Mortgage and property finance glossary

A

Adverse credit

Problems on your credit history, such as missed payments, defaults, county court judgments (CCJs), debt management plans or bankruptcy. Many mainstream lenders decline recent adverse credit, but specialist lenders may lend depending on how serious and how recent the issues are. Expect a larger deposit and higher costs than a standard mortgage. Learn more

Affordability assessment

The lender's check that you can afford the mortgage now and if rates rise. It looks at income, regular spending, debts and dependants, and usually tests payments at a higher stress rate. For regulated mortgages, FCA rules require lenders to carry out this assessment and verify income before lending. Learn more

Agreement in principle (AIP/DIP)

A lender's written indication of how much it may lend you, based on basic details and a credit check. It is also called a decision or mortgage in principle. It usually lasts 30 to 90 days. It is not a mortgage offer, and the lender can still decline after full checks and valuation. Learn more

Annual percentage rate of charge (APRC)

A figure showing the total cost of a mortgage as an annual percentage, including interest and most fees. It assumes you keep the mortgage for the full term, including any period on the lender's standard variable rate. It helps compare products, but the initial rate and fees matter more if you plan to switch early.

Arrangement fee

A fee charged by the lender for setting up a mortgage or loan, also called a product or completion fee. It may be a flat amount or a percentage of the loan. You can often add it to the loan, but you then pay interest on it. Bridging and development lenders typically charge a percentage.

Article 4 direction

A planning tool that lets a council remove certain permitted development rights in a defined area. Many councils use it to require planning permission to convert a family house into a small HMO. Always check whether an Article 4 direction applies before buying a property to let as an HMO. Learn more

Assets under management (AUM)

Investments a private bank or wealth manager holds and manages for you. Some private banks offer mortgages on the basis that you place a certain level of assets with them, either at the start or over time. Requirements vary, and the investments carry their own risks and charges. Learn more

B

Bank Rate

The interest rate set by the Bank of England's Monetary Policy Committee, often called the base rate. Tracker mortgages move directly with it. Fixed rates are priced mainly from swap rates, which reflect market expectations of future Bank Rate. Changes can affect the cost of variable-rate mortgages quickly.

Bridging loan

Short-term borrowing secured on property, typically for up to 12 to 24 months. It is used to buy before selling, fund auction purchases or refurbish a property before refinancing. Bridging is expensive compared with a mortgage and needs a clear exit. Loans secured on your home are regulated; most investment bridging is not. Learn more

Building warranty

An insurance-backed guarantee covering structural defects in a new or converted home, usually for ten years. Lenders normally require a warranty from an approved provider, or a professional consultant's certificate, before lending on a new build. Without one, a property can be hard to mortgage or sell. Learn more

Buildings insurance

Insurance covering the structure of your home, such as walls, roof and fixtures, against risks like fire and flood. Lenders require it from exchange of contracts or completion. For flats, the freeholder usually insures the building. Cover depends on underwriting and policy terms, including exclusions and excesses. Learn more

Buy-to-let mortgage

A mortgage for buying property to rent out. Affordability is based mainly on expected rent, tested through an interest coverage ratio. Most buy-to-let lending for investment is not regulated by the FCA. Deposits are usually at least 20% to 25%, and many loans are taken on an interest-only basis. Learn more

C

Commercial mortgage

A loan secured on business property such as offices, shops, warehouses or hotels. It may fund an owner-occupied premises or an investment let to tenants. Lenders look at rental income, trading performance and debt service cover. Commercial mortgages are generally not regulated by the FCA. Learn more

Completion

The day the purchase money is transferred to the seller's solicitor and you legally own the property. Your lender releases the mortgage funds to your solicitor just before completion. Mortgage payments usually start the month after. For a remortgage, completion is when the new lender pays off the old one.

Consumer buy-to-let

A buy-to-let mortgage not taken for business purposes, such as letting a home you inherited or used to live in. Unlike most buy-to-let lending, it is subject to some FCA consumer protections. Lenders and brokers must assess whether the borrower is acting as a business before arranging it. Learn more

Critical illness cover

Insurance that pays a tax-free lump sum if you are diagnosed with a specified serious illness during the policy term. It can be used to repay a mortgage or cover costs while you recover. What is covered, and whether a claim is paid, depends on underwriting and policy terms. Learn more

D

Day-one advance

The amount a development or bridging lender releases at the start of the loan, usually towards buying the site or property. For development finance it is often 50% to 65% of the purchase price. Build costs are then released later in stages after inspections. Learn more

