This comprehensive mortgage and property finance glossary is designed to provide clear, technical definitions for the specialist terminology and acronyms used throughout the UK lending market.
It’s not only first-time homebuyers who struggle to understand the various acronyms scattered throughout the mortgage industry. Even experienced homebuyers and property investors who have purchased before often approach us with enquiries about the common phrases used during the mortgage process.
We understand that you may not be familiar with terms like LTVs (Loan-to-Value ratios) or DTIs (Debt-to-Income ratios), that’s why we’re here. However, having a grasp of the fundamentals can streamline your application and provide you with the confidence that you fully comprehend the agreement you’re signing.
To assist you, we’ve compiled a comprehensive glossary, covering everything from A to Z in mortgage jargon. But remember, if you have any specific questions of your own, feel free to reach out to us. We’re always available to provide the answers you need.
ARRANGEMENT FEE
An arrangement fee is a charge paid to a lender to cover the administrative costs of setting up a mortgage. You can usually choose between paying the fee upfront or adding it to the mortgage balance. Note that if you add it to your mortgage, you will pay interest on that amount over the life of the loan.
BUY-TO-LET
A Buy-to-Let mortgage is a specific type of loan intended for individuals who wish to purchase a property as an investment rather than a primary residence. These mortgages are only available for properties you do not intend to live in. Generally, they require a larger deposit than a standard residential mortgage.
CHAPS FEE
A CHAPS fee is a payment that covers the lender’s administrative costs for the electronic transfer of mortgage funds to your solicitor. This ensures the secure and timely delivery of capital on the day of completion.
COMPLETION
Completion is the final legal stage of the property transaction when the buyer’s lender transfers the funds to the seller and ownership is officially transferred. The buyer cannot take possession of the property before this point is reached and all legal formalities are concluded.
DECISION IN PRINCIPLE (DIP)
A Decision in Principle is a written statement from a lender indicating the amount they are likely to lend a borrower based on a preliminary assessment of basic information. Also known as an Agreement in Principle (AIP) or Mortgage Promise, this is not a guarantee of a loan but is highly beneficial when negotiating with sellers and estate agents to prove your credibility.
EARLY REPAYMENT CHARGE (ERC)
An Early Repayment Charge is a penalty fee applied by a lender if you switch mortgages or overpay beyond an agreed limit during a specific deal period. This charge protects the lender’s expected interest earnings if you exit the agreement early or reduce the balance too quickly.
EXCHANGE OF CONTRACTS
Exchange of contracts is the point in a property transaction where the signed legal agreements are swapped between the buyer and seller, making the sale legally binding. Once this happens, neither party can withdraw from the transaction without significant financial penalties.
EXIT FEE
An exit fee is a charge applied by a lender for closing your mortgage account after the loan has been repaid or transferred. This may occur if you switch to another lender or remortgage onto a different deal with the same provider.
HIGHER LENDING CHARGE (HLC)
A Higher Lending Charge is a fee applied by lenders when the amount borrowed exceeds a specific percentage of the property’s value. This fee is designed to cover the increased risk of high-LTV lending. Lenders may use this to purchase a Mortgage Indemnity Guarantee (MIG) to protect themselves against potential default.
LEGAL FEES
Legal fees are the costs paid to a solicitor or licensed conveyancer to manage the legal transfer of property ownership. This administrative and legal process is commonly known as conveyancing.
LOAN-TO-VALUE (LTV)
Loan-to-Value is a financial ratio that expresses the size of a mortgage as a percentage of the total property value. For example, if you have a £150,000 mortgage on a house worth £200,000, your LTV is 75%.
MORTGAGE OFFER
A mortgage offer is a formal document issued by a lender confirming they are willing to lend you a specific amount under set conditions. This document is usually valid for up to 6 months and signals that the lender’s valuation and credit checks are complete.
MORTGAGE TERM
The mortgage term is the total duration of time over which you have agreed to repay the loan.
PORTABILITY
Portability is a mortgage feature that allows a borrower to transfer their existing interest rate and loan terms to a new property when moving home. This allows you to avoid early repayment charges, provided the lender approves the new property.
REDEMPTION STATEMENT
A redemption statement is a document from your lender that details the total amount required to pay off your mortgage in full on a specific date. This includes the remaining capital balance, any accrued interest, and applicable exit fees.
REMORTGAGE
A remortgage is the process of switching your current mortgage to a new lender or deal without moving to a new property. The primary reasons for remortgaging are to reduce monthly payments, raise capital against the home, or switch to a more suitable mortgage type.
VENDOR
A vendor is the legal owner who is selling the property.
MORTGAGE TYPES EXPLAINED
INTEREST-ONLY MORTGAGE
An interest-only mortgage is a loan where monthly repayments cover only the interest on the capital borrowed, leaving the original loan amount unchanged. Under this method, the capital balance remains the same throughout the term. You will typically need to pay into a separate savings or investment plan designed to pay off the full loan amount at the end of the agreed period.
REPAYMENT MORTGAGE
A repayment mortgage is a loan where monthly payments cover both the interest and a portion of the original capital, ensuring the debt is fully cleared by the end of the term. As long as all payments are made on time, the loan balance gradually reduces to zero, and you will own the property outright at the end of the mortgage term.
INTEREST RATE TYPES
DISCOUNT RATE
A discount mortgage provides a set reduction on the lender’s Standard Variable Rate (SVR) for a fixed period. These deals typically last two or three years. Once the deal ends, your rate will usually revert automatically to the lender’s full SVR.
FIXED RATE
A fixed-rate mortgage is a loan where the interest rate remains constant for a pre-agreed period, ensuring your monthly payments never change during that time. At the conclusion of the fixed term, the rate usually moves to the lender’s Standard Variable Rate (SVR).
LIBOR RATE
A LIBOR mortgage is a loan that tracks the London Inter-Bank Offered Rate for a set period, moving up or down in line with that benchmark. While these deals are no longer as common as they once were, some specialist lenders still offer them.
OFFSET MORTGAGE
An offset mortgage links your savings account to your mortgage, charging interest only on the net difference between the two balances. For example, if you have a £100,000 mortgage and £20,000 in savings, you only pay interest on £80,000. This can significantly reduce interest costs and help you clear the debt faster.
STANDARD VARIABLE RATE (SVR)
The Standard Variable Rate is the default interest rate a lender charges, which can be increased or decreased by the lender at any time. This rate often changes in response to movements in the Bank of England base rate.
STEPPED RATE
A stepped-rate mortgage is a deal where the interest rate increases at set intervals, usually starting low in the first year and rising annually. These are often subject to early exit penalties if you try to switch before the deal concludes.
TRACKER RATE
A tracker mortgage is a variable-rate loan that moves directly in line with a specified benchmark, usually the Bank of England base rate. These deals typically last two to five years, though “lifetime trackers” are available. Because the rate can be low, it is often a good opportunity to overpay and shorten the total loan term.
VARIABLE RATE
A variable-rate mortgage is a loan where your monthly payments can fluctuate at any time based on changes in interest rates. It is important to have savings set aside to ensure you can afford payment increases if rates rise.