Mortgage Jargon Buster

A lender's written indication of how much they'd lend you, before you make a formal application. Also called a Decision in Principle (DIP) or Mortgage in Principle (MIP). It requires a soft or hard credit check depending on the lender.

The overall cost of borrowing, expressed as a yearly percentage. APR includes the interest rate plus fees, so it gives you a truer like-for-like comparison between mortgage deals.

When you fall behind on your mortgage payments. Being in arrears can affect your credit score and, in serious cases, lead to the lender taking possession of your home. If you're struggling, contact your lender immediately.

The Bank of England's official interest rate, which influences the rates lenders charge on mortgages and savings. Tracker mortgages move in line with the base rate; fixed rates are unaffected until the fixed period ends.

A mortgage specifically for property purchased as an investment to rent out, rather than to live in. BTL mortgages typically require a larger deposit (usually 25%) and are assessed on the expected rental income as well as your personal income.

The most common type of mortgage, where each monthly payment covers both interest and a portion of the loan (capital). By the end of the term, the mortgage is fully repaid and you own the property outright.

The final legal step in buying a property. Your solicitor transfers the purchase funds to the seller's solicitor. Once received, the keys are released and you're a homeowner. Usually happens 1 to 4 weeks after exchange of contracts.

The legal process of transferring property ownership from seller to buyer. Your conveyancer (solicitor) handles searches, contracts, and the transfer of funds. Budget roughly £1,000 to £2,500 in England and Wales.

A number that reflects how reliably you've managed debt in the past. Lenders use it (alongside your income and outgoings) to decide whether to lend to you and at what rate. Higher score = better deals. Three main UK credit reference agencies report on you: Experian, Equifax and TransUnion. You can see all three in one report via checkmyfile.

Another name for an Agreement in Principle (AIP). A lender's preliminary assessment of how much they might be willing to lend, before a full application is submitted.

The cash you put towards the property purchase yourself. The minimum is usually 5% of the purchase price (95% LTV). The larger your deposit, the better your mortgage rate will be.

A penalty fee charged by lenders if you repay your mortgage (or overpay beyond your allowed limit) during a fixed or discounted rate period. ERCs are typically 1 to 5% of the outstanding loan.

The portion of your property that you own outright. Calculated as the property value minus the outstanding mortgage balance. Your equity grows as you pay down the mortgage and/or the property rises in value.

The point in the house-buying process where the purchase becomes legally binding. Both buyer and seller sign identical contracts, and the buyer pays their deposit. You can't pull out after this without losing your deposit.

A mortgage where the interest rate stays the same for a set period (typically 2, 3, or 5 years), regardless of what happens to wider interest rates. Gives certainty on monthly payments. At the end of the fixed period, you'll usually move to the lender's standard variable rate (SVR).

You own the property and the land it sits on outright, permanently. The opposite of leasehold. Houses are almost always freehold.

A mortgage where a family member (the guarantor) agrees to cover your payments if you can't. Helps buyers who don't quite meet affordability criteria on their own. The guarantor's home or savings may be at risk if repayments aren't made.

A UK government scheme (now closed for new applicants in England) that lent first-time buyers up to 20% (40% in London) of the property value, interest-free for the first 5 years, to boost their deposit. The equity loan must be repaid on sale or at the end of the mortgage term.

A mortgage where you only pay the interest each month, not the actual loan balance. Payments are lower, but you still owe the full original amount at the end of the term. You need a separate repayment plan (e.g. investments or property sale).

A mortgage taken out by two or more people together. All applicants are jointly and severally liable, meaning each person is individually responsible for the full debt. Income from all applicants is used to assess affordability.

You own the property for a fixed number of years (the lease), but not the land. The freeholder owns the land and typically charges ground rent and service charges. Common with flats. Leases under 80 years can cause mortgage problems.

Your mortgage expressed as a percentage of the property value. Lower LTV = smaller risk for the lender = better interest rates. At 60% LTV you'll typically access the best rates on the market.

Scotland's equivalent of Stamp Duty. Charged on property purchases in Scotland. First-time buyers have a higher nil-rate band (£175,000 vs £145,000 for standard purchases). Additional Dwelling Supplement (ADS) adds 8% for second properties.

Wales's equivalent of Stamp Duty Land Tax. Applies to property purchases in Wales. Rates are 0%, 6%, 7.5%, 10%, and 12%, depending on purchase price. Second homes and buy to lets pay higher rates, starting at 5% on the first £180,000 and rising band by band.

Another term for Agreement in Principle (AIP) or Decision in Principle (DIP). A lender's preliminary assessment of borrowing eligibility, before a full application.

The length of time you agree to repay your mortgage over. Common terms are 25 or 30 years, though you can go up to 40 years. Longer terms = lower monthly payments, but more total interest paid over the life of the loan.

When your mortgage balance is higher than your property's current value. This can happen if property prices fall. Negative equity makes it very difficult to sell or remortgage.

Paying more than your required monthly mortgage payment. This reduces your outstanding balance faster, shortening your term and saving interest. Most lenders allow up to 10% overpayment per year without penalty.

Moving your existing mortgage to a new property when you move home. Useful if you're on a good rate and don't want to pay an ERC to exit. Not all mortgages are portable, and you still need to pass the lender's affordability checks for the new property.

A fee charged by the lender for a specific mortgage product (deal). Can range from £0 to £2,000+. A low-fee mortgage might have a higher rate, and vice versa, always look at the total cost over the deal period.

Switching your existing mortgage to a new deal, either with the same lender (a product transfer) or a different lender. Usually done when a fixed rate expires, to get a better rate, or to release equity.

The standard type of mortgage where monthly payments cover both interest and capital. By the end of the term, the loan is fully repaid. The opposite of an interest-only mortgage.

A tax paid on property purchases in England and Northern Ireland. Rates: 0% up to £125,000, 2% on £125,001 to £250,000, 5% on £250,001 to £925,000, 10% on £925,001 to £1.5m, 12% above £1.5m. First-time buyers pay 0% up to £300,000 and 5% on £300,001 to £500,000, on properties up to £500,000. An extra 5% surcharge applies on second properties.

A government scheme where you buy a share (usually 25 to 75%) of a property and pay rent on the remaining share. Over time, you can buy larger shares ('staircasing'). Aimed at people who can't afford to buy outright.

A lender's default mortgage rate, what you'll be moved to when your fixed, tracker, or discount deal ends. SVRs are typically much higher than deal rates and can be changed by the lender at any time. Don't sit on the SVR, remortgage!

A professional inspection of a property to assess its condition and value. Types range from a basic valuation (for the lender) to a full structural survey. A homebuyer survey or full structural survey is strongly recommended, especially for older properties.

A mortgage whose interest rate tracks the Bank of England base rate at a set margin above or below it. If the base rate rises, so does your payment, and vice versa. Offers more flexibility than fixed rates, but less certainty.

Legal ownership of a property. Your solicitor checks the title during conveyancing to make sure the seller actually owns the property and that there are no issues affecting it (e.g. disputes, charges, or restrictions).

The process a lender uses to assess a mortgage application and decide whether to lend. The underwriter reviews your income, outgoings, credit history, employment, and the property itself before issuing a mortgage offer.

An assessment of a property's market value, carried out on behalf of the mortgage lender. Not the same as a survey, a valuation just confirms the property is worth what you're paying. The lender uses it to ensure their loan is adequately secured.

An interest rate that can change over time, as opposed to a fixed rate. Includes tracker mortgages (tied to the base rate) and standard variable rates (set by the lender). Variable rates can go up or down.

A mortgage broker who can recommend products from across the entire mortgage market, not just a limited panel of lenders. DS Financial is a whole-of-market broker, giving you access to the widest range of deals.