Debt consolidation

Combining unsecured debts, such as credit cards and loans, into a mortgage or secured loan. Monthly payments may fall, but spreading debt over a longer term can cost more overall, and the debts become secured on your home. Lenders and advisers must consider whether it is suitable. Learn more

Debt service coverage ratio (DSCR)

A commercial lending test comparing a property's or business's net income with the loan's annual repayments. A DSCR of 1.25 means income is 25% higher than the debt payments. Lenders use it to judge whether a commercial mortgage can be serviced comfortably from rent or trading profit. Learn more

Development exit loan

A short-term loan that refinances development finance at or near practical completion. It is usually cheaper than the development facility and gives the developer time to sell or let units without rushing. It is a type of bridging loan and is normally unregulated. Learn more

E

Early repayment charge (ERC)

A fee for repaying all or part of a mortgage during a fixed or discounted deal period. It is often a percentage of the amount repaid, reducing each year. Most lenders allow overpayments of around 10% a year without a charge. Check ERCs before remortgaging or selling. Learn more

Equity

The part of a property's value you own outright: its value minus all loans secured on it. A £600,000 home with a £400,000 mortgage has £200,000 of equity. Equity grows as you repay the loan or the property rises in value, and falls if prices drop.

European Standardised Information Sheet (ESIS)

A standard illustration that lenders and brokers must give you for a regulated mortgage. It sets out the loan amount, rate, monthly payments, fees, APRC, early repayment charges and key features. Use it to compare offers like for like before you apply.

EWS1 form

An External Wall System form, agreed by RICS and the lending industry, confirming a qualified professional's assessment of a building's external walls for fire safety. Lenders may ask for one on flats in buildings with cladding or balconies. Without it, some flats can be difficult to mortgage.

Exchange of contracts

The point in England and Wales when the purchase becomes legally binding. Buyer and seller sign matching contracts, and the buyer usually pays a deposit. Pulling out after exchange can mean losing the deposit. You need a mortgage offer and buildings insurance in place before exchange.

Execution-only

Arranging a mortgage without receiving advice or a recommendation. You choose the product yourself and take responsibility for its suitability. FCA rules restrict when execution-only sales of regulated mortgages are allowed, for example for high-net-worth or professional borrowers who opt out of advice.

Exit fee

A fee charged when a loan is repaid, common on bridging and development finance. It may be a percentage of the loan or, for development, of the gross development value. Not all lenders charge one. Include exit fees when comparing the total cost of short-term finance. Learn more

Exit strategy

Your plan for repaying a short-term loan, such as a bridging or development loan. Common exits are selling the property or refinancing onto a mortgage. Lenders assess the exit before lending and expect evidence it is realistic. A weak exit is a common reason for decline. Learn more

Expat mortgage

A mortgage for UK citizens living and working abroad who want to buy or remortgage property in the UK, to live in later or to let. Fewer lenders offer them. Lenders consider the country you live in, the currency you are paid in and your UK credit history. Learn more

F

First charge

The main legal charge registered against a property, giving that lender first claim on the sale proceeds if the loan is not repaid. A standard mortgage is a first charge. Any later loan secured on the same property ranks behind it as a second charge.

Fixed-rate mortgage

A mortgage with an interest rate that stays the same for a set period, typically two, five or ten years. Payments are predictable, but you usually pay an early repayment charge if you leave during the fix. When it ends, you move to the lender's variable rate unless you switch.

Foreign national mortgage

A mortgage for non-UK nationals, living in the UK or abroad. Lenders look at residency and visa status, time in the UK, income currency and credit history. Requirements vary widely, and some lenders specialise in international clients. Larger deposits are often needed where income is paid overseas. Learn more

Freehold

Outright ownership of a property and the land it stands on, with no time limit. Most houses in England and Wales are freehold. Lenders generally prefer freehold. A freehold flat is less common and some lenders will not lend on one.

G

Gifted deposit

Money given by a family member, or sometimes a friend, towards your deposit with no expectation of repayment. Lenders require a signed gifted deposit letter, the giver's ID and proof of where the funds came from. The giver usually cannot have any interest in the property. Learn more

Gross development value (GDV)

The expected market value of a development once it is complete, for example the total sale value of all the new flats. Lenders use it to size development finance through loan to GDV. It is assessed by the lender's valuer, not taken from the developer's appraisal. Learn more

Ground rent

An annual payment a leaseholder makes to the freeholder. Most new long residential leases created since 30 June 2022 must have a peppercorn, or nil, ground rent. The Government has proposed capping ground rent on existing leases. Lenders may refuse leases with high or fast-rising ground rents.

