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Plain-English answers to the terms and steps you’ll come across, from agreements in principle to independent legal advice. Can’t find what you need? Ask one of our advisors.
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Buying a home
Agreement in principle AIP, mortgage in principle, decision in principle
A lender’s indication of how much it could lend you, based on a few details and usually a credit search. It isn’t a mortgage offer: the lender still checks your documents and values the property before it offers.
Loan to value LTV
Your mortgage as a percentage of the property’s value. A £180,000 mortgage on a £200,000 home is 90% LTV. Lenders price their rates in LTV bands, so a bigger deposit usually means lower rates.
Gifted deposit gift letter
Money a family member gives you towards your deposit. Lenders usually want a signed letter confirming it’s a gift, not a loan, and that the giver won’t own any of the home, plus proof of where the money came from.
Down valuation
When the lender’s valuer values the property for less than you’re paying. The lender lends on the lower figure, so you may need a bigger deposit, a lower price or a different lender.
Retention
Part of the mortgage a lender holds back until work on the property is done, usually because the valuation found repairs that need doing.
Borrowing and affordability
Joint borrower sole proprietor JBSP
A family member, often a parent, joins the mortgage to help with affordability but isn’t on the deeds, so they don’t own any of the home. They’re still responsible for the payments, so lenders usually require them to take independent legal advice.
Guarantor mortgage
A family member guarantees the mortgage payments if you can’t make them, sometimes backed by their savings or their own home. Lenders usually require the guarantor to take independent legal advice.
Income multiple loan to income
The cap on what a lender will lend as a multiple of your income, often 4.5 to 5.5 times. Lenders also run an affordability check of your income against your outgoings.
Remortgaging
Standard variable rate SVR
The lender’s own rate, which your mortgage usually moves onto when a fixed or discounted deal ends. It’s usually much higher than deal rates, and the lender can change it at any time.
Early repayment charge ERC
A charge for paying off or switching a mortgage during its deal, usually a percentage of what you owe that falls each year. It’s in your mortgage offer, or your lender can tell you the figure.
Product transfer product switch
A new deal with the lender you already have. It’s usually quicker than a remortgage, often with no valuation or legal work.
Porting
Taking your mortgage deal with you when you move home, usually to avoid an early repayment charge. The lender reassesses you and the new property, and any extra borrowing is usually on a new deal.
Limited companies and investors
Personal guarantee PG
A promise by a director, shareholder or other person to be personally responsible for a company’s borrowing if the company can’t pay. Lenders usually require independent legal advice before you sign one.
SPV special purpose vehicle
A limited company set up only to hold property. It’s what most lenders look for when you buy a buy-to-let through a company. We don’t give tax advice, so talk to your accountant about whether a company suits you.
Interest cover ratio ICR, rental stress test
The buy-to-let test of rent against the mortgage interest. Lenders want the rent to cover the interest, worked out at a test rate, by a set margin, often 125% to 145%.
Bridging loan
A short-term loan, often for up to 12 months, to buy before you sell or to buy a property a mortgage won’t lend on yet. It has to be repaid on time, usually by a sale or a mortgage.
Legal and paperwork
Independent legal advice ILA
Advice from an independent solicitor so you understand a legal commitment before you sign it, such as a personal guarantee for company borrowing. Lenders often make it a condition of the loan, and it’s charged per person.
Exchange and completion
Exchange is when contracts are swapped and the purchase becomes legally binding. Completion is when the money moves and you get the keys. Your solicitor or conveyancer handles both.
Later life
Lifetime mortgage equity release
The most common kind of equity release: a loan secured on your home, usually from age 55, normally repaid when you die or move into long-term care. It reduces what you leave and isn’t right for everyone.
Retirement interest-only mortgage RIO
You pay the interest each month, so what you owe doesn’t grow. It runs until you die, move into long-term care or sell, but you need the income to afford the payments.
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