Mortgage jargon buster: every term explained

Also called a Decision in Principle or Mortgage in Principle. A written statement from a lender indicating how much they would be willing to lend you based on your financial information and a credit check. Not a formal mortgage offer, it is provisional, but it is taken seriously by estate agents and sellers as evidence that you are a credible buyer.

A standardised figure that represents the total cost of a mortgage per year, including the interest rate and any fees, expressed as a percentage. It allows you to compare the true cost of different mortgage products over their full term.

A fee charged by some lenders when you take out a mortgage product. Also called a product fee or booking fee. Typically between £500 and £1,500. Can usually be added to the mortgage, though you will pay interest on it if you do.

Mortgage payments that are overdue. If you miss one or more payments, you are said to be in arrears. Lenders are required to work with borrowers in arrears before taking enforcement action, but arrears have a significant negative impact on your credit file.

The interest rate set by the Bank of England. It influences the rates that lenders charge on mortgages and other financial products. Tracker mortgages move directly in line with the base rate.

Insurance that covers the physical structure of your home against damage from fire, flooding, storm, subsidence, and other specified risks. Required by your mortgage lender as a condition of the mortgage and must be in place from the point of exchange.

A mortgage designed for properties that are purchased as investments to be rented out, rather than for the buyer to live in. The criteria, deposit requirements, and rates are different from residential mortgages.

The amount you have borrowed, as distinct from the interest charged on it. On a repayment mortgage, each monthly payment reduces the outstanding capital as well as paying the interest.

See Repayment mortgage.

A variable rate mortgage with a ceiling on how high the interest rate can rise, regardless of movements in the base rate. Provides some protection against rising rates while retaining the potential benefit of falling rates.

A mortgage product that pays a lump sum to the borrower on completion. The cashback is typically funded by a higher interest rate over the product term.

A sequence of property transactions that are linked together, where each buyer is also a seller in another transaction. If one link in a chain falls through, it can affect all the others.

The final stage of the property purchase, on which the remaining funds transfer, legal ownership passes to the buyer, and the keys are handed over.

Insurance that covers your personal possessions inside the home. Not legally required, but strongly advisable.

The legal process of transferring ownership of a property from seller to buyer. Carried out by a solicitor or licensed conveyancer.

A court order issued against someone who has failed to repay a debt. CCJs appear on your credit file and have a significant negative impact on your ability to obtain credit, including a mortgage.

A numerical representation of your creditworthiness, based on your credit history. Different agencies calculate this differently, and lenders use their own internal scoring systems rather than relying solely on the score provided by credit reference agencies.

See Agreement in Principle.

The legal documents that prove ownership of a property. Now mostly held electronically by the Land Registry rather than as physical documents.

A formal record on your credit file indicating that a credit agreement has broken down because payments were not maintained. Defaults remain on your credit file for six years and affect your ability to obtain credit.

The sum of money you contribute toward the purchase price of a property from your own resources. The minimum deposit for most mortgage applications is 5% of the purchase price. A larger deposit typically results in better mortgage rates.

A variable rate mortgage that offers a reduction on the lender's Standard Variable Rate for a set period. If the SVR changes, your rate changes by the same amount.

A fee charged by lenders if you pay off your mortgage, or overpay beyond the permitted threshold, during a product period such as a fixed rate. Typically between 1% and 5% of the outstanding balance, reducing over the term of the product. Designed to compensate the lender for the interest they expected to receive.

The portion of the property's value that you own outright: the difference between the property's current market value and the outstanding mortgage balance. As you repay the mortgage and as property values change, your equity increases or decreases.

The legal moment at which both buyer and seller become contractually committed to the transaction. The buyer pays their deposit at exchange. Neither party can pull out without significant financial consequences after this point.

A mortgage where the interest rate is locked in for a set period, typically two, three, or five years. Your monthly payment stays the same regardless of changes in the base rate or the lender's SVR during the fixed period.

A form of property ownership in which you own the property and the land it sits on outright, with no time limit. Most houses are freehold. Contrast with leasehold.

See Building survey.

When a seller accepts a higher offer from another buyer after already agreeing a sale with you, but before exchange of contracts. Common in competitive markets where the period between offer acceptance and exchange is long.

When a buyer reduces their offer at the last moment before exchange, putting pressure on the seller to accept or risk the sale falling through.

An annual charge payable by the owner of a leasehold property to the freeholder. Ground rent has been the subject of significant controversy and legislative reform in recent years. New leases in England now cannot charge ground rent above a peppercorn (nominal) amount.

A mortgage arrangement in which a third party, typically a parent, agrees to cover the mortgage payments if the borrower cannot. The guarantor's assets or income may be used as additional security, and they are legally liable for the debt if the borrower defaults.

A mid-level property survey that assesses the condition of the property, identifies significant defects and risks, and provides a market valuation. Less comprehensive than a full structural survey but more detailed than a mortgage valuation.

