Mortgage and financial glossary

This is a client-focused glossary to provide clarity around common terms, financial terminology, and product names used in reference to mortgages, lending and finance.

Mortgage phrase definitions

Fixed-rate mortgage. This is a mortgage where the interest rate stays the same for a set period such as 2, 3, 5 or 10 years.

Variable-rate mortgage. A variable-rate mortgage is where there is no fixed rate, and the rate may increase or decrease based on the terms agreed.

Tracker mortgage. A tracker mortgage is a type of variable-rate mortgage where the interest rate can go up or down. Usually, the rate will be based on the Bank of England base rate plus a percentage such as 0.5%, 1%, 1.5% or 2%.

Offset mortgage. An offset mortgage links to your savings to reduce the amount of interest you pay on your mortgage. Instead of earning interest on your savings, you avoid paying interest on the portion of your mortgage that your savings amount to.

Buy to Let mortgage. This type of mortgage is used to buy a property that is rented out to tenants.

First-time buyer mortgage. A mortgage that is designed for homebuyers who have never owned a property before. First-time buyers are often eligible for mortgage products that are not available to other applicants.

Remortgage. A remortgage is where borrowers move onto a new mortgage deal, either with their existing lender or a new one, usually to get a better deal. This often happens when a fixed deal comes to an end, to avoid moving onto the lender’s standard variable rate (SVR).

Porting a mortgage. This involves moving an existing mortgage deal to a new property to keep the existing interest rate and terms.

Lending credit and finance definitions

Lending and credit 

Loan to Value (LTV). This is a percentage that indicates how much deposit a homebuyer has compared to how much they are borrowing through a mortgage. For example, a 20% deposit equates to 80% LTV.

Interest-only mortgage. An interest-only mortgage is one where only the interest is paid off each month and not the capital. The loan amount then needs to be paid off by the end of the term, either by selling the property or using alternative finance.

Capital repayment mortgage. This type of mortgage is where both the capital and interest payments are made each month, and the loan amount reduces over the term until it is paid off.

Mortgage term. This refers to the length of time that a mortgage is agreed to be paid over. The mortgage term length usually ranges between 10 years and 40 years.

Overpayment / Early repayment. An overpayment involves a borrower paying more of their loan off than the agreed payments. For example, a borrower could pay a higher monthly amount to reduce the mortgage balance faster. Lenders often apply limits on how much can be overpaid and fees can apply if overpayments go over the limit.

Early repayment refers to repaying a portion of the mortgage or the full mortgage at a date earlier than agreed.

Credit score. This is a numerical rating that indicates how good or bad an individual’s credit history is. The ratings are provided by credit reference agencies to help lenders to understand the level of risk associated to an individual when they apply for credit or a loan.

Affordability assessment. This is the process used by lenders to determine how much a borrower is realistically able to afford to repay if they apply for a mortgage.

Negative equity. Negative equity refers to the scenario where the value of a property drops below the amount that is still owed on the mortgage loan.

Payments and costs

Arrangement fee. This is a cost sometimes charged by a lender for setting up a mortgage. This cost is also sometimes referred to as a booking fee or product fee.

Valuation fee. A fee that is sometimes charged by a lender to have a property valued by a surveyor before approving a mortgage loan.

Exit fee / Early repayment charge. An exit fee is sometimes applied if a mortgage is fully paid off earlier than agreed, either by switching to another mortgage lender or selling the property.

An early repayment charge is a fee that can apply if the borrower closes the mortgage while still within a fixed term period.

Monthly repayment. This refers to the amount that a borrower pays each month on their mortgage loan.

Stamp duty. Stamp Duty Land Tax is a payment that HMRC collects from a property buyer when they purchase a property. The stamp duty rate is calculated based on the value of the property and whether the buyer is a first-time buyer.

Mortgage insurance. This is an insurance product that mortgage borrowers can take out to cover mortgage payments. For example, some mortgage insurance policies cover mortgage payments if the borrower is unable to work through illness or injury.

Broker fee. Some mortgage brokers charge clients a fee in exchange for services such as advice and administration activities.

Compliance and regulations definitions

FCA (Financial Conduct Authority). The Financial Conduct Authority is the primary regulator for financial services in the UK. They oversee the rules and set the standards for financial services providers.

Money laundering checks. Financial services providers are required to carry out money laundering checks under anti-monetary laundering regulations. These checks involve processes to help prevent criminal money from entering the financial system through bank deposits, for example.

Know Your Customer (KYC). This refers to the process financial services providers are required to carry out to verify a client’s identity. It involves requesting proof of ID and address to check the client is who they say they are, and that they are not a financial criminal. 

Disclosure obligations & Mortgage Credit Directive. Financial services providers have disclosure obligations set by regulators that they must comply with. These include providing transparent and clear information to clients regarding details such as fees, risks and terms attached to financial products.

The Mortgage Credit Directive sets out legal requirements related to residential mortgage lending and consumer protection. The purpose is to drive consistent standards across the mortgage industry. 

Property and security definitions

Charge / Legal charge. A legal charge refers to a legal agreement showing that a lender has a legal interest in a property until the mortgage is repaid.

Property valuation. This is an assessment performed by a surveyor to confirm how much a property is valued at. A valuation is typically required by a mortgage lender to check that the property purchase price is reasonable before approving a mortgage amount. 

Title deeds. Title deeds are legal documents that include ownership details for a property and the land that it is built upon.

Equity release. This is a type of product that allows homeowners to access some of the value in their property (the equity) without the need to sell. 

Secured loan. This is a loan that involves using an asset such as property as back up. If the borrower does not repay the loan, the lender has legal rights to recover the payment through the asset. For example, the property could be sold to repay the loan.

General finance terms

Interest rate. An interest rate is a percentage that a lender charges a borrower in exchange for providing a loan.

APR (Annual Percentage Rate). This refers to a percentage that reflects the total yearly cost of borrowing. The APR typically includes interest charges plus other fees such as arrangement or lender fees.

Equity. The term ‘equity’ is the amount of value in a property that belongs to the owner as opposed to the lender. For example, if a property is worth £200,000 and the outstanding mortgage is £150,000, there is £50,000 equity in the property.

Debt to Income ratio. Lenders calculate the amount of debt an individual has in comparison to their income, known as the Debt to Income ratio. The calculation involves adding all monthly debt payments together, dividing the debt total by their monthly income, and multiplying by 100.

Credit reference. A credit reference is information provided by a credit reference agency regarding an individual’s borrowing and repayment history. It shows lenders whether borrowers have been reliable at making repayments in the past.

Repayment schedule. A repayment schedule sets out the agreement for repaying a loan or mortgage, including the amount and date of payments, and the interest amount.

Helping clients navigate mortgage language clearly

Having a clearer understanding of the terminology commonly used in relation to mortgages, lending and general finance helps clients to make informed decisions about products that they are considering taking out. These terms are often included in statements, contracts and regulatory documents and this glossary provides clear definitions of the key terminology.

FAQs

What do common mortgage phrases like LTV or APR mean?

LTV stands for Loan to Value and is a percentage that shows how much deposit a homebuyer has in comparison to their loan amount. APR stands for Annual Percentage Rate and refers to the total yearly costs of a loan.

How can clients interpret general finance terms correctly?

Clients can use this glossary to find definitions of financial terms or if they are unsure of the meaning of any terms, they can contact our advisers for further guidance.

How do primary sources support understanding of financial terms?

Primary sources provide information in publications from regulators and other organisations to support the understanding of financial terms.

What is the purpose of cross-referencing related glossary entries?

Cross-referencing related glossary entries provides a wider understanding of how different terms link to one another.