Guarantor mortgage

A mortgage where a family member agrees to cover payments if you cannot, sometimes supported by their savings or property. It can help first-time buyers borrow more. The guarantor takes on real risk and should get independent legal advice before agreeing. Learn more

H

HMO licence

A licence from the local council allowing a property to be let as an HMO. In England, a licence is mandatory for HMOs let to five or more people forming more than one household. Councils can also require licences for smaller HMOs. Lenders normally need a valid licence in place. Learn more

Holiday let

A furnished property let to short-stay guests rather than on a standard tenancy. Lenders use projected holiday rental income, often from a letting agent, to assess affordability. The furnished holiday lettings tax regime was abolished from April 2025, so tax treatment now follows ordinary property rules. Learn more

House in multiple occupation (HMO)

A property let to three or more people who form more than one household and share facilities such as a kitchen or bathroom. HMOs often produce higher rents than single lets but need more management. Specialist buy-to-let lenders usually want landlord experience and the right licence. Learn more

I

Income multiple

A simple guide to how much you might borrow, expressed as a multiple of your income, also called loan to income (LTI). Many lenders cap most loans at around 4.5 times income, with higher multiples for some professions and higher earners. Bank of England rules limit how much lending lenders do at high multiples. Learn more

Income protection

Insurance that pays a monthly income if you cannot work because of illness or injury, after a waiting period. It can help you keep up mortgage payments. Benefit levels, waiting periods and what counts as being unable to work depend on underwriting and policy terms. Learn more

Interest coverage ratio (ICR)

A buy-to-let affordability test comparing monthly rent with mortgage interest at a stress rate. Lenders typically require rent of 125% of the interest for limited companies and basic-rate taxpayers, and 145% for higher-rate taxpayers. The result often sets the maximum loan. Learn more

Interest-only mortgage

A mortgage where monthly payments cover only the interest, so the full loan is still owed at the end of the term. Residential lenders require a credible repayment strategy, such as investments or a property sale. Monthly costs are lower, but total interest paid is higher. Learn more

K

Key person insurance

Business protection that pays the company a lump sum if a key director or employee dies or becomes seriously ill. It can help cover lost profits, repay business loans or recruit a replacement. Cover and premiums depend on underwriting and policy terms. Learn more

L

Leasehold

Ownership of a property for a fixed number of years under a lease from the freeholder. Most flats in England and Wales are leasehold. Leaseholders usually pay service charges and sometimes ground rent. Lenders want a minimum unexpired term, often 70 to 85 years or more at the end of the mortgage.

Let-to-buy

Letting out your current home and buying a new home to live in. It usually involves two mortgages: a buy-to-let mortgage, or consent to let, on the existing property and a residential mortgage on the new one. Both must be affordable together. Learn more

Life insurance

Insurance that pays a lump sum or income if you die during the policy term. Decreasing cover can match a repayment mortgage balance; level cover suits interest-only loans or family needs. Premiums and whether a claim is paid depend on underwriting and policy terms. Learn more

Lifetime mortgage

A type of equity release for homeowners usually aged 55 or over. You borrow against your home and interest is normally rolled up, so the debt grows over time. It is repaid when you die or move into long-term care. It reduces the value of your estate and can affect benefits. Learn more

Limited company buy-to-let

Buying rental property through a company, usually a special purpose vehicle, rather than personally. The company can deduct mortgage interest as a business cost, and lenders often assess it at a 125% ICR. Directors normally give personal guarantees. Take tax advice before choosing this structure. Learn more

Loan to cost (LTC)

Development finance lending expressed as a percentage of total project costs, including land, build costs, fees and contingency. Senior lenders may lend up to around 80% to 90% of costs, subject to a separate cap on loan to gross development value. The lower of the two usually applies. Learn more

Loan to gross development value (LTGDV)

The total development loan, including rolled-up interest and fees, as a percentage of the scheme's expected finished value. Senior development lenders often cap it at around 60% to 70%. Higher leverage may be available through stretched senior or mezzanine finance at greater cost. Learn more

Loan to value (LTV)

The size of your mortgage as a percentage of the property's value. A £300,000 loan on a £400,000 home is 75% LTV. Lower LTVs usually give access to more lenders and better terms. Residential lenders lend up to 95% in some cases; buy-to-let is usually capped at 75% to 80%. Learn more

