Mortgage Glossary
69 mortgage terms explained in plain English — no jargon, no waffle.
A
AIP(Agreement in Principle)
A statement from a lender saying they would probably lend you a certain amount based on basic checks. Not a guarantee of a mortgage offer. Also called a Decision in Principle (DIP) or mortgage promise. Usually valid for 60-90 days.
APRC(Annual Percentage Rate of Charge)
The total cost of your mortgage over its full term, including fees and interest, expressed as a yearly percentage. Always higher than the headline interest rate because it factors in arrangement fees and the revert-to rate after any initial deal period ends.
Arrangement fee(Arrangement Fee)
A fee charged by the lender for setting up your mortgage, typically between GBP 500 and GBP 2,000. Can usually be added to the mortgage balance, but you will then pay interest on it for the full mortgage term. Sometimes called a product fee or completion fee.
AML(Anti-Money Laundering)
Legal requirements that mortgage lenders, brokers, and solicitors must follow to verify the source of your funds. This is why you need to prove where your deposit came from, provide ID, and explain any large or unusual transactions. Enhanced checks apply to overseas funds.
B
Base rate(Bank of England Base Rate)
The interest rate set by the Bank of England that influences what lenders charge borrowers. When the base rate goes up, tracker mortgages increase immediately, and fixed-rate deals for new borrowers usually follow. Your existing fixed rate is not affected until your deal ends.
Bridging loan(Bridging Loan)
A short-term loan (typically 1-18 months) used to bridge a gap — for example, buying a new property before selling your current one. Interest rates are much higher than standard mortgages, typically 0.4-1.5% per month. Intended as temporary finance, not a long-term solution.
BNPL(Buy Now Pay Later)
Short-term credit offered by services like Klarna, Clearpay, and PayPal Credit. Since 2023-2024, many BNPL providers now report to credit reference agencies, meaning outstanding BNPL can appear on your credit file and affect mortgage affordability assessments.
Bankruptcy
The most severe form of personal insolvency in England and Wales. You are typically discharged after 12 months, but it remains on your credit file for 6 years from the date of the bankruptcy order. Undischarged bankrupts cannot legally take out credit above GBP 500 without disclosing their status.
C
CCJ(County Court Judgement)
A court order registered against you when a creditor takes you to court for an unpaid debt and wins. Stays on your credit file for 6 years from the date of judgement. If paid within one month of the judgement, it can be removed from the register entirely.
Completion
The final stage of buying a property, when the purchase money is transferred, the keys are handed over, and you legally become the owner. Typically happens 1-4 weeks after exchange of contracts. Your mortgage payments usually start from the first of the month following completion.
Conveyancer(Conveyancer / Conveyancing Solicitor)
A legal professional who handles the legal side of buying or selling a property — including searches, contracts, transferring ownership, and registering the mortgage. Can be a solicitor or a licensed conveyancer. Costs typically range from GBP 800 to GBP 2,000 including searches and disbursements.
Consent to let(Consent to Let)
Permission from your existing mortgage lender to temporarily rent out your property without switching to a buy-to-let mortgage. Usually granted for 12 months at a time and may come with a small interest rate increase. Required if you need to move temporarily for work or personal reasons.
Credit builder card(Credit Builder Card)
A credit card designed for people with poor or no credit history. Comes with a low credit limit and high interest rate, but if you use it for small purchases and pay off in full each month, it builds a positive payment history on your credit file. Common options include Aqua, Capital One, and Vanquis.
CIFAS(CIFAS Marker)
A fraud prevention marker placed on your credit file, either because you have been a victim of fraud (protective registration) or because you have been involved in fraudulent activity (filed by a member organisation). A CIFAS marker can make it difficult to open bank accounts or get credit. Protective registrations should not negatively affect mortgage applications.
D
DIP(Decision in Principle)
The same thing as an Agreement in Principle (AIP) — a preliminary indication from a lender of how much they would be willing to lend you. Some lenders use a soft credit check (which does not affect your score) while others use a hard check, so always ask first.
Deposit(Mortgage Deposit)
The amount of money you put towards the property purchase yourself, with the mortgage covering the rest. Expressed as a percentage of the property value. A larger deposit means a lower LTV ratio, which typically gets you a better interest rate and more lender options.
DMP(Debt Management Plan)
An informal agreement with your creditors to repay debts at a reduced rate, usually arranged through a debt charity like StepChange. Unlike an IVA, it is not legally binding. While less severe than an IVA, it still appears on your credit file through the missed payments and reduced payments that accompany it.
Default(Default Notice)
A formal notice issued by a creditor when you fall significantly behind on payments, typically after 3-6 missed payments. Once registered on your credit file, a default stays for 6 years from the date it was recorded, regardless of whether you subsequently pay it off. Satisfied (paid) defaults are viewed more favourably than unsatisfied ones.
