The A to Z of mortgage terms

A

Agreement in Principle (AIP)

Also known as a Decision in Principle or Mortgage in Principle. This document shows how much a lender might be willing to lend you.

It's like a financial green light that tells a seller and their estate agent you're a serious buyer. While not a guarantee, it's incredibly useful when house hunting.

Annual Percentage Rate of Charge (APRC)

The APRC shows the total cost of your mortgage over the term as an annual percentage, including interest rates and fees. It's designed to help you compare different mortgage offers on a like-for-like basis.

Affordability checks

Lenders assess your income, outgoings, and spending habits to ensure you can comfortably afford the mortgage repayments, even if interest rates rise.

These checks are a crucial part of responsible lending.

Application fee

An upfront, non-refundable fee paid when you apply for a mortgage. Not all lenders charge this, so it's worth shopping around.

B

Base rate

Set by the Bank of England to help control inflation. This rate influences interest rates across the UK. So, this often means that when the base rate changes, variable mortgage rates tend to follow suit.

Broker

Think of a mortgage broker as your personal mortgage shopping assistant and guide rolled into one. Simply put, a mortgage broker is an adviser who can help you with mortgages (and sometimes protection), acting as the middleman between you and potential lenders and insurers.

A mortgage broker is often also known as a mortgage consultant.

Buy-to-Let

A mortgage specifically for purchasing property as an investment to rent out. These typically require larger deposits and have different lending criteria than residential mortgages.

C

Capital

This is the amount of money you actually borrow from the lender. It’s the main loan amount before any interest is added.

For example, if you were buying a house for which you’ve borrowed £180,000 from a mortgage lender with an interest rate of 4.1%, the term ‘capital’ only refers to the £180,000.

Conclusion of missives

You’ll only come across this term in Scotland and it’s what happens when the contracts are exchanged on your property purchase.

Basically, in the run-up to the conclusion of missives, the buyer’s property lawyers and the seller’s property lawyers exchange letters in which they negotiate the terms of the property sale. These letters are called ‘missives’. Once both sides agree on everything and the final letters are exchanged, you've reached 'conclusion of missives'.

It is also the moment when your property purchase becomes legally binding in Scotland.

If you’re more familiar with the English or Welsh term ‘exchange of contracts’, consider this the Scottish equivalent.

Consultant

Here at Karri, we use the terms (mortgage) broker and (mortgage) consultant interchangeably. So, you can consider your consultant as your adviser who can help you with mortgages and protection, acting as the middleman between you and potential lenders and insurers.

Conveyancing

The legal process of transferring property ownership from seller to buyer. A solicitor, property lawyer or licensed conveyancer handles this crucial paperwork.

Credit score requirements

Your credit score reflects your financial history and reliability in respect of making payments on time.

Lenders use this to assess whether you're a responsible borrower. Different lenders have different minimum score requirement.

You can get an idea of what your score is using various online tools. Just keep in mind that these can vary between platforms.

D

Decision in principle

Also known as an Agreement in Principle (see above) or Mortgage in Principle, this document shows how much a lender might be willing to lend you. It's like a financial green light that tells the seller and their estate agents you're a serious buyer. While not a guarantee, it's incredibly useful when house hunting.

Deposit

Your (mortgage) deposit is the cash amount you contribute towards buying the property.

For example, if you’re buying a property worth £200,000, and you’re paying in £20,000, your deposit is the £20,000. In this case, your deposit is worth 10% of the overall property value.

Typically, deposits range from 5% to 40% of the property value, a larger deposit often means better interest rates as this means you won’t need to borrow as much from the lender.

Discounted rate mortgage

A discounted variable rate mortgage set at a percentage below the lender's Standard Variable Rate (SVR) for a fixed period. Your payments can still go up or down, but you'll maintain that discount.

E

Early Repayment Charges (ERC)

These are fees that you may be charged if you pay off your mortgage early or overpay beyond agreed limits during a set period. These protect lenders but can be costly, so check the terms carefully.

Equity

The portion of your property you actually own, which you can find out by calculating the difference between your property's value and what you owe on the mortgage. As you pay down your mortgage and property values change, your equity adjusts.

