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Mortgages Glossary of Terms

Published: 09 January 2023
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Author: Carl Shave - CEO and co-founder
Last updated: 22Jun2024

Jargon can make things complicated. We’ve made a list of some of the words, terms, and phrases you might come across when applying for a mortgage. We will keep it as up to date as possible.

If you can’t find what you’re looking for or have questions, contact us.

Are you looking for something specific? Jump straight to the letter you’re looking for:

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Acceptance. If you want to accept a lender’s mortgage offer, you sign this document and return it to the lender. Not all lenders require this and it is not legally binding.

Additional Loan. Sometimes called a Further Advance. When you borrow more money from your current lender and increase the overall size of your mortgage.

Advance. Another term to describe your mortgage loan.

Agreement in Principle (AIP). Also known as a Decision in Principle (DIP). This is a document confirming you have passed an initial credit check and may be able to borrow a certain amount.

Amortisation. The process of paying off debt by regular payments of principal and interest over time.

Annual Equivalent Rate (AER). The interest rate that reflects what you’ll pay or earn on your money when the interest rate compounds more than once a year. This applies to loans, investments or lines of credit.

Annual Percentage Rate of Charge (APRC). A figure used to compare different mortgages. Defined by law, it includes repayments on the loan plus any fees such as booking, arrangement or redemption fees. The APRC shows the true cost of borrowing and should appear on all mortgage illustrations and quotes.

Applicant. The name or names given to a person applying for a mortgage, often used by estate agents/auctioneers to describe the purchaser.

Appraisal Value. Property value as estimated by a surveyor.

Appreciation. Increase in property value because of market condition changes.

Arrangement Fee. This is a charge by the lender to cover the costs of administering and reserving the funds for certain types of mortgages. May be paid separately or on occasion added to the loan amount.

Arrears. If you ‘go into arrears’ you have missed a month or more of payments on your mortgage.

Assured Shorthold Tenancy (AST). The most common form of tenancy and typically for 6 months. A tenancy can only be an AST if all of the following apply: you are a private landlord or housing association, the tenancy started on or after 15th January 1989, the property is the tenant’s main accommodation and you do not live in the property.

Auction. A means of selling a property. If the property does not reach the ‘reserve price’ then it is not sold. If it does, when the auctioneer’s hammer falls it represents an exchange of contracts and the successful bidder is typically legally obliged to pay a 10% deposit and sign a memorandum of sale before leaving the auction. Completion usually takes place 28 days later. The buyer cannot re-negotiate any of the stipulated terms and buys the property ‘as seen’ so structural surveys and searches would have to be made in advance.

Automated Valuation Model (AVM). A term for a service that calculates the value of property by combining mathematical or statistical modelling with databases of existing properties and transactions.

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Balance Transfer. This allows credit cardholders to transfer their debt from an existing credit card account to another, usually to save on interest charges.

Balance Outstanding. Refers to the amount of a loan that is owed at a particular time.

Base Rate. Used as a benchmark to set interest rates for borrowers. This rate is set by the Bank of England and is reviewed several times a year.

Booking Fee. Can also be known as an arrangement or completion fee. This is an administration charge made by lenders for arranging credit, usually for a mortgage or for a business loan and sometimes for car finance.

Broker. An adviser who can assist you to apply for and arrange a mortgage.

Bridging Loan. A short-term loan used to cover the overlap between the purchase of a new property and the sale of an existing one. Occasionally used to fund development for property unsuited for usual security.

Budget. A budget is an estimate of income and expenditure over a period of time. Understanding your budget is crucial when it comes to buying a home as it determines your affordability.

Building Survey. A full inspection of a property, carried out by a chartered surveyor. A detailed report will follow highlighting the condition of the property and any issues/defects.

Buildings Insurance. An insurance policy that pays the cost of repair or rebuild in the event of your property being destroyed or damaged. This needs to be purchased before completion of your new property and usually be in place for exchange of contracts.

Buy-to-Let Mortgage. A type of mortgage specifically for those purchasing a property with the intention of letting the property.

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Capital. An amount of money either put into buying a property or the deposit placed on a property.

Capital Appreciation. The growth in the value of a property over time.