DRO(Debt Relief Order)
A form of insolvency for people with debts under GBP 30,000, assets under GBP 2,000, and disposable income under GBP 75 per month. Lasts 12 months, after which qualifying debts are written off. Stays on your credit file for 6 years and makes getting a mortgage very difficult during that period.
E
EPC(Energy Performance Certificate)
A rating of a property's energy efficiency from A (most efficient) to G (least efficient). Required by law when selling or renting a property. Valid for 10 years. Proposed regulations may require a minimum EPC rating of C for new tenancies, which could also affect mortgage lending in future.
Equity
The portion of the property you actually own outright — the difference between the property's current market value and the amount you still owe on the mortgage. Equity increases as you pay down the mortgage and as the property's value rises. Negative equity means you owe more than the property is worth.
ERC(Early Repayment Charge)
A penalty charged by the lender if you repay your mortgage (or overpay beyond your allowance) during the initial deal period. Typically 1-5% of the outstanding balance, decreasing each year. Always check your ERC schedule before remortgaging, overpaying, or selling during your deal period.
EWS1(External Wall System Form)
A fire safety assessment form for the external walls of residential buildings, introduced after Grenfell. An A rating means no cladding investigation needed. B1 means cladding present but no remediation needed. B2 means remediation is required. Without a satisfactory EWS1, most lenders will not offer a mortgage on affected flats.
Enfranchisement(Leasehold Enfranchisement)
The legal right for leaseholders to purchase the freehold of their building, either individually (for houses) or collectively with other leaseholders (for flats). The cost depends on the property value, remaining lease length, and ground rent. The Leasehold and Freehold Reform Act 2024 aims to make this cheaper and easier.
Exchange(Exchange of Contracts)
The point in the property buying process where the transaction becomes legally binding. After exchange, pulling out will cost you your deposit (typically 10% of the purchase price). Completion usually follows 1-4 weeks later. Your solicitor handles the exchange.
Equity release(Equity Release)
A way for homeowners typically aged 55 or over to access the equity in their home without selling it. Includes lifetime mortgages (you retain ownership) and home reversion plans (you sell part or all of your home). The loan plus interest is repaid when you die or move into care. Must be advised by an Equity Release Council member.
F
Fixed rate(Fixed Rate Mortgage)
A mortgage where the interest rate is locked in for a set period, typically 2 or 5 years. Your monthly payments stay the same regardless of what happens to the Bank of England base rate during that period. When the fix ends, you revert to the lender's SVR (usually much higher), so most people remortgage before that happens.
Freehold
Outright ownership of both the property and the land it sits on, with no time limit. Most houses in England and Wales are freehold. Freehold means no ground rent, no lease to expire, and no freeholder to deal with — you have complete control, subject to planning regulations.
FCA(Financial Conduct Authority)
The UK regulator for financial services firms, including mortgage lenders and brokers. Ensures firms treat customers fairly and follow rules on advice, disclosure, and complaints. Any mortgage broker you use should be FCA-authorised — check at register.fca.org.uk.
Financial association(Financial Association)
A link on your credit file to another person created by joint financial products like joint accounts, joint mortgages, or joint loans. Your associate's credit history can affect your mortgage application. To remove an association with an ex-partner, close all joint accounts and request a financial disassociation from each credit agency.
Flood Re(Flood Re Reinsurance Scheme)
A government-backed scheme that helps make flood insurance affordable for homes in high-risk flood areas. Introduced in 2016, it caps the flood element of buildings insurance premiums based on council tax band. Most residential properties built before 2009 are eligible.
Flying freehold(Flying Freehold)
A part of a freehold property that extends over or under a neighbouring property — for example, a room above a shared passageway. Problematic for mortgages because positive covenants (obligations to maintain) cannot be enforced against future owners of freehold land. Indemnity insurance is usually required.
FSCS(Financial Services Compensation Scheme)
The UK's statutory compensation scheme for customers of authorised financial services firms that have failed. Covers up to GBP 85,000 per person per firm for deposits, and up to GBP 85,000 for investment and mortgage advice claims. If your mortgage broker goes bust, FSCS may cover losses from bad advice.
G
Gazumping
When a seller accepts your offer on a property but then accepts a higher offer from someone else before contracts are exchanged. Legal in England and Wales because the sale is not legally binding until exchange of contracts. Scotland has a different system where offers become binding earlier.
Gifted deposit(Gifted Deposit)
Money given to you by a family member (or occasionally a third party) to use as your mortgage deposit, with no expectation of repayment. The donor must sign a letter confirming it is a gift and they will have no interest in the property. Most lenders accept gifts from immediate family; fewer accept gifts from friends or distant relatives.