Here's a simple example: Every time you make a monthly mortgage payment on a repayment mortgage, your equity increases as you pay off more and more of the money you borrowed from a lender. Once you’ve paid off what you borrowed (and the interest on that), you will own 100% of your property.

Exchange of contracts

This is the point where the property sale becomes legally binding in England and Wales. After this, pulling out of the agreement can be expensive, so make sure you're certain before reaching this stage.

F

Fixed rate mortgage

A fixed rate mortgage is one of the most popular interest rate types. This is because a fixed rate keeps your interest rate the same for a set period, typically two to five years. This gives you payment certainty for that period but may mean missing out if rates fall.

Freehold

A freehold is when you own both the property and the land it sits on. This is the most common form of property ownership in the UK.

The counterpart to this is leasehold (see below).

G

Guarantor mortgage

A guarantor mortgage is where a third party (often a parent or relative) agrees to cover your mortgage payments if you can't. This can help first-time buyers with limited income or adverse credit history get onto the property ladder.

H

Homeowner

A Homeowner is the legal owner of the property and in most cases will be the named borrower on the mortgage.

I

Interest-only mortgage

With in an interest-only mortgage, you will only pay off the interest on the amount you have borrowed.

The capital remains unchanged throughout the mortgage term, and you'll need a plan to repay it at the end of the term.

J

Joint Borrower Sole Proprietor (JBSP)

This method allows family members or friends to help with affordability by joining the mortgage (and sharing responsibility for mortgage repayments) without owning the property. JBSP is becoming an increasingly popular option for first-time buyers to help them get on the property ladder.

L

Leasehold

A leasehold property is where you own the property for a set number of years but not the land that it sits on. This is a common agreement with flats.

If you’re interested in buying a leasehold property, take a look at how long the lease is for and watch out for properties with short leases (80 years or less) as they can be problematic, as the lease will have to renewed/extended.

Note there can be additional charges for the upkeep, repair and management of the general areas and shared spaces. These are known as Maintenance fees or Service Charges.

The counterpart to this is freehold (see above).

Land and Buildings Transaction Tax (LBTT)

LBTT is the tax charged on residential property purchases in Scotland and works on a progressive rate system. This means you pay different rates on different portions of the property price, rather than one flat rate on the whole amount.

Scottish first-time buyers have more generous thresholds than England and don’t pay any LBTT on properties up to £175,000.

Land Transaction Tax (LTT)

If you’re buying a property in Wales, you’ll pay Land Transaction Tax. Like the English SDLT and the Scottish LBTT, it uses a progressive rate system, where different portions of the property price are taxed at different rates.

Unlike England and Scotland, Wales offers no first-time buyer relief, but you don’t pay LTT on residential properties up to and including £225,000 (unless you already own another residential property).

Loan-to-Value (LTV)

The Loan-to-value (LTV) ratio expresses your mortgage as a percentage of the property value.

For example, a £180,000 mortgage on a £200,000 property equals 90% LTV. You'll often find that the lower your LTV, the better your interest rate will be on your mortgage, as your deposits tends to be bigger and you typically need to borrow less.

M

Mortgage

A mortgage is a loan that’s secured against a specific property. The more you pay off your mortgage, the more of the property you own.

On the other hand, if you can't keep up with the repayments, the lender can ultimately repossess your home. This is why the affordability checks that every mortgage borrower goes through are so important, as they aim to avoid borrowers falling behind on payments.

Mortgage offer validity

Mortgage offers typically last three to six months, so if your purchase takes longer, you might need to reapply or get an extension.

Mortgage term

The total length of time you'll take to repay your mortgage, commonly 25 to 35 years. Longer terms mean lower monthly payments but more interest overall.

N

Negative equity

Negative equity is a term used when your mortgage exceeds your property's value. This can happen if property prices fall significantly after you buy.

O

Offset mortgage

An offset mortgage links your savings to your mortgage, reducing the interest you pay. While your savings don't earn interest, they can effectively reduce your mortgage balance for interest calculations.

Overpayments

This is when you pay more than your required monthly amount on your mortgage payments. Doing this reduces your balance faster and saves interest, but before you do this, always check your agreement for any Early Repayment Charges first.

