Glossary

Mortgage terms explained

Plain-English explanations of the words you will come across when buying a home or choosing a mortgage. Search, or jump to a letter.

57 terms

A

Additional Dwelling Supplement (ADS): Scotland's extra tax when you buy a home while keeping another: 8% of the whole price on top of LBTT. It can usually be reclaimed if you sell your previous main home within 36 months. Stamp duty calculator →
Additional property surcharge: Extra stamp duty when you will own more than one home after buying, for example a second home or buy to let. In England and Northern Ireland it adds 5 percentage points to every band. Scotland and Wales have their own versions. Stamp duty explained →
Agreement in principle (AIP): A lender's early indication of how much it would lend you, based on your income and a credit check (often a soft search). Also called a decision or mortgage in principle. It is not a guaranteed offer, but estate agents often ask for one before accepting an offer.
APRC: Annual Percentage Rate of Charge. A standard figure lenders must show that combines the deal rate, the rate you move to afterwards and the main fees over the whole term. Useful for comparing like with like, but it assumes you never switch deals.
Arrangement fee: Another name for a product fee: what the lender charges for a particular deal. See product fee.

B

Bank of England base rate: The interest rate set by the Bank of England. Tracker mortgages move with it, and it influences the rates lenders charge on new fixed deals.
Booking fee: A fee some lenders charge, usually when you apply, to reserve a deal. It is often non-refundable even if the mortgage does not go ahead.
Broker: A mortgage adviser who compares deals from many lenders and helps with your application. Some charge a fee; most are paid commission by the lender. Brokers can access deals that are not advertised to the public.
Buy to let: A mortgage for a property you will rent out. Lenders mainly decide how much to lend from the expected rent, usually need a deposit of at least 25%, and the loan is often interest only. Buy to let calculator →

C

Capital and interest: See repayment mortgage.
Cashback: Money a lender pays you on completion, offered on some deals instead of, or as well as, a lower rate. Compare deals on their total cost, not the cashback alone.
Completion: The day the purchase finishes: the money is transferred, the seller moves out and you get the keys. Stamp duty is usually due within 14 days (England and NI) or 30 days (Scotland and Wales).
Conveyancing: The legal work of transferring ownership of a property, done by a solicitor or licensed conveyancer. It includes searches, checking the contract and title, and registering you as the owner.
Cost over deal: Used on this site: every monthly payment during the initial deal period plus the product fee. It lets you compare a low rate with a big fee against a higher rate with no fee. Fee or no fee? →
Credit file: The record credit reference agencies keep of your borrowing and bills. Lenders check it when you apply. Mistakes can be corrected, and being on the electoral roll at your address helps.

D

Deposit: The part of the price you pay yourself. The bigger the deposit, the lower your loan to value and usually the lower the rate. Most first-time buyers put down 5% to 15%.

E

Early repayment charge (ERC): A fee for paying off a mortgage, or overpaying more than the allowance, during a fixed or tracker deal. Often 1% to 5% of the amount repaid, usually falling each year of the deal. Remortgage calculator →
Equity: The part of your home you own outright: its value minus what you still owe on the mortgage.
Exchange of contracts: The point where buyer and seller sign contracts and the sale becomes legally binding in England, Wales and Northern Ireland. You usually pay a deposit at this stage, and pulling out after it is costly.

F

First-time buyer: Someone who has never owned a home anywhere in the world. If everyone buying qualifies and it will be their main home, they can get first-time buyer stamp duty relief. First-time buyer guide →
Fixed rate: A mortgage rate that stays the same for a set period, usually 2 or 5 years, so your payment is predictable. When it ends you move to the standard variable rate unless you switch. 2 year or 5 year fix? →
Freedom to Buy: The government's permanent mortgage guarantee scheme, which encourages lenders to offer 95% mortgages, letting buyers purchase with a 5% deposit. You do not apply for it directly; you choose a 95% deal.
Freehold: Owning the building and the land it stands on outright, with no time limit. Most houses in England and Wales are freehold.

G

Ground rent: A yearly charge some leaseholders pay to the freeholder. Most new residential leases in England and Wales since 2022 have no ground rent.
Guarantor mortgage: A mortgage where a family member agrees to cover the payments if you cannot, which can help you borrow more. The guarantor is taking on a real risk.

I

Income multiple: How many times your income a lender will lend. Most lend around 4 to 4.5 times; some go to 5 times or more for higher earners. How much can I borrow? →
Interest cover ratio (ICR): The buy to let test that the rent covers the mortgage interest, worked out at a stress rate, by a set margin: commonly 125% for basic-rate taxpayers and companies, and 145% for higher-rate taxpayers.
Interest only: A mortgage where the monthly payments only cover interest, so the full loan is still owed at the end of the term. Common for buy to let; for homes you live in, lenders need a credible plan to repay.

