Mortgage Glossary
Clear, plain-English definitions for the most common mortgage terms in the UK.
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Agreement in Principle (AIP)
A written estimate from a lender indicating how much they are willing to lend you. Also known as a Decision in Principle (DIP) or Mortgage in Principle (MIP). It is not a guaranteed mortgage offer but shows estate agents you are a serious buyer.
Annual Percentage Rate of Charge (APRC)
The total cost of the mortgage expressed as an annual percentage. It includes the interest rate plus any fees or charges associated with the loan, providing a standard way to compare the true cost of different mortgages.
Base Rate
The interest rate set by the Bank of England. It influences the rates set by commercial banks. Tracker mortgages are directly linked to this rate, meaning your monthly payments will go up or down when the Base Rate changes.
Conveyancing
The legal process of transferring property ownership from the seller to the buyer. This is carried out by a solicitor or a licensed conveyancer.
Early Repayment Charge (ERC)
A penalty fee charged by the lender if you overpay more than your allowed limit or pay off your mortgage entirely during a tied-in period (usually the fixed-rate period).
Equity
The portion of the property that you actually own outright. It is calculated by taking the current market value of the property and subtracting the remaining mortgage balance.
Fixed-Rate Mortgage
A mortgage where the interest rate stays exactly the same for a set period, typically 2, 3, 5, or 10 years. Your monthly repayments will not change during this time, regardless of what happens to the Bank of England Base Rate.
Loan-to-Value (LTV)
The size of your mortgage expressed as a percentage of the property's value. For example, if you buy a £200,000 house with a £20,000 deposit, your mortgage is £180,000, giving you an LTV of 90%.
Remortgage
The process of switching your existing mortgage to a new deal, either with your current lender or a new one, without moving house. Usually done to secure a better interest rate or release equity.
Stamp Duty Land Tax (SDLT)
A tax paid to the government when purchasing a property or land over a certain price in England and Northern Ireland. The amount depends on the purchase price and whether you are a first-time buyer.
Standard Variable Rate (SVR)
The default interest rate set by the lender. Your mortgage will automatically move onto this rate when your introductory fixed or tracker deal ends. SVRs are usually significantly higher than introductory rates.
Tracker Mortgage
A type of variable rate mortgage where the interest rate tracks the Bank of England Base Rate plus a set percentage. If the Base Rate goes up by 0.25%, your mortgage rate will also go up by 0.25%.
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