Mortgage Glossary
Understanding mortgage terminology can sometimes feel confusing, especially for first-time buyers. To make things easier, we’ve created this simple A–Z mortgage glossary explaining some of the most common terms used throughout the UK mortgage process.
A – Agreement in Principle (AIP)
Also referred to as a Decision in Principle (DIP) or Mortgage in Principle (MIP), this is an initial indication from a lender showing how much they may be prepared to lend based on your financial details.
B – Bank Base Rate
The Bank of England sets the base interest rate, which often influences mortgage interest rates offered by lenders. Mortgage deals may rise or fall depending on changes to this rate.
C – Completion
Completion is the final stage of purchasing a property, where ownership officially transfers to the buyer and the mortgage funds are released.
D – Deposit
A deposit is the upfront contribution you make towards buying a property. It’s usually shown as a percentage of the property price, with larger deposits often leading to better mortgage options.
E – Equity
Equity is the portion of your property that you own outright. It’s calculated by subtracting the remaining mortgage balance from the property’s current market value.
F – Fixed Rate Mortgage
A fixed-rate mortgage keeps the interest rate the same for a set period, giving you predictable monthly payments regardless of market changes.
G – Gazumping
Gazumping happens when a seller accepts a higher offer from another buyer after previously agreeing to sell the property to someone else.
H – Help to Buy
Help to Buy refers to government-backed schemes designed to help buyers purchase a property with smaller deposits or shared ownership options.
I – Interest-Only Mortgage
With an interest-only mortgage, you only pay the interest each month rather than reducing the loan balance itself. The full mortgage amount must still be repaid at the end of the term.
J – Joint Mortgage
A joint mortgage is taken out by two or more applicants, with all parties sharing responsibility for repayments and ownership obligations.
K – Key Facts Illustration (KFI)
A KFI, also known as a Mortgage Illustration or ESIS, outlines important details about a mortgage offer, including interest rates, fees, monthly payments, and total costs.
L – Loan-to-Value (LTV)
LTV measures how much you’re borrowing compared to the property’s value. Lower LTV ratios are generally viewed more favourably by lenders.
M – Mortgage Offer
A mortgage offer is the formal confirmation from a lender stating they are willing to provide you with a mortgage, subject to conditions being met.
N – Negative Equity
Negative equity occurs when the value of your property falls below the remaining mortgage balance owed on it.
O – Overpayment
Overpaying means making extra payments towards your mortgage balance to reduce the loan faster and potentially save on interest charges.
P – Porting
Porting allows you to transfer your current mortgage deal to a new property when moving home, subject to lender approval.
Q – Qualifying Criteria
Qualifying criteria are the conditions lenders use to assess mortgage applications, such as income, credit history, employment, and affordability.
R – Remortgaging
Remortgaging involves switching your existing mortgage to a new deal, either with your current lender or a new one, often to secure better terms or rates.
S – Standard Variable Rate (SVR)
The SVR is the lender’s default interest rate that usually applies once an initial mortgage deal comes to an end.
T – Mortgage Term
The mortgage term is the total length of time you agree to repay the mortgage, commonly ranging from 25 to 35 years.
U – Underwriting
Underwriting is the process lenders use to review your financial circumstances and assess the level of risk involved in approving your mortgage application.
V – Variable Rate Mortgage
A variable-rate mortgage has an interest rate that can change over time, meaning your monthly repayments may increase or decrease.
W – Early Repayment Charge
Some lenders charge a fee if you repay or switch your mortgage before the agreed term ends. This is commonly known as an early repayment charge.
Y – Yield
Yield is commonly used in buy-to-let mortgages and refers to the return generated from rental income compared to the property’s value.
Z – Zero Deposit Mortgage
A zero-deposit mortgage allows buyers to purchase a property without contributing an upfront deposit, although these products are less common and subject to stricter criteria.