Capital Gains Tax. A tax on profits above a fixed level made from the sale of financial assets such as property or shares.

Capital Raising. Raising additional funds against a property. This could be by means of a remortgage, further advance, or secured loan.

Capped-Rate Mortgage. A mortgage that sets a maximum rate on interest that a lender can charge for a specified period.

Cashback. Cashback mortgages include an incentive from providers in the form of a cash bonus to encourage people to take out a mortgage with them. Cashback sums can vary from a few hundred to several thousand pounds. The money is usually paid once the mortgage has begun, or a few months into the term.

CCJ (County Court Judgment). These are made against you if you miss payments on loans, credit cards, or any form of debt. They can make it harder for you to get a mortgage.

Chain. If you are reliant on the completion of sale of your current property before you can complete on a purchase of a new property, you are in a chain.

Commission. A fee paid to estate agents or mortgage brokers for helping sell your property or arrange your mortgage. Typically paid by the property owner or the lender.

Comparative Search. The search that looks at sale values for similar properties in the same area as your property.

Completion Date. The date of which the money is transferred from the buyer’s solicitor to the seller’s solicitor. The buyer also becomes the legal owner of their new property on this date.

Conditions of Sale. Details that set out the rights and duties of the seller and buyer.

Consumer Buy-to-Let. A consumer buy-to-let mortgage is for the ‘accidental landlord’. For example, if you inherited a property or moved in with your partner and rented out your property.

Contents Insurance. Insurance that covers the contents of your home such as your furniture, carpets, and personal possessions like laptops and televisions.

Conveyancing. The legal process of the transfer of ownership of a property from a seller to a buyer.

Council Tax. Your property will be given a council tax band which determines how much you will pay. It is a local authority charge for providing local amenities and services.

Covenants. The rules and regulations governing a property. These are contained in its Title Deeds or Lease.

Credit Reference Agency. These agencies support responsible lending and help people understand their credit. They collect, store, use, and disclose personal and credit-related information about individuals and companies.

Credit Score. A credit score, or crediting rating, is a numerical value that acts as a prediction of your credit behaviour. The score considers several factors, including your repayment history, types of loans you’ve had, length of credit history and any debt you may have. A poor credit score could impact your ability to get a mortgage, loan or credit card.

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Deeds. The legal documents that prove ownership of a property. Records are now held electronically at HM Land Registry.

Default. Default is the failure to repay a debt, including interest, on a loan or debt. A default happens when a borrower misses payments, avoids, or stops making payments.

Deposit. The money used as a payment up front to a solicitor in the purchase of a property. Also known as mortgage deposit.

Deposit Unlock. A scheme that enables first-time buyers and existing homeowners buy a new build home with just a 5% deposit.

Disbursements. Fees paid by a buyer of a property and dealt with on their behalf by the solicitor. Examples include HM Land Registry, search fees and Stamp Duty. Also known as Legal Fees.

Discharge Fee. Paid to some lenders for releasing their hold over a property once you have paid off your loan. This might happen if you pay off your mortgage early before the standard term has run out but is not always the case.

Discounted Rate. This is a type of variable rate mortgage where the lender offers a discount on its standard variable rate for a fixed period. Once you come to the end of that period, you start paying the Standard Variable Rate (SVR), unless you change onto a new deal.

Down Valuation. When a surveyor’s valuation comments indicate the property is not worth the amount you have given on your application.

Draft Contract. A preliminary version of the contract drawn up when the sale is first agreed. This will need to be confirmed by the seller’s solicitor and sets out the conditions.

Draft Transfer. A legal document issued by the purchaser’s solicitors setting out the terms and conditions of sale.

Drive-by Survey. Also known as a Drive-by Valuation. The mortgage provider may not need a physical inspection of the building. Instead, the surveyor will do an external inspection via a “drive-by”, sometimes referred to as a kerbside inspection.

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Early Repayment Charge. A penalty sometimes charged if a mortgage is paid off early. The details will be in your formal offer agreement document.

Endowment Mortgage. Interest-only repayments combined with monthly premiums into an endowment policy. This type of savings policy is designed to pay off the loan at the end of the term.

