a long time ago and have been settled in full, may make it easier for the borrower to find a lender.
In the UK, we have a central bank called the Bank of England which sets a base rate of interest that other financial institutions such as banks and lenders use to determine the amount of interest they charge borrowers or pay savers.
That means that when the base rate goes up, interest rates will likely go up too and when it goes down, interest rates go down.
That’s important to people with mortgages as their monthly repayments could change, especially if the interest rate they pay on their mortgage isn’t fixed.
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.
A mortgage expert that helps you find an affordable mortgage with a rate and terms suitable for your situation. It’s their job to negotiate your deal, chase up any delays and ultimately make sure you’re happy with the amount you pay over your mortgage term.
You’ll be required to have buildings insurance if you take out a mortgage as lenders will want you to be covered for damage to the structure of your home, which could otherwise leave you out of pocket and potentially unable to repay your mortgage on time and in full.
This type of mortgage is taken out by a landlord buying a property to rent it out. Buy-to-let mortgages tend to carry more risk for the lender as the mortgage repayments are reliant on rental payments and therefore, the landlord’s ability to find tenants.
Most buy-to-let mortgage lenders ask for higher deposits upwards of 25% but the amount of deposit you’ll need will vary depending on your own financial and personal circumstances as well as the rental yield of the property you want to buy.
This is the amount of money you borrow to buy a property. When you repay your mortgage, you’ll be required to pay for the capital of the loan, plus interest, though some mortgage agreements are repaid on an interest-only basis with a capital repayment at the end of the term.
A mortgage with a capped rate has a fixed upper limit in which your payments can’t rise above. Capped rate mortgages are a type of variable rate mortgage, so as interest rates change, your repayments can go up and down. Having a capped rate prevents your mortgage repayments from exceeding a certain point but allows you to still benefit from interest rate falls.
A cashback mortgage gives the borrower a one-off lump sum payment at the start of the agreement. Some borrowers decide to use the money for home essentials or furnishings and while this can be handy, cashback mortgages don’t always offer the most competitive interest rates.
CCJ County Court Judgement.
If an individual, company, or organisation takes court action against you (saying you owe them money) you might get a county court judgment (CCJ) that can stay on your credit history for 6 years, letting other lenders know that you have previously missed payments.
This could narrow down your choice of lenders as some won’t accept borrowers with CCJs or other severe bad credit issues.
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.
Conveyancing is the legal process you must go through when you buy or sell property in the UK and is the legal transfer of property from one owner to another.
Usually, a solicitor oversees this process though many people take the advice of a professional conveyancer who can prepare the contract of sale, check the property for any issues that might violate council regulations, and arrange building and pest inspections.
Current account mortgage (CAM)
A CAM (otherwise known as a current account mortgage), is a product that combines your mortgage balance, your current account, and savings (if relevant) to give you one balance.
So, if your mortgage debt was £100,000, your balance in your current account is £3,000 and you have savings of £1,000, your overall balance would be -£96,000.
Naturally, after recently being paid, your balance would be less overdrawn, so additional funds can be used to offset your mortgage, and therefore, with reduced debt, you would pay less interest.
CAM mortgage products can be charged with a higher interest rate but this type of mortgage allows you to reduce your balance quicker, especially if you have a good income and don’t spend more than you earn.
Your credit score gives lenders an idea as to how well you manage money and the level of risk they are taking if they loan you money. The lower your score, the higher the risk lenders will consider you to be.
Decision in Principle (DIP)
Sometimes known as an Agreement in Principle. This is a document from your lender confirming that you can borrow a certain amount and can be used as proof that you can afford to buy a property.
Mortgage lenders usually require a deposit as a portion of the property’s value. The minimum deposit you will usually need is 5%, but the cheapest deals are available to people who have a larger deposit.
Your own circumstances and the type of mortgage product, among many other factors, can all affect the amount of deposit a lender will require you to pay, so ask a mortgage broker to check your eligibility for products and then calculate your deposit size.
Debt to income ratio (DTI)
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.
Early repayment charges (ERCs)
Penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal.
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.
Property prices may also increase over time, which can help you to build equity too. If you bought a property with a market value of £100,000, with a 10% deposit, your 10% equity would equate to £10,000. However, if prices suddenly increased and the value of the property increased by 10%, to £110,000, your 10% equity would now equate to £11,000.
Property prices can also decrease and this can reduce the value of your equity. If this happens, you may be at risk of falling into negative equity which is when what you owe on your mortgage is more than what your home is worth.
Equity release scheme
Equity release is a financial product for homeowners 55 and over. Property prices can increase in value over time and rather than having to sell your home, equity release enables you to access the money you’ve built up over the years, without having to sell up and move.