M

Mezzanine finance

A second-ranking loan used alongside senior development finance to reduce the developer's equity. Because the mezzanine lender is repaid after the senior lender, it costs more. It increases overall borrowing and risk, so the scheme's profit margin needs to absorb the extra cost. Learn more

Monitoring surveyor

An independent surveyor appointed by a development lender to review costs, contracts and programme before lending, then inspect the site during construction. They confirm the value of work done before each drawdown. The borrower normally pays their fees, which are often agreed before the loan completes. Learn more

Mortgage offer

The lender's formal written agreement to lend on a specific property, issued after full underwriting and valuation. It sets out the loan, rate, term and conditions. Offers are typically valid for around six months. The lender can withdraw it if your circumstances change before completion.

Multi-unit freehold block (MUFB)

A single freehold title containing several self-contained flats, each with its own tenancy. Some buy-to-let lenders specialise in MUFBs and value them on the block or the individual units. They can offer strong yields but are usually suited to experienced landlords. Learn more

N

Negative equity

When the outstanding mortgage is greater than the property's value. It can make it hard to remortgage or sell without paying in extra money. Negative equity is more likely with high loan-to-value borrowing, interest-only loans or a fall in local property prices.

O

Offset mortgage

A mortgage linked to your savings or current account. Your balances are set against the loan, so you pay interest only on the difference. You keep access to your savings but earn no interest on them. It can suit higher-rate taxpayers and people with irregular income and large cash balances.

Overpayment

Paying more than your required monthly mortgage payment, either regularly or as a lump sum. It reduces the balance and total interest. Most fixed-rate deals allow overpayments of around 10% of the balance each year without an early repayment charge. Check your lender's limits first. Learn more

P

Part and part mortgage

A mortgage split into two parts: one on a repayment basis and one interest-only. Monthly payments sit between the two types. You need a credible repayment strategy only for the interest-only part. It can suit borrowers with a partial repayment vehicle. Learn more

Personal guarantee

A promise by a company director or shareholder to repay a company's loan personally if the company cannot. Lenders usually require one for limited company buy-to-let, bridging and development loans. It puts your personal assets at risk, so take independent legal advice before signing. Learn more

Portfolio landlord

Under Prudential Regulation Authority rules, a borrower with four or more mortgaged buy-to-let properties. Lenders assess the whole portfolio, including rental cover, gearing, cash flow and business plans, not just the new property. Expect more paperwork than for a single let. Learn more

Porting

Moving your existing mortgage deal to a new property when you move home, so you avoid an early repayment charge. The lender reassesses affordability and values the new property. If you need extra borrowing, it may be on a different product. Porting is not guaranteed.

Private bank mortgage

A mortgage from a private bank, typically for high-net-worth clients with complex income or large loans. Private banks often take a holistic view of wealth and may lend on bonuses, investments or overseas income. Some expect you to place assets with them as part of the relationship. Learn more

Product transfer

Switching to a new deal with your existing lender when your current one ends. It is usually quicker and needs less paperwork than a remortgage, often without a new affordability check if you are not borrowing more. It may not be the best deal available, so compare it with the market. Learn more

Prudential Regulation Authority (PRA)

Part of the Bank of England, responsible for the safety of banks, building societies and insurers. Its supervisory statement SS13/16 sets underwriting standards for buy-to-let lending, including interest coverage tests, a minimum stress rate and rules for portfolio landlords with four or more mortgaged properties. Learn more

R

Regulated mortgage contract

A loan secured by a first or second charge on land in the UK, where at least 40% is used as a dwelling by the borrower or a close family member. These mortgages are regulated by the FCA, giving consumer protections such as advice standards and access to the Financial Ombudsman Service.

Remortgage

Moving your mortgage to a new lender, usually when your current deal ends, without moving home. People remortgage to get a better rate, release equity or change the term. The new lender checks affordability and values the property. Watch for early repayment charges and fees. Learn more

Repayment mortgage

A mortgage where each monthly payment covers interest and part of the loan, so the balance falls to zero by the end of the term. Also called capital and interest. Payments are higher than interest-only, but you pay less interest overall and own the property outright at the end. Learn more

Retained interest

Interest for an agreed period deducted from the loan at the start and held by the lender, common with bridging loans. You make no monthly payments, but the net amount you receive is lower. Unused retained interest may be refunded if you repay early, depending on the lender. Learn more

Retirement interest-only mortgage (RIO)