P

Product fee

The mortgage you choose is usually referred to as a product, so the product fee is what the lender charges for arranging your mortgage. You may also see it referred to as an arrangement fee. This can often be added to your mortgage but will then accrue interest.

Porting

If you’ve already got a mortgage on a property you’ve bought and are now moving into a new home, porting is that act of taking your existing mortgage deal with you when you move house.

Not all mortgages are portable, so check if you might move during your deal period.

R

Remortgage

This refers to switching your mortgage to a new deal, either with your current lender (product transfer) or a new one. People often remortgage when their initial deal ends to avoid higher rates.

Repayment mortgage

A repayment mortgage is the most common mortgage type and is when you pay both capital and interest each month. Paying both means that your mortgage balance reduces over time, ensuring it's fully paid off at the end of your mortgage term.

S

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax (SDLT) is a tax on property purchases in England and Northern Ireland. First-time buyers get relief on properties up to £300,000. Scotland and Wales have different systems.

Standard Variable Rate (SVR)

The SVR is the lender's default rate that you'll move to after your initial mortgage deal ends. It's usually higher than other available rates, which is why many borrowers tend to remortgage.

Survey

A survey is an inspection to check the property's condition and value. It is something you should consider carefully. Basic valuations satisfy lender requirements, but more comprehensive surveys are available to give you some peace of mind about your purchase.

T

Tracker mortgage

A tracker mortgage follows an external rate (usually the Bank of England base rate) plus a set margin. Your mortgage payments rise and fall with the tracked rate.

V

(Mortgage) Valuation

A mortgage valuation is the lender's assessment of the property's worth. This protects them by checking the property can cover the loan amount if necessary and you) can use it to check you’re not overpaying, though it's less detailed than a full survey.

The valuation is undertaken for the lender’s benefit, whereas a survey is conducted on your behalf and you keep all the documentation.

Variable rate mortgage

A variable rate mortgage is any mortgage where the interest rate can change. This includes SVRs, trackers, and discounted rates.

Frequently asked questions about mortgage terms

What mortgage terminology do I need to understand first?

Start with the basics: deposit, LTV, interest rates, and mortgage term. These fundamentals affect your monthly payments and total cost most directly.

How do I know which type of mortgage is right for me?

Consider your circumstances. Fixed rates suit those wanting payment certainty, while variable rates might work if you're comfortable with some uncertainty and potential rate changes.

The best choice? Book a call back in with us, and we can put you in touch with a local mortgage broker to help guide you through the whole process.

What's the difference between a mortgage broker and going direct to a lender?

Brokers can access deals from multiple lenders and offer advice, while going direct to a lender limits you to that lender's products. Many first-time buyers find brokers helpful for navigating the process.

How much deposit do I really need?

While 5% deposits exist, having 10-15% opens up better rates and more lender options. The more you can save, the better your mortgage deal is likely to be.

Though please note that we have options for customers with all types/amounts of deposits! (Even some specialist products that require less than 5%) – Your Mortgage Broker will be able to advise.

What happens after my initial fixed rate ends?

You'll move to your lender's SVR unless you remortgage to a new deal. Most people remortgage to avoid higher SVR rates – set a reminder a few months before your deal ends.

Should I be worried about affordability checks?

No, lenders just want to check you can afford repayments, even if interest rates increase – it aims to help protect both you and them and minimise potential problems in the future.

Final thoughts

Understanding mortgage jargon explained in simple terms transforms the home buying experience from daunting to doable. This mortgage terminology explained UK guide covers the essential terms, but remember – every buyer's journey is unique.

The mortgage process doesn't have to be overwhelming. Armed with this mortgage glossary and chat with a qualified mortgage broker, you’ll be ready to understand your options, and make informed decisions. Take it one step at a time, ask questions when needed, and soon you'll be turning that key in your very own front door.

Keep this guide handy throughout your journey – bookmark it, share it with your buying partner, and refer back whenever you encounter unfamiliar mortgage terms. You've got this!

Do you have more questions about how things work? Book a call back today – our team will be able to help you out.