Energy Performance Certificate (EPC). This certificate measures the energy efficiency of a property using a scale of A to G. It is a legal requirement to have a valid EPC before a property can be put on the market.

Equity. Equity is the ownership of assets, but mortgage equity is the difference between what you owe on your mortgage and the current value of the property.

Equity Release Scheme. This allows older homeowners to release money tied up in their property. There are two types of this scheme: lifetime mortgage and home-revision schemes. You should seek independent financial advice before taking out either.

Exchange of Contracts. The point at which confirmed and signed (by both purchasers and sellers) contracts are physically exchanged. Both the buyer and the seller are now legally bound to the sale and purchase of the property at the agreed price.

Execution Only. If you are receiving an Execution Only Mortgage, it means you are selecting a mortgage without receiving any advice or recommendations from a lender or broker.

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Fixed Rate Mortgage. A mortgage where the interest rate is fixed/set for an agreed term or period.

Fixtures and Fittings. These are the non-structural items included in the purchase of a property. They can include light fittings, central heating boilers and radiators, bathroom suites, kitchen units, TV aerials, and satellite dishes.

Flexible Mortgage. An arrangement where you can increase or decrease your mortgage payments.

Freehold. When the owner of a property also owns the land that it is built on.

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Gazumping. This happens when a seller accepts a higher offer on a property when they have already agreed on an offer from someone, prior to the exchange of contracts.

Gazundering. This happens when a buyer reduces their agreed offer prior to exchanging contracts.

Green Mortgage. A competitive mortgage often gives borrowers preferential terms by offering lower interest rates or increased loan amounts if they can demonstrate the energy efficiency of their property.

Ground Rent. A charge from the freeholder to the leaseholder to occupy the land a leasehold property is built upon.

Guarantor. Someone who signs to agree to pay or guarantee a borrower’s debt or rent if the borrower or tenant defaults (misses a payment).

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Higher Lending Charge. An up front, one-off charge to a lender to protect them against the borrower defaulting on the loan. This usually occurs on mortgages that are over 75% of the property value.

Houses in Multiple Occupancy. Usually describing a building of three floors or more that is occupied by three or more people. These people live as more than one household but share the use of facilities such as bathrooms and kitchens.

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Illustration. Sometimes called a Key Facts Illustration (KFI) or European Standardised Information Sheet (ESIS). This is a document created in the early stages of your mortgage application. It outlines the mortgage that is recommended, along with details of the loan.

Independent Mortgage Advice. This is impartial advice on your mortgage options. It means the person who gives you the advice is not restricted to one or a limited number of mortgage companies, and includes any options only available if you apply direct to the lender.

Individual Savings Account Mortgage (ISA). Interest-only mortgage linked to an ISA fund, which is designed to pay off the loan at the end of the period.

Inflation. The rise in prices over time.

Initial Interest. The interest charged on your mortgage from the day of completion to the end of the first month. For example, if you complete on the 15th of September, you will have 15 days of initial interest to pay for the month. This is usually added to your first full month’s payment.

Interest Charges. The charges that banks make on a loan, calculated as a percentage of the borrowed amount.

Interest-only Mortgage. The borrower only repays the interest on the loan for the duration of its term and must repay the full loan amount on or before the end of the mortgage period.

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Joint Agency. When two estate agents work together to market a property.

Joint Mortgage. A mortgage held by two or more people.

Joint Tenants. A form of ownership of land or property where there are two parties. If one of them dies, their share of the property will transfer automatically to the remaining party which then gives them full ownership.

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Land Certificate. This document is issued by HM Land Registry to the owner of the registered land as proof of ownership. This land document will include a copy of the register and the plan showing the extent of the land.

Land Registry. The official body responsible for maintaining details of property ownership.

Land Registry Fee. To be paid by the buyer to register the ownership of a property with HM Land Registry.

Land Search. This is a formal application for an inspection of the Land Registry. A certificate will be issued to show the current situation of the land in question.

Letting Agent. A letting agent facilitates the agreement between a landlord and tenant for the rental of a residential property.

Lease. The legal document that outlines a freehold or leasehold owner of a property letting the premises or a part of it to another party for a specified length of time. Once this lease expires, the ownership reverts to the freeholder.

