A–Z Glossary of UK Finance

Plain-English definitions for the mortgage, loan and credit terms you'll come across most often, from APR to tracker mortgages.

A

AER (Annual Equivalent Rate): The standardised annual rate of return on a savings account, allowing fair comparison between accounts that pay interest at different frequencies. See our APR vs AER guide.
Affordability assessment: A lender's evaluation of whether you can comfortably manage a loan or mortgage repayment, based on income, outgoings and existing debt.
APR (Annual Percentage Rate): The total annual cost of borrowing, including interest and most mandatory fees, expressed as a single percentage for fair comparison between credit products.
Arrangement fee: A fee charged by a lender for setting up a mortgage or loan, sometimes added to the loan amount rather than paid upfront.

Balloon payment: A large final payment due at the end of a PCP car finance agreement if you wish to keep the vehicle, also called the Guaranteed Minimum Future Value.
Base rate: The Bank of England's official interest rate, which directly affects tracker mortgages and indirectly influences fixed rates and savings.
Buy-to-let mortgage: A mortgage specifically for purchasing a property to rent out, assessed primarily on rental income coverage rather than personal salary.

CCJ (County Court Judgment): A court order made against someone who hasn't repaid a debt, recorded on their credit file for up to 6 years.
Credit reference agency (CRA): A company (Experian, Equifax or TransUnion in the UK) that collects and holds credit information used by lenders to assess applicants.
Credit utilisation: The percentage of your available credit limit currently being used — lower utilisation is generally viewed more favourably by lenders.

Debt-to-Income (DTI) ratio: Your total monthly debt repayments expressed as a percentage of your net monthly income, used by lenders to assