Last reviewed: June 2026
TL;DR- Mortgage terminology can be confusing - understanding key terms helps borrowers assess products and make informed decisions.
- The FCA requires lenders to provide a European Standardised Information Sheet (ESIS) that explains product terms in a standardised format.
- Key terms to understand before any mortgage decision: LTV, APRC, ERC, SVR, AIP, completion, exchange and conveyancing.
A-C
Agreement in Principle (AIP) / Decision in Principle (DIP) / Mortgage in Principle (MIP): A conditional indication from a lender that it would be willing to lend a specified amount, subject to full application, valuation and final checks. Not a mortgage offer. Typically valid for 30-90 days.
Annual Percentage Rate of Charge (APRC): A standardised measure of the total cost of a mortgage expressed as an annual percentage, including interest and all mandatory fees. Enables like-for-like comparison between different mortgage products.
Arrangement fee: A fee charged by the lender for setting up the mortgage, typically £0-£2,000. Can usually be added to the mortgage (but interest is then charged on it) or paid upfront.
Base rate: The Bank of England's key interest rate, set by the Monetary Policy Committee. Variable rate mortgages (trackers) typically follow the base rate by a fixed margin.
Bridging loan: A short-term secured loan used to bridge a gap in funding, typically 1-24 months, repaid when a property is sold or a longer-term mortgage is arranged.
Buy-to-let (BTL): A property purchased as an investment and let to tenants. BTL mortgages are assessed primarily on rental income coverage rather than personal income.
Capital and interest mortgage: Another term for a repayment mortgage - each monthly payment covers both the interest charged and a portion of the outstanding capital.
Completion: The final stage of a property purchase when legal ownership transfers, the balance of the purchase price is paid, and the buyer receives the keys.
Conveyancing: The legal process of transferring property ownership, carried out by a solicitor or licensed conveyancer. Includes title searches, contract exchange and completion.
D-L
Deposit: The portion of the purchase price paid by the buyer from their own funds. The mortgage covers the remainder. Expressed as a percentage of the purchase price (e.g. 10% deposit on a £200,000 property = £20,000).
Early repayment charge (ERC): A fee charged by the lender when a mortgage is redeemed or significantly overpaid during the initial deal period. Typically expressed as a percentage of the outstanding balance, declining each year of the deal period.
Equity: The difference between the current market value of the property and the outstanding mortgage balance. If a property is worth £300,000 and the mortgage is £200,000, the equity is £100,000.
European Standardised Information Sheet (ESIS): A standardised document provided by lenders at application stage that sets out all the key terms of the proposed mortgage in a regulated format, enabling comparison across products.
Exchange of contracts: The point at which the buyer and seller each sign identical contracts and these are exchanged, making the transaction legally binding. The buyer typically pays a deposit at exchange (often 10% of purchase price). Completion follows at the agreed date.
Fixed rate: A mortgage interest rate that is fixed for a defined initial period (typically 2, 3 or 5 years), providing payment certainty regardless of base rate movements.
Further advance: Additional borrowing from the existing mortgage lender, secured on the same property as the existing mortgage. Used to raise additional funds without a full remortgage.
Interest only: A mortgage structure where monthly payments cover the interest charged but not the capital. The outstanding loan remains constant and is repaid at the end of the term from a separate repayment vehicle.
Loan-to-income (LTI): The ratio of the mortgage loan to the borrower's annual income. Most lenders cap this at 4-4.5 times income. The Bank of England's FPC limits new mortgages above 4.5x LTI to 15% of total mortgage lending.
Loan-to-value (LTV): The ratio of the mortgage loan to the property's value, expressed as a percentage. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV generally means better rates and more lender options.
M-Z
Mortgage offer: A formal written offer from the lender to provide the mortgage on specified terms. Valid for a defined period (typically 3-6 months). Acceptance of the offer commits the lender; the borrower may decline without obligation.
Negative equity: When the outstanding mortgage exceeds the current market value of the property. Restricts the ability to sell, remortgage or move without additional funding.
Overpayment: Paying more than the contractual monthly amount. Reduces the outstanding balance and total interest paid. Most lenders allow up to 10% of the outstanding balance per year without an ERC.
Product transfer: Switching to a new interest rate deal with the existing lender without a full remortgage. Faster and cheaper than remortgaging to a new lender but may offer a less competitive rate.
Redemption: Repaying a mortgage in full, including all outstanding interest and any applicable fees or ERCs. The lender releases the charge on the property upon redemption.
Remortgage: Taking a new mortgage - either with the existing lender (product transfer) or a new lender - typically when an initial deal period ends or to release equity.
Repayment mortgage: A mortgage where monthly payments cover both interest and a portion of the capital, so the outstanding balance reduces each month and the loan is fully repaid by the end of the term.
Standard variable rate (SVR): The lender's default interest rate, applied to mortgages once an initial deal period ends. Set at the lender's discretion. Typically higher than deal rates.
Stamp duty land tax (SDLT): A tax payable by the buyer on property purchases in England and Northern Ireland above defined thresholds. Rates vary by purchase price and whether the property is a first home, additional home or non-residential property.
Title: The legal ownership of a property, registered at HM Land Registry. A clear title is required before a mortgage can be arranged.
Tracker mortgage: A variable rate mortgage where the interest rate tracks the Bank of England base rate by a fixed margin (e.g. base rate + 1%).
Valuation: An assessment of the property's value carried out by a surveyor on behalf of the lender. Determines the basis for the LTV calculation. Separate from a survey, which assesses the condition of the property.
Frequently Asked Questions
What is the difference between a mortgage offer and an agreement in principle?
An agreement in principle (AIP) is a preliminary, conditional indication that a lender may be willing to lend a specified amount - it is not a commitment. A mortgage offer is a formal, written commitment to lend on specified terms following a full application, credit assessment, valuation and satisfactory documentation. A mortgage offer is what is needed to proceed to exchange and completion.
What does exchange of contracts mean and why does it matter?
Exchange of contracts is the point at which the sale becomes legally binding. Before exchange, either party can withdraw without legal penalty (though agents' fees may still be payable). After exchange, withdrawal by either party exposes them to significant financial penalties. The buyer typically pays a 10% deposit at exchange. Completion follows at the agreed date, usually 1-4 weeks after exchange.
What is the difference between a valuation and a survey?
A valuation is commissioned by the lender and assesses only the property's market value as security for the mortgage. It does not provide the buyer with detailed information about the property's condition. A survey is commissioned by and for the buyer and assesses the property's condition, identifying structural issues, defects and risks. A RICS Level 2 (HomeBuyer Report) or Level 3 (Building Survey) is recommended for most buyers in addition to the lender's valuation.
What is LTV and why does it matter?
LTV (loan-to-value) is the ratio of the mortgage to the property's value. It matters because lenders offer better rates and more options at lower LTVs. A 60% LTV mortgage (40% deposit) typically attracts the lowest available rates. Each LTV tier (60%, 70%, 75%, 80%, 85%, 90%, 95%) has different rate pricing. Buying with a larger deposit, or having property values rise to improve the LTV, improves the rates available at remortgage.