Leasehold. Where a person(s) owns a property but only for a set number of years. When the lease expires, the property returns to the freeholder.

Legal Fees. Fees paid to a solicitor by the buyer. Examples include HM Land Registry, search fees and Stamp Duty. Also known as Disbursements.

Link-detached Property. This is a term given to residential units that share no common walls with another property but are connected for example by a garage.

Listed Building. A building which has special architectural or historic interest which is officially listed so that it cannot be demolished or altered without prior local government approval.

Loan to Value (LTV). The size of your mortgage as a percentage of the property’s value. For example, if you put 15% down on a loan that covers the rest of the purchase price, then the LTV is 85%.

London Interbank Offered Rate (LIBOR). This is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. This is set to soon be phased out.

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Maintenance Charge. These are the costs of repairing and maintaining external or internal communal parts of a building. These costs are charged to the tenant or leaseholder.

Maisonette. An apartment, usually over one or two floors, which is self-contained and in a larger house with its own entrance from the outside.

Mortgage. An amount of money advanced by a lender (usually a bank or building society) on the security of a property. This is repayable over a set agreed term.

Mortgage Deed. A contract between a lender and borrower that outlines all the obligations and rights of both parties.

Mortgage Indemnity Guarantee (MIG). Now replaced with the Higher Lending Charge. This relates to Mortgage Indemnity Insurance which is sometimes required by a lender if you are borrowing more than a certain percentage of the value of your home, usually 75%.

Mortgage Payment Protection. Insurance designed to pay your monthly mortgage for a limited period if you are unable to work due to illness, redundancy, or disability. Typically pays for a maximum of 12 or 24 months per claim.

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NHBC Scheme. A building guarantee that is available on some new build homes. It covers any defects that occur within a specified time after construction.

National House Building Council (NHBC). An organisation created to establish good working practices within the housebuilding industry. New homes generally come with a 10-year warranty that covers defects or building damage after construction.

Negative Equity. When a property’s value has dropped below the level of borrowing secured upon it.

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Offer. The sum of money a buyer offers to pay for a property.

Offer of a Loan. A formal document approving the mortgage you have requested and detailing the terms and conditions.

Office Copy Entry. The official document from HM Land Registry which confirms the ownership of and borrowings against a property.

Offset Mortgage. This links your mortgage with a savings and sometimes a current account. Your credit balances are offset against your mortgage debt, so rather than earn interest you only pay interest to your mortgage provider on the difference.

Ombudsman. An independent professional body that investigates complaints on behalf of customers against housebuilders, estate agents, solicitors and insurance companies.

Open House Event. A day or time of a day where a property for sale is open to several applicants to view at the same time.

Open Market Value. The price a property should be able to achieve where there is a willing buyer and seller.

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Pension Mortgage. This is when a person takes out a mortgage and pays instalments into a pension fund together with the interest to the mortgage. When they draw on their pension, the lump sum accessed is used to repay the loan.

Portability. If you can ‘port’ your mortgage, you can transfer your borrowing from one property to another if you move. The lender’s current terms and criteria will still apply so it is not guaranteed that a loan can be ported when required.

Principal. A sum of money lent or invested, on which interest is paid.

Procuration Fee. This is the fee paid to a broker by a lender for procuring (getting) a mortgage for you. It is paid following completion. For a standard residential mortgage, the fee is usually between 0.3% and 0.6% of the total value of the mortgage.

Product Transfer or Rate Switch. With a mortgage product transfer, you can change your current mortgage product to a new one with the same lender.

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Remortgage. This is the refinancing of a property by switching a mortgage from one lender to another.

Redemption. When a mortgage is fully repaid.

Redemption Penalty. A product redemption penalty is a charge that borrowers may have to pay if they redeem the mortgage before a scheme such as a fixed rate expires.

Regulated Buy-to-Let Mortgage. This type of mortgage is used when a property is rented to an immediate family member. The term ‘regulated’ is used because normally Buy-to-Let mortgages aren’t regulated, and this type requires stricter guidelines.

