Buying a home can feel like learning a whole new language. From AIPs and LTVs to exchange and completion, it's easy to feel overwhelmed by the terminology. To help, we've translated some common mortgage terms into plain English.
Lender
The organisation providing the mortgage. This could be a bank, building society or specialist lender.
Mortgage adviser
A professional who provides mortgage advice and helps you arrange your mortgage. They can explain your options, help with the application process and answer any questions you may have along the way. An adviser might work directly for a lender or for a mortgage advice company.
Independent mortgage broker
This is a type of mortgage adviser who works for an independent mortgage business rather than a lender. Because they're not restricted to offering products from a single lender, they can search across a wider range of mortgage providers and products to help find a suitable option for your circumstances. This could include well-known high street lenders, specialist lenders and, in some cases, mortgage products that are not available directly. An independent mortgage broker will help with the application from start to finish, from ensuring you understand your options when you are considering buying, all the way through to completion and beyond.
Broker-exclusive product
A mortgage product that is only available through a mortgage broker and cannot be accessed by applying directly to the lender. These products may offer features or rates that aren't available through the lender's website or branches. Some lenders do not accept business directly and will only accept business from mortgage advisers
Lending criteria
The rules and requirements a lender uses when deciding whether to offer a mortgage. These can include factors such as your income, deposit, credit history, employment status and the type of property you're buying. Every lender has its own lending criteria. This means one lender may be happy to lend in a particular situation while another may not.
Agreement in Principle (AIP)
A statement from a lender showing how much they may be willing to lend based on some initial information. It's useful when property hunting but isn't a guarantee that you'll be offered a mortgage.
Deposit
The amount of money you contribute towards the purchase of a property from your own funds. The larger your deposit, the less you may need to borrow. Deposits are often referred to as a percentage of the property's value. For example, a 95% mortgage means you're contributing a 5% deposit and borrowing the remaining 95%. If you're buying a property for £300,000 and have a £30,000 deposit, you'll need a mortgage for the remaining £270,000. That's a 10% deposit and a loan-to-value (LTV) of 90%. Some lenders offer 100% mortgages in certain circumstances. This means the full purchase price is borrowed and no deposit is required, although eligibility criteria can vary.
Loan to Value (LTV)
The size of your mortgage compared to the value of the property. For example, if you buy a £300,000 property with a £30,000 deposit, you'll need a £270,000 mortgage. That's a loan-to-value of 90%.
Guarantor
A guarantor is someone, usually a parent or close family member, who agrees to support your mortgage application. Depending on the arrangement, they may agree to cover repayments if you're unable to make them or provide other forms of financial support to help you qualify for a mortgage. Some lenders offer mortgage products specifically designed for buyers with a guarantor, although the options and requirements can vary.
Standard Variable Rate (SVR)
A lender's standard interest rate. Many borrowers move onto this rate when a fixed-rate, tracker or discount mortgage comes to an end. The rate can change over time, meaning your monthly repayments could increase or decrease.
Fixed-rate mortgage
A mortgage where the interest rate stays the same for a set period, helping you budget for your monthly repayments. Typical fixed rate lengths are 2 years, 3 years and 5 years.
Variable-rate mortgage
A mortgage where the interest rate can change over time. This means your monthly repayments could go up or down.
Discount mortgage
A mortgage where the lender offers a discount off its standard variable rate for a set period of time.
Tracker mortgage
A mortgage where the interest rate moves up and down in line with a benchmark rate, such as the Bank of England base rate.
Arrangement fee
A fee that some lenders charge when taking out a mortgage. Depending on the lender and product, this may be paid upfront or added to the mortgage balance. Not all mortgage products have an arrangement fee.
Credit history
A record of how you've managed credit and borrowing in the past. This can include loans, credit cards, mobile phone contracts and whether payments have been made on time. Lenders may review your credit history when assessing your mortgage application.
Credit score
A number produced by credit reference agencies that gives an indication of your creditworthiness. Different agencies use different scoring systems, and lenders don't rely on credit scores alone when making lending decisions.
If you're planning to apply for a mortgage, it's a good idea to understand what's on your credit report. Checkmyfile | In partnership with Alexander Hall
Mortgage offer
The official confirmation from a lender that they're prepared to lend to you, subject to any conditions they may have set.
Understanding the language used during the home-buying process can help you feel more confident and prepared. If you're unsure about any mortgage terminology or would like personalised advice, we're here to help.
Book an appointment with one of our mortgage advisers by clicking here or calling 08000 38 37 36.
This is for information only. Products and rates vary depending on your circumstances, lender criteria and products available at the time.