Ground rent(Ground Rent)
An annual charge paid by a leaseholder to the freeholder. On older leases, ground rent may double every 10-25 years, which has caused the leasehold scandal. The Leasehold Reform (Ground Rent) Act 2022 capped ground rent on new leases to a peppercorn (effectively zero). Existing leases with escalating ground rent remain problematic.
H
Help to Buy(Help to Buy Equity Loan)
A government scheme (now closed to new applicants in England) where the government lent up to 20% (40% in London) of the purchase price of a new-build home, interest-free for 5 years. Existing borrowers still have equity loans to manage — interest charges begin in year 6 at 1.75%, increasing annually by RPI plus 1%.
I
IVA(Individual Voluntary Arrangement)
A formal, legally binding agreement between you and your creditors to repay part of your debts over a fixed period, usually 5-6 years. An alternative to bankruptcy. Recorded on the Insolvency Register and your credit file. Remaining debts are written off once the IVA is completed successfully.
J
JBSP(Joint Borrower Sole Proprietor)
A mortgage where multiple people (typically parents and child) are jointly responsible for the mortgage payments, but only one person (the child) owns the property. This lets parents boost the borrowing power without being on the property deeds, avoiding second-home stamp duty surcharges.
K
KFI(Key Facts Illustration)
A standardised document that lenders must provide showing the key details of a mortgage product, including the interest rate, monthly payments, total amount payable, fees, and what happens when the deal period ends. Designed to make it easy to compare products from different lenders on a like-for-like basis.
L
Leasehold
Ownership of a property for a fixed period (the lease term), while someone else (the freeholder) owns the land. Most flats in England and Wales are leasehold. You may pay ground rent and service charges to the freeholder. When the lease expires, ownership reverts to the freeholder, though you have rights to extend.
LTV(Loan to Value)
The size of your mortgage expressed as a percentage of the property's value. A GBP 180,000 mortgage on a GBP 200,000 property is 90% LTV. Lower LTV means a bigger deposit and typically gets you better interest rates. Most lenders offer their best rates at 60% LTV or below.
LISA(Lifetime ISA)
A savings account for first-time buyers under 40 where the government adds a 25% bonus on contributions up to GBP 4,000 per year. Can be used towards a property costing up to GBP 450,000. Withdrawing for any other purpose incurs a 25% penalty, which means you lose some of your own money as well as the bonus.
M
MIG(Mortgage Indemnity Guarantee)
An insurance policy that protects the lender (not you) if they have to repossess and sell your property for less than the outstanding mortgage. Sometimes charged to borrowers at high LTV (typically 90%+). Less common now than in previous decades, but some lenders still charge it or build the cost into their rates.
Mortgage deed(Mortgage Deed)
The legal document you sign that gives the lender a legal charge over your property as security for the loan. This is what allows the lender to repossess the property if you fail to keep up repayments. It is registered with the Land Registry alongside the property ownership.
Mortgage prisoner(Mortgage Prisoner)
Someone trapped on their existing mortgage deal — often a high SVR — because they cannot pass current affordability checks to remortgage, even though they have been making payments without problems for years. Often affects borrowers whose loans were sold by failed lenders (like Northern Rock) to inactive lenders or investment funds.
Marriage value(Marriage Value (Leasehold))
The increase in the value of a property that results from extending a short lease. When a lease drops below 80 years, the leaseholder must pay 50% of the marriage value to the freeholder as part of the lease extension cost. The Leasehold and Freehold Reform Act 2024 proposes to abolish marriage value, though implementation dates vary.
Missives(Missives (Scotland))
The Scottish equivalent of exchange of contracts. A series of formal letters between buyer's and seller's solicitors that form a binding contract when concluded. Scottish property transactions become legally binding earlier in the process than in England and Wales, making gazumping much less common.
N
Negative equity(Negative Equity)
When your property is worth less than the outstanding mortgage balance. For example, if you owe GBP 200,000 but the property is only worth GBP 180,000, you have GBP 20,000 of negative equity. This makes it very difficult to remortgage or sell without making up the shortfall from savings.
NHBC(National House Building Council)
The main provider of new home warranties in the UK. An NHBC Buildmark warranty covers structural defects for 10 years on new-build homes. Most mortgage lenders require either an NHBC warranty or equivalent (such as LABC, Premier Guarantee, or Zurich) before they will lend on a new build.
O
Offset mortgage(Offset Mortgage)
A mortgage linked to your savings account, where your savings balance is deducted from your mortgage balance for the purpose of calculating interest. If you have a GBP 200,000 mortgage and GBP 30,000 in savings, you only pay interest on GBP 170,000. Your savings do not earn interest but the tax-free mortgage interest saving can be more valuable.