Repayment Mortgage. Sometimes known as a Capital and Interest Mortgage. A mortgage where the monthly payments are used to repay the interest and reduce the outstanding amount so each month you’re paying off part of your mortgage.

Repayment Vehicle. A repayment vehicle (meaning method) is an investment you have running alongside your mortgage to repay the loan. It could include an endowment policy, a stocks and shares ISA, your pension, stock market bonds, investment funds or a property.

Repossession. This occurs when a mortgage lender takes possession of a property because of non-payment of a mortgage. The property is then typically sold for the best open market value and the proceeds are used to repay the loan including any outstanding arrears and costs. Any surplus is still paid to the owner where applicable.

Retention. Where a lender can hold back part of a mortgage until certain conditions are met such as necessary works or improvements.

Right to Buy Scheme. Set up to enable tenants of council houses to buy their homes. This is now available to housing association tenants too.

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Searches. A request or enquiry for information about the property held by a local authority or by HM Land Registry.

Second Charge. A second charge mortgage, also known as a Secured Loan, allows you to borrow money while leaving your existing mortgage in place. For this type of mortgage, you still provide the property as security.

Secured Loan. Secured loans can be used for most large-scale purchases with an asset acting as security on the loan. The most common examples of secured loans are mortgages or car financing.

Semi-Detached. A property which is joined to one other property and is either a house or bungalow.

Service Charge. These charges are paid by the owner to cover the cost of providing various services which include (but are not limited to) maintenance or repair of the building, communal areas, heating, lighting, or security.

Shared Ownership. You can buy a share of a property and pay rent on the remaining share which is owned by a local housing association. Should you wish to, you can buy more shares at a later date in a process known as staircasing.

Short-Term Tenancy. Occupancy of a rental property that starts at a length of one day and can last for a few weeks or a couple of months.

Sole Agent. When the seller has agreed to sell their property through one estate agent only.

Staircasing. Relating to Shared Ownership, staircasing is a process that allows you to increase the percentage of the home you own by buying more shares after you become the owner. When you buy more shares, you will typically pay less rent.

Stamp Duty. A tax to be paid by the buyer on a property. It’s calculated as a percentage of the purchase price so varies depending on the value of the property.

Stamp Duty Holiday. An incentive introduced by the government which changes the amount of tax a buyer must pay on their property.

Standard Variable Rate. This is a mortgage lender’s standard rate of interest. The adjustment of this rate is at the sole discretion of the mortgage lender.

Surveys. Available at different levels based on how much detail they go into; surveys are reports after property inspections that comment on structural conditions and more.

Studio Flat. A flat which consists of one room that contains the cooking, living, and sleeping areas with a separate bathroom or shower room.

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Tenancy Agreement. A contract between a tenant and landlord. The tenancy agreement will outline the terms and conditions of the rental agreement.

Tenancy in Common. A type of property ownership where the percentage held by each party is legally agreed. An owner can bequeath their share to a named beneficiary upon their death.

Tenure. Conditions on which a property is held, for example leasehold or freehold.

Terraced House. A property that forms part of a connected row of houses of three or more.

Tie-in Period. During this time, you are ‘locked in’ to your mortgage deal and may have to pay a fee if you leave. Be aware that some mortgages also tie you in after your introductory rate.

Title Deeds. The legal documents that prove ownership of a property. These are transferred to the new owner on the sale of a property and are now held electronically at HM Land Registry.

Title Insurance. The insurance policy a buyer can take out to allow a sale to complete where there is a potential problem with the documentation proving legal ownership of the land they are buying.

Title Search. An investigation carried out by a conveyancer or solicitor into the history of ownership of a property.

Tracker Mortgage. A mortgage where the interest charged by a lender is linked to a rate, such as the Bank of England base rate, meaning payments can go up or down.

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Under Offer. The status of a property that is for sale when the sellers have accepted an offer from a buyer but are yet to exchange contracts.

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Valuation. A basic survey of a property which estimates the value of it for mortgage purposes. Typically the minimum required for all mortgage applications.

Variable-Rate Mortgage. The interest rate on your mortgage when it can go up or down.

Vendor. The seller of a property.

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Yield. The rental income from a property that is calculated as a percentage of its value.

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