A mortgage for older borrowers where you pay interest each month and the loan is usually repaid when the property is sold after death or a move into long-term care. Lenders check you can afford the interest payments. It is regulated and reduces the value of your estate. Learn more

Rolled-up interest

Interest added to the loan balance each month instead of being paid, and repaid with the loan at the end. Common in bridging and development finance. It compounds, so the debt grows quickly. Lenders include it when checking the loan against their maximum loan to value. Learn more

S

SA302

HMRC's calculation of your income and tax for a tax year, produced after you file a Self Assessment return. Lenders use SA302s with matching tax year overviews to verify self-employed income. You can download them from your HMRC online account, but check your lender accepts self-printed copies. Learn more

Second charge

A loan secured on a property that already has a mortgage, ranking behind the first charge lender. Second charge mortgages can raise money without changing your main mortgage. Rates are often higher, and your home may be repossessed if you do not keep up repayments on either loan. Learn more

Section 106 agreement

A legal agreement between a developer and the local planning authority, made as a condition of planning permission. It may require affordable housing, infrastructure works or cash contributions. Section 106 costs can be significant and lenders will include them in a development appraisal. Learn more

Section 24

The rule that stops individual landlords deducting mortgage interest from rental income. Instead, they get a tax credit at the basic rate, currently 20%. From April 2027 the Government plans relief at a new property basic rate of 22%. It does not apply to limited companies. Take tax advice. Learn more

Self-build mortgage

A mortgage that funds building your own home, released in stages as the build progresses. Some products release funds in advance of each stage; others in arrears. Lenders need planning permission, a costed build plan and a warranty or architect's certificate. Learn more

Semi-commercial property

A building with both commercial and residential parts, such as a shop with a flat above. It is also called mixed-use. Lenders value and assess both elements. Semi-commercial loans are usually not regulated by the FCA unless you live in the residential part. Learn more

Serviced interest

Interest paid monthly on a bridging or development loan, rather than rolled up or retained. It keeps the final balance lower but needs income or cash flow to make the payments. Lenders check you can afford them throughout the term. Learn more

Share of freehold

An arrangement where flat owners each hold a long lease and jointly own the freehold of the building, often through a company. It gives owners control over management and the ability to extend leases. Lenders still lend on the lease, so the lease length matters.

SIC code

A Standard Industrial Classification code describing a company's business at Companies House. Buy-to-let lenders usually want special purpose vehicles registered under property codes such as 68100, 68209 or 68320. A trading company with other activities may need a specialist lender. Learn more

Special purpose vehicle (SPV)

A limited company set up only to buy, hold and let property. Buy-to-let lenders prefer SPVs because the company's sole business is property. Directors and shareholders usually give personal guarantees. An SPV can affect your tax position, so take accountancy advice first. Learn more

Stamp Duty Land Tax (SDLT)

Tax paid on buying property in England and Northern Ireland. Residential rates rise in bands from 0% to 12%. First-time buyers pay none up to £300,000 on homes up to £500,000. Additional properties attract a 5% surcharge, and non-UK residents pay a further 2%. Scotland and Wales have their own taxes. Learn more

Standard variable rate (SVR)

The lender's default variable interest rate, which most mortgages move to when a fixed or tracker deal ends. The lender can change it at any time. SVRs are usually higher than new deals, so many borrowers remortgage or take a product transfer before their deal ends. Learn more

Stress rate

A higher interest rate a lender uses to test affordability, to check you could cope if rates rise. For buy-to-let fixed for less than five years, PRA rules set a minimum stress rate of 5.5%. Residential lenders set their own stress tests within FCA rules. Learn more

T

Term

The length of time over which a mortgage is repaid, often 25 to 35 years for residential mortgages. A longer term lowers monthly payments but increases total interest. Lenders may limit terms that run past your expected retirement age unless income in retirement is affordable. Learn more

Top-slicing

Using surplus personal income to make up a shortfall when rent alone does not meet a buy-to-let lender's interest coverage ratio. Lenders that allow it check your income, spending and other commitments. It is useful where rental yields are low, such as parts of central London. Learn more

Tracker mortgage

A variable-rate mortgage that moves with the Bank of England's Bank Rate, set at a fixed margin above it. Payments rise and fall when Bank Rate changes. Some trackers have no early repayment charges, offering flexibility. Some have a floor, a minimum rate below which the rate cannot fall.

V

Valuation

The lender's assessment of a property's value and suitability as security, carried out by a surveyor. It protects the lender, not you, and is not a full survey. If the valuation is lower than the price, the lender may lend less, leaving a gap you need to fund.