J

Joint mortgage: A mortgage taken out by two or more people. Lenders usually combine incomes, and each borrower is responsible for the whole debt, not just their share.

L

Land and Buildings Transaction Tax (LBTT): Scotland's version of stamp duty, with its own bands and first-time buyer relief. Stamp duty calculator →
Land Transaction Tax (LTT): Wales's version of stamp duty. There is no first-time buyer relief, but nothing is due on the first £225,000 for main homes. Stamp duty calculator →
Leasehold: Owning a property for a fixed number of years under a lease from the freeholder. Most flats are leasehold. Short leases, high service charges or rising ground rents can affect value and mortgage options.
Lifetime ISA: A savings account for people aged 18 to 39 that adds a 25% government bonus, up to £1,000 a year, usable towards a first home costing up to £450,000. The government plans to replace it with a First Time Buyer ISA. First-time buyer guide →
Loan to income (LTI): Your mortgage as a multiple of your income. Rules limit how many high loan to income mortgages lenders can make.
Loan to value (LTV): Your mortgage as a percentage of the property's value. Lenders price deals in LTV bands, so a lower LTV usually means a lower rate. Loan to value explained →

M

Mortgage offer: The lender's formal offer to lend, issued after it has checked your application and valued the property. Offers usually last about six months.

N

Negative equity: Owing more on your mortgage than your home is worth, usually after prices fall. It can make it hard to move or remortgage.

O

Offset mortgage: A mortgage linked to your savings, so you pay interest only on the loan minus your savings. You do not earn interest on the savings, but you do not pay tax on the interest saved either.
Overpayment: Paying more than your normal mortgage payment, monthly or as a lump sum. It reduces interest and can shorten the term. Most deals allow up to 10% of the balance a year without a charge. Overpayment calculator →

P

Porting: Taking your existing mortgage deal with you to a new home, so you avoid an early repayment charge. The lender still has to approve the new property and your circumstances.
Product fee: A fee for a particular mortgage deal, often around £1,000, either paid upfront or added to the loan. Deals with a fee usually have a lower rate. Whether it is worth it depends on the size of the loan. Fee or no fee? →
Product transfer: Switching to a new deal with your existing lender when your current one ends. Usually quicker and simpler than remortgaging, often without a new valuation or affordability check. Remortgaging guide →

R

Redemption: Paying off a mortgage in full, for example when you sell or remortgage. Lenders may charge a small exit or redemption admin fee.
Remortgage: Moving your mortgage to a new lender, usually when a deal ends, to get a better rate or to borrow more. Remortgage calculator →
Rental yield: A year's rent as a percentage of the property's price. Gross yield uses the rent alone; net yield takes off running costs. Buy to let calculator →
Repayment mortgage: A mortgage where each monthly payment covers the interest and repays part of the loan, so it is fully paid off by the end of the term. Also called capital and interest.

S

Section 24: The rules that stop individual landlords deducting mortgage interest from rental income. Instead they get a tax credit at the basic rate, 22% from April 2027. Own it yourself or through a company? →
Service charge: A charge leaseholders pay towards maintaining shared parts of a building, such as the roof, stairs and gardens. It can rise, so check it before buying a flat.
Shared ownership: Buying a share of a home, typically 10% to 75%, and paying rent on the rest to a housing association. You can usually buy more shares later.
Stamp Duty Land Tax (SDLT): The tax on buying property in England and Northern Ireland, charged in bands on the price. First-time buyers pay nothing up to £300,000. Stamp duty explained →
Standard variable rate (SVR): The lender's own variable rate, which you move to when a deal ends unless you switch. It is usually much higher than deal rates. Also called a reversion rate. Remortgage calculator →
Stress test: A check that you could still afford the payments if interest rates rose, using a higher test rate than the one you will actually pay. Affordability calculator →
Survey: An inspection of the property's condition that you pay for, separate from the lender's valuation. A fuller survey is worth it on older or unusual homes.

T

Term: How long the mortgage lasts until it is fully repaid, often 25 to 35 years. A longer term lowers the monthly payment but increases the total interest.
Tracker: A variable rate that follows the Bank of England base rate at a set margin, for example base rate plus 0.5%. Your payment changes when the base rate does.

V

Valuation: The lender's check that the property is worth enough to lend against. It protects the lender, not you, and is not a survey of the property's condition.
Variable rate: Any mortgage rate that can change during the deal, including trackers, discount rates and the standard variable rate.