P
Porting(Porting a Mortgage)
Moving your existing mortgage deal to a new property when you move house, rather than paying an early repayment charge and taking a new deal. Most mortgage offers are portable in theory, but you still need to pass the lender's affordability checks for the new property and loan amount.
Procuration fee(Procuration Fee (Proc Fee))
The commission a lender pays to a mortgage broker for introducing your business. Typically 0.3-0.4% of the loan amount. This is how fee-free brokers make their money. The fee is paid by the lender and does not come out of your pocket or increase your mortgage rate.
PIP(Personal Independence Payment)
A benefit for people with long-term health conditions or disabilities, replacing Disability Living Allowance (DLA) for adults. Not means-tested and not affected by savings or other income. Some mortgage lenders accept PIP as income for affordability purposes, though policies vary.
R
Remortgage
Switching your mortgage to a new deal, either with your existing lender (a product transfer) or a new lender. Most people remortgage when their initial fixed or tracker rate ends to avoid reverting to their lender's higher SVR. You can also remortgage to release equity or borrow more.
Repossession
When a lender takes legal ownership of your property because you have failed to keep up with mortgage payments. This is a last resort — lenders must follow a strict process including giving you opportunities to catch up. A repossession stays on your credit file for 6 years and is one of the most serious adverse credit events.
RIO(Retirement Interest-Only Mortgage)
A mortgage for borrowers in or approaching retirement where you only pay the interest each month — the capital is repaid when you die, move into care, or sell the property. Introduced in 2018 as an alternative to equity release. Some lenders have no upper age limit.
S
Second charge(Second Charge Mortgage)
An additional loan secured against your property, sitting behind your main mortgage. If the property is sold, the first charge (main mortgage) is paid off first, then the second charge. Interest rates are higher than first charge mortgages. Sometimes used to raise capital without disturbing a favourable existing mortgage rate.
Shared ownership(Shared Ownership)
A government-backed scheme where you buy a share of a property (typically 25-75%) and pay rent on the remainder to a housing association. You can buy additional shares over time (staircasing) until you own it outright. Mortgage options are more limited than for full ownership, as not all lenders offer shared ownership products.
Stamp duty(Stamp Duty Land Tax (SDLT))
A tax paid to HMRC when you buy a property in England or Northern Ireland above a certain price threshold. First-time buyers pay no stamp duty on the first GBP 425,000. A 3% surcharge applies on additional properties. Scotland and Wales have their own equivalents (LBTT and LTT respectively).
SVR(Standard Variable Rate)
The lender's default interest rate that you move to when your initial fixed or tracker deal ends. Typically 1-3% higher than the best available deals. There is usually no early repayment charge on SVR, so you can leave at any time, but most people remortgage before reaching SVR to avoid the higher rate.
SA302(SA302 Tax Calculation)
An HMRC document showing your income and tax paid for a specific tax year. Essential for self-employed mortgage applicants — most lenders require SA302s for the last 2-3 years. Download from your HMRC online account or request from your accountant.
Section 21(Section 21 Notice)
A notice that a landlord in England can serve to end an assured shorthold tenancy without giving a reason, sometimes called a no-fault eviction notice. Currently requires 2 months notice. The Renters Reform Bill proposes to abolish Section 21 notices entirely.
Section 42(Section 42 Notice (Lease Extension))
A formal notice served by a leaseholder on the freeholder to initiate a statutory lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. Starts a legal process with defined timescales. Requires 2 years of ownership before you can serve one.
Staircasing(Staircasing (Shared Ownership))
The process of buying additional shares in a shared ownership property, increasing the percentage you own. You can staircase in steps (usually 10% or more) until you own 100%. Each step requires a new valuation and may need a new mortgage application. Remortgage options may be available.
Standard security(Standard Security (Scotland))
The Scottish equivalent of a mortgage charge on property. Under the Conveyancing and Feudal Reform (Scotland) Act 1970, lenders take a standard security over the property as collateral. The legal framework differs from English mortgages but the practical effect is the same.
T
Tracker rate(Tracker Rate Mortgage)
A mortgage with an interest rate that moves directly in line with the Bank of England base rate, set at a fixed margin above (or occasionally below) it. For example, base rate plus 1% means if the base rate is 4.5%, you pay 5.5%. Your payments go up and down as the base rate changes, with no cap unless specified.
Transfer of equity(Transfer of Equity)
The legal process of adding or removing someone from the ownership of a property. Common in divorce, when a couple separates, or when a parent wants to add a child to the deeds. Requires the mortgage lender's consent and a new affordability assessment for the remaining or new parties.
V
Valuation(Mortgage Valuation)
A basic assessment of a property's value carried out for the lender to confirm the property is adequate security for the mortgage. This is not the same as a homebuyer's survey — it is a brief check for the lender's benefit, not yours. Some lenders offer free valuations, while others charge GBP 200-1,500 depending on the property value.