Equity release plans vary but usually the money is released as a lump sum, or as regular smaller payments to your bank.
Two popular equity release options include lifetime mortgages and home reversion plans.
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.
A home reversion plan enables you to sell part of your home to a provider who then lets you live in the property rent-free until you pass away. This type of plan also has no repayments until you die or opt to live somewhere else.
Family offset mortgage
This mortgage product is usually used by parents who want to help their child get onto the property ladder. As the parent, your savings are balanced against your child’s debt, so the amount they owe and pay in interest is reduced.
First Homes Programme
First Homes are new-build flats and houses built on developments situated up and down the country, sold with at least 30% discount. Local councils can decide to allocate further discounts to make the scheme more affordable for local applicants.
Key workers and first-time buyers eligible for the scheme will be prioritised too which is potentially exciting news for a lot of people who had previously written off the possibility of homeownership.
If you’ve never owned property before and therefore have no property to sell, you’re a first-time buyer.
The interest rate you’re charged on a mortgage is fixed and therefore doesn’t go up or down, even if interest rates change in line with the BOE base rate.
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.
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.
Help to Buy
There have been many Help to Buy schemes in the UK, each designed to make it easier to buy a house as a first-time buyer. Help to Buy: Equity Loan, for example, provides eligible borrowers with a loan up to 20% of a property’s value, interest-free for 5 years. This can boost deposit sizes for first-time buyers, making it much easier to access lenders with cheaper rates.
Help To Buy Isa
The Help to Buy ISA scheme closed in November 2019 and is no longer available. Previously, you could have opened a tax-free savings account, into which the government pays you, the first-time buyer, a cash bonus towards the purchase of a property. For every £200 saved, the government used to deposit an additional £50, up to a maximum of £3,000.
Higher lending charge (HLC)
This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value.
House of multiple occupation
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.
This is the cost of borrowing money. So if the rate is 1%, that means if you borrow a pound over a year you’ll repay £1.01.
Rather than making mortgage repayments for the capital (the amount you borrowed to buy the property) and the interest for the loan, you only repay the interest and then at the end of the mortgage term, the full balance is due.
This reduces your outgoings and frees up money to invest in other areas and hopefully see a return, which can be used later to repay the mortgage.
Alternatively, at the end of the mortgage term, you might decide to sell the property to repay the balance, however, this is risky because if the property has decreased in value, you might not make enough to repay your debt in full.
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.
Individual Voluntary Arrangement (IVA)
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.
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.
LTV stands for the loan-to-value ratio, which is the percentage of the property value you’re loaned as a mortgage.
So if you had a 10% deposit for a home, your loan to value ratio would be 90% because the mortgage lender would need to lend you 90% of the property's value.
Market value is an opinion of what a property would sell for in a competitive market based on the features and benefits of that property (the value).
The amount you pay your mortgage lender each month. If you're on a repayment mortgage (the most common kind), the payment will cover a percentage of your capital plus interest.
Mortgage agreement in principle (AIP)
A mortgage in principle is a conditional offer from a lender that states you may be accepted for an agreed amount of money on a mortgage.
You might have also heard this referred to as a decision in principle (DIP) or an agreement in principle (AIP). An agreement in principle is usually based on a check of your income and credit history and most vendors (a seller/housing developer) will want you to have one before they accept an offer from you to buy the property.
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.
Mortgage payment protection insurance (MPPI)
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.
This is the amount of time you agree to repay your mortgage. Many mortgages have terms spanning from 10 years to 40 years, though 25 years is a common mortgage term. A mortgage is charged with interest, so the longer the term, the more interest you’ll pay overall.
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.
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.
New Build Developer
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.
An offset mortgage lender provides a loan that is offset against your savings and sometimes, your balance in your current account.
The deposit account which holds your savings is used to offset the mortgage balance, so you only pay interest on the difference. This reduces the amount of interest you pay for your mortgage as technically, you’re borrowing less. You will not be paid credit interest on the balance of any monies offset against the mortgage.
Part buy/part rent
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.
Porting a mortgage
A portable mortgage allows you to transfer your borrowing from one property to another if you move, without paying arrangement fees.
A remortgage describes a scenario in which you take out a new mortgage on a property that you already own, perhaps to move to a cheaper rate and save money, or to borrow more for home improvements or to spend as you wish.
You pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any repayments, you are guaranteed to have paid off the mortgage by the end of the term.
Right to Buy scheme
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.
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 land tax (SDLT) is payable when you buy a property for more than £125,000 (or £40,000 if it's a buy-to-let property or second home).
Standard variable rate (SVR)
This is the default mortgage interest rate that your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate but often, lenders charge a lower interest rate initially, and then after one or two years, depending on the lender, the rate increases.
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.
The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it.
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.