A mortgage where monthly payments cover only the interest charged on the loan. The capital (the amount originally borrowed) does not reduce during the term. At the end of the term, the full original amount is still owed and must be repaid. Common for buy to let mortgages.

A formal agreement between a debtor and their creditors to repay a portion of their debts over a set period. An IVA has a significant negative impact on credit files and makes obtaining a mortgage very difficult for several years after it is discharged.

The government body responsible for registering ownership of property in England and Wales. When you buy a property, your solicitor registers your ownership with the Land Registry.

A form of property ownership in which you own the right to occupy the property for the duration of a lease, rather than owning the property and land outright. Most flats are leasehold. The freeholder owns the building and land. Lease lengths matter significantly: a lease below 80 years makes a property difficult to mortgage and sell.

The size of the mortgage expressed as a percentage of the property's value. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV means less risk for the lender and better rates for the borrower.

A loan secured against a property, used to purchase that property. The lender has a legal charge over the property, meaning they can repossess it if the borrower fails to maintain payments.

See Agreement in Principle.

The length of time over which the mortgage is to be repaid. Typically between 10 and 35 years. At the end of the term, the mortgage is fully repaid.

A basic assessment of the property commissioned by the lender to confirm that it is worth at least what they are being asked to lend against it. Not a survey: it protects the lender's interests, not the buyer's.

The situation where the outstanding mortgage balance exceeds the current market value of the property. This typically occurs if property values fall after purchase. Negative equity makes remortgaging and selling the property more difficult.

A mortgage linked to one or more savings accounts. The savings balance is offset against the mortgage balance for the purpose of calculating interest, reducing the interest charged. You do not earn interest on the savings, but you pay less interest on the mortgage.

Paying more than the required monthly mortgage payment in order to reduce the outstanding balance faster. Most standard mortgage products allow overpayments of up to 10% of the outstanding balance per year without incurring an Early Repayment Charge.

A period agreed with the lender during which mortgage payments are paused or reduced. Interest typically continues to accrue, and the missed payments are added to the outstanding balance or spread over the remaining term.

The ability to transfer your existing mortgage product to a new property when you move, without paying Early Repayment Charges. Not all mortgages are portable, and portability is subject to the lender's approval of the new property and your continued affordability.

See Arrangement fee.

The cost of demolishing and rebuilding your property from scratch, used as the basis for buildings insurance cover. Different from, and not necessarily the same as, the market value.

Switching to a new mortgage product, either with your existing lender or a new one. Typically done when a fixed rate period ends, to avoid moving onto the Standard Variable Rate.

A mortgage where each monthly payment covers both interest and a portion of the capital. Over the term, the outstanding balance reduces to zero and you own the property outright.

A sum withheld by the lender from the mortgage advance until certain works are completed. Common when a mortgage valuation identifies significant repairs that the lender requires before releasing the full amount.

Enquiries carried out by your solicitor to check for issues that might affect the property or your decision to buy. Standard searches include a local authority search (planning, road schemes), water and drainage search, and environmental search.

An annual charge payable by the owner of a leasehold property to the freeholder or management company, covering the cost of maintaining shared areas and the building. Can vary significantly between developments.

A government tax on property purchases in England and Northern Ireland. First-time buyers benefit from reduced rates on properties up to £625,000. Rates and thresholds can and do change.

The default interest rate charged by a lender when a borrower is not on a specific product deal. Almost always higher than the rates available on new products. Most borrowers remortgage before reaching the SVR.

The status of a property once an offer has been accepted but before exchange of contracts. The sale is agreed in principle but not yet legally binding. Either party can still withdraw.

An independent inspection of the property's physical condition, commissioned by the buyer. More detailed than a mortgage valuation. Options include a homebuyer's report and a full structural survey.

A form of joint property ownership in which each owner holds a defined share that can be unequal and that passes according to their will on death. Contrast with joint tenancy.

The period during which Early Repayment Charges apply to a mortgage product. For a five-year fixed rate, the tie-in period is typically five years.

See Deeds.

Insurance taken out to protect against defects in legal ownership, for example, if a previous owner's title was not clear. Sometimes required when searches reveal certain risks.

A variable rate mortgage where the interest rate moves directly in line with the Bank of England base rate, plus a set margin. If the base rate rises by 0.25%, so does the mortgage rate.

The legal process by which ownership of a property is changed, for example, adding or removing a name from the title. Typically involves legal work and, where a mortgage is involved, lender consent.

The situation where the sum insured on a buildings insurance policy is lower than the actual rebuild cost. In the event of a claim, most insurers apply proportional settlement, meaning they pay only the fraction of the claim that corresponds to the fraction of the rebuild cost you are insured for.

See Mortgage valuation.

A mortgage where the interest rate can change over time, in contrast to a fixed rate. Types include tracker mortgages, discount mortgages, and the Standard Variable Rate.

A mortgage adviser who has access to products from across the full lending market, rather than being restricted to the products of a single lender or a panel of lenders. Able to compare a wider range of products and find the most appropriate deal for your specific circumstances.