Your mortgage dictionary

Mortgage-related terminology can be a challenge to understand, so beat the jargon with the help of our glossary of key terms and definitions.

• A
• B
• C
• D
• E
• F
• G
• H
• I
• J
• K
• L
• M
• N
• O
• P
• Q
• R
• S
• T
• U
• V
• W
• X
• Y
• Z

A-Z dictionary

A

Approval in principle

After conducting basic financial checks, your lender will make a temporary mortgage loan offer to give you an indication of the properties you can afford to buy. Later on, a successful, full application will also be required.

APR

An APR enables you to compare financial products like-for-like by offering an annualised percentage that is standardised for all lenders and shows you the true cost of borrowing.

Arrears

Should a borrower fail to meet their contractual mortgage payment in full, the account will fall into arrears by the sum that has not been paid.

Asking price

The vendor will name an asking price at the beginning of negotiations for the sale of their property.

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B

Base rate

A rate set by the Bank of England which lenders use as a basis for setting some tracker rates, normally by adding a few per cent.

Buy-to-let mortgage

A mortgage product specifically designed for people who plan to invest in residential property to rent to others.

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C

Cashback

As part of your mortgage product, you may be offered a lump sum. This provides you with ‘cash’ to cover additional costs, like decorating, and is usually paid upon completion of your mortgage.

Conveyancing

A solicitor or licenced conveyancer handles a range of legal paperwork as part of your mortgage application. This will include the transfer of property deeds.

County Court Judgement

A legal order from a county court asking for a debt to be repaid in England and Wales. Judgments are available to credit reference agencies to allow them to assess individuals’ credit-worthiness.

Credit rating

A credit lender will access information from Credit Reference Agencies and review your credit rating to gain a clear picture of your personal finances. This will be used alongside any personal data that you have provided to the lender, such as information from your application, to assess how your credit rating compares to the lender’s own internal credit assessment system results. This process influences their decision to grant the mortgage.

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D

Default

Missed payments, even if unrelated, may result in failure to meet the legal obligations (or conditions) of a loan.

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E

Early repayment charge (ERC)

Some mortgage products include a period during which the lender will fix or provide a discounted interest rate. If you decide to pay off your loan prior to end of that period, your lender will usually ask for an Early Repayment Charge. This charge may also be incurred if a lump sum over a pre-agreed percentage of the loan is paid off during this initial period.

Equity

The difference between a property’s market value and the amount owed to the lender for the mortgage loan.

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F

Fixed rate

To help borrowers budget ahead, most lenders offer products which give them the opportunity to fix their mortgage rate for a set number of payments or until a certain date.

Freehold

A term applied to ownership both of the building and the land upon which it is built.

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G

Guarantor

Some lenders may allow a parent or other person to guarantee to cover payments.

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H

Help to buy

By offering initial support to those who can afford home ownership over the long term, the Government is supporting home ownership.

Home buy schemes

In providing schemes such as Help to Buy, the Government aims to help those with smaller deposits buy their own home. Support can take the form of equity loans or mortgage guarantees, for example.

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L

Leasehold

Those who own a property in England and Wales but not the land it stands on often purchase a leasehold for a long period of time.

Loan to value (LTV)

Expresses the ratio between the loan value compared to the property value. At the point of application, interest rates typically vary by the LTV.

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M

Mortgage payment protection insurance

Should you be unable to pay your mortgage payments due to unemployment, accident or illness, this insurance product can provide cover.

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N

Negative equity

When property value is less than that of its owner’s mortgage loan.

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O

Offset mortgage

Product which allows you reduce the amount of your loan that you pay interest on by the amount you have in current and savings accounts with the lender (by ‘ofsetting’ the balances).

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P

Portability

If you move, a ‘portable’ product move with you to the new property. A separate loan can make up the difference if your new home is more valuable.

Product fee

A fee that you pay to the lender to arrange your mortgage.

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R

Rebuild cost

Your buildings insurer needs to know how much it would cost to rebuild your property from the ground up should the worst happen, so it can calculate your premium.

Remortgage

To take out a new mortgage application for your existing property. This can be with the same or a new lender.

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S

Searches

Your solicitor will check with local authorities and other organisations for information that affects your property, such as planning proposals, as part of your mortgage application.

Shared ownership

Borrowers can sometimes share a mortgage with another party, like a housing association, then pay rent to the association to cover their share of the mortgage.

Stamp duty

If you buy a property valued at more than a certain amount, you must pay stamp duty to the Government. As the property value increases, so does the tax rate. For more information visit www.gov.uk.

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T

Term

You agree to pay back your mortgage during this period.

Tracker mortgage

Tracker mortgages have a shifting interest rate that ‘moves’, usually in line with the Bank of England’s base rate or the lender’s SVR. This means that it can go up as well as down.

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V

Valuation

Before offering you a mortgage, your lender will commission a surveyor to produce this report in order to ensure that the property has been correctly valued. The valuation is used to judge the correct LTV, required to provide the right mortgage product(s) available and assist with the assessment of the mortgage application.

Variable rate mortgage

A mortgage product in which the lender is able to vary the interest rate, either up or down.

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