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Buying a home glossary
Buying your first house can be a complex process. Understanding the key terms can make it simpler.
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A mortgage Agreement in Principle (AIP) is the first step to getting a mortgage. It’s sometimes called a Mortgage Promise or a Decision in Principle. You would ‘apply’ by sending a mortgage lender some basic details and they will tell you how much money they may be willing to lend you. It is not a mortgage offer. |
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Annual Percentage Rate of Charge (APRC) |
APRC is the Annual Percentage Rate of Charge. It shows, as a percentage, the annual costs you will be charged for your mortgage over a one-year period. The rate is calculated with not just the interest on the loan, but also any other applied charges (for example, any arrangement fees). |
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Arrangement fee |
This is a fee that may be charged by your mortgage lender, for arranging your mortgage. The value will either be a percentage of your mortgage loan value or it may be a flat fee. This can be added to your mortgage. |
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The base rate is set by the Bank of England and determines the interest rates UK banks charge on savings and borrowing money. |
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Booking fee |
Often combined with the arrangement fee, this can be a separate charge for your mortgage application. |
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Buy to let is a term given to a mortgage taken out to buy a property that you or your family will not live in. For example, buying a property to rent out to tenants. A buy to let mortgage is usually an interest-only loan. Meaning the monthly repayments cover the loan interest only and not the original loan amount. |
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Capital |
A mortgage has two parts: Capital: the money you borrow. Interest: the charge made by the lender on the amount you owe. |
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Capital Gains Tax (CGT) is a tax you may have to pay if you sell an asset (i.e. property) if it has increased in value. |
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Completion fee |
A fee that covers the cost of electronically transferring your mortgage funds to you or your conveyancer. Sometimes called a CHAPS fee, it usually costs around £50. |
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Contract |
A mortgage contract is a legal document between a lender and homebuyer. It sets out the terms and conditions of the mortgage loan. The contract sets the terms and conditions of the relationship between the two parties. It also details the amount of the loan and the proposed repayment schedule. |
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Conveyancing is the preparing and processing of the legal documents you need to buy a house. It’s usually done by a property solicitor, known as a conveyancer. They’ll deal with the Land Registry, draw up contracts and transfer cash to the seller on your behalf. The conveyancer will also transfer the legal ownership from the seller to the buyer. |
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This is an amount of money you pay towards you’re the purchase of a property. You usually need to pay an amount that is a percentage of the property price. |
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If you pay off your mortgage early, or overpay by more than your lender allows, you may have to pay an early repayment charge. This is so your lender can make up for the lost interest they would have made over the remainder of your mortgage agreement. |
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Equity is the amount in value of how much of your home you own. In simple terms, it’s the difference between the current market value of your property, minus the amount to owe on your mortgage. |
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Estimated property value |
This is the purchase price or the market value of the property you want to buy. |
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When you buy a home, the exchange of contracts is when both parties sign the contracts. It’s a crucial stage that will be done by your conveyancer. |
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Exit fee |
You may need to pay an exit fee once you have fully repaid your mortgage, your mortgage term comes to an end, or you transfer the loan to another lender. This is sometimes called a closing administration charge. |
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A fixed rate mortgage gives you a fixed interest rate for a set amount of time. This can give you a good idea of how much your monthly repayment will be as your rate won't go up or down. |
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Fixed until |
This is the date that the fixed rate of interest on a fixed rate mortgage ends. |
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Freehold is a term given to a property when you own both the building and the land it sits on. There is no limit to how long you can own a freehold property. You’re free to change the property if you have the necessary planning permission from the local authority. |
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This is when someone else makes a higher offer on a house you are in the process of buying and the seller accepts that offer. Even if your offer is accepted, the seller can still accept an offer from someone else. This happens when buyers are in a better position to complete the sale. For example, if they are cash buyers or are not in a property chain. |
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A gifted deposit is a cash gift, from a relative, that you use to pay for some or all of a mortgage deposit. The gifted deposit must be a gift. It can’t be a loan and there must be no agreement to pay back the money. In fact, you’ll need to state in writing that you won’t have to pay this money back in the future. The gift giver can’t have any stake in the home, either. |
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These are government-sponsored affordable housing initiatives including Right to Buy, Shared Ownership and the Help to Buy: equity loan. If you’re a first time buyer, there could be a scheme to support you. |
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The registry holds details about the property. Such as the date the current owner was registered as the owner, the property address, whether the property is freehold or leasehold and other information relating to the property title. The Land Registry is a government department that holds records of property titles registered in England and Wales. |
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Inheritance Tax (IHT) |
This is a tax which is paid if you inherit the estate of someone who has died. It includes property, possessions and money. You can find more information on Inheritance Tax thresholds and allowances on the government website. |
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Interest is the money you pay a lender in return for borrowing money for your house purchase. You'll pay a percentage of the amount you borrowed – the interest rate. Find a mortgage with a low mortgage interest rate, as this means you'll pay less to the lender in borrowing costs. Interest can be applied;
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If a property is leasehold, it means that you own the property or the land it sits on, for a fixed amount of time. It will have a lease contract stating who owns the building or the land, the price to lease and the length of the term of the lease. In some cases, you may have an option to buy the lease. You would then own the property and/or the land. |
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This is the amount of money you are borrowing compared to the value of the property. This is calculated as a percentage and used by lenders when reviewing a mortgage application. |
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If you make a one-off payment to reduce the outstanding balance on your mortgage it is called a lump sum payment. This is in addition to your regular monthly repayments. |
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This is the amount you agree to pay each month to repay your mortgage. |
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The name given to a loan taken out for the purchase of a property. It's secured against your home, which means you may lose your home if you can't keep up with the repayments. The loan term can range from one year to 40 years. |
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Mortgage deed |
A legally binding document confirming that you and the lender have agreed to go ahead with your mortgage offer, using the property as security. |
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Mortgage offer |
This is a confirmation of how much a lender is willing to lend you. It will set out the terms of the offer, such as the interest rate and monthly repayments you need to make. |
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This is the rate of interest that you pay on the money you lend to buy a property. |
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Mortgage term |
This is sometimes just called the ‘term’. This is the length of time that you have to repay your mortgage loan. |
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If the value of your property is less than the amount you owe on your mortgage, you are in negative equity. |
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Outstanding balance |
The outstanding amount owed on your existing mortgage. |
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When you pay more than your regular repayment amount. This could be a lump sum or by increasing your regular monthly repayments. Limits may apply. |
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Payment day (date) |
This is the day each month when your lender takes the mortgage payment from your nominated account. If the date isn’t on a business working day, the mortgage payment will usually be taken on the next business day. |
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If you have a mortgage on an existing property and move house, you may be able to 'port' your existing mortgage rate to your new property. |
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Product period |
This is the period of time that your mortgage interest rate deal lasts for. Your mortgage product may have a fixed interest rate for a set period of time. Your mortgage terms will tell you when this offer will end. |
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Product transfer (switching) |
If your current mortgage deal is coming to an end and you decide not to shop around for a new deal, your lender may offer you a product transfer, sometimes called ‘switching’. This is when you move your mortgage onto a new interest rate deal. This is often cheaper and quicker than remortgaging to a new lender. This is because you won’t need any legal work and therefore don’t need a conveyancer. |
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Property chain |
Simply put, a property chain is when the purchase of your house is linked to a seller who’s also in the process of buying a house. The person buying your home might not be able to complete until they’ve sold their home. Likewise, the person who is selling you their home might not be able to sell until they’ve bought a new home. |
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When you get a new mortgage deal on your home from a new lender. You'll need to have a mortgage in place already to be able to remortgage. |
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Repayments |
The monthly payment amounts you make to repay your mortgage loan, are called repayments. |
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Residential mortgage |
If you purchase a property that is to be used as a home rather than as a business, you will take out a residential mortgage. |
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Searches |
Searches are checks made by your conveyancer as part of your property purchase. The conveyancer will apply to the local authority to check on things such as property ownership, access rights, planning permission and drainage. |
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Shared equity |
If you have a shared equity property, you would also share any profits, or equity, that you gain on your property. |
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Shared ownership is where you own a percentage of a property and a landlord such as a housing association or local authority owns the rest, renting it to you at a reduced rate. |
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A lender may do a soft credit check as a pre-approval for a loan. It checks your credit worthiness without leaving a search history on your credit file. |
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Solicitor |
When buying a house, a solicitor is called a conveyancer. They handle the legal aspects and paperwork required as part of your house sale or purchase. |
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More commonly referred to as Stamp Duty. This is a government tax that is paid on the purchase price of a property. |
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Standard valuation |
This is a survey of a property that will confirm its value. It doesn’t advise on any structural problems or repairs that may add to your costs. This is done for the lenders benefit only. |
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If you don’t switch to a new offer when your current mortgage deal ends, you’ll be moved to the lender’s standard variable rate. This varies over the term of the loan and is set by the lender - it doesn’t track the Bank of England base rate. |
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Survey |
This is usually a requirement of a mortgage offer. It is an experts review of a property. It detail the condition and estimated value of the building. Depending on the type of survey you buy, it will report any issues or faults that will require fixing. |
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Switching (product transfer) |
If your current mortgage deal is coming to an end and you decide not to shop around for a new deal, your lender may offer you a ‘switch’. This is sometimes referred to as a product transfer. This is when you move your mortgage onto a new interest rate deal. This is often cheaper and quicker than remortgaging to a new lender. This is because you won’t need any legal work and therefore don’t need a conveyancer. |
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Term |
The length of time that you have to repay your mortgage. |
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Title search |
Your conveyancer will do a title search to check who legally owns the property. It is a public record and a legal requirement that ownership details are updated when a property is bought or sold. |
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Unlike a fixed rate mortgage, a tracker rate mortgage has a variable interest rate that tracks the Bank of England (BoE) Base Rate – also known as the Bank Rate. This means the interest on your repayments can go up or down in line with any Base Rate changes. |
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Transfer deed |
This is a legal document which transfers legal ownership of a property from the seller to the buyer. It is usually completed at the final stage of a property sale or purchase. |
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If you pay less than your required repayment amount, it is classed as an underpayment. You may be able to do this if you have previously overpaid your mortgage and you have less owing. As your mortgage loan is secured against your home, it’s important to remember that you may lose your home if you can't keep up with the repayments. Seek help from your lender if you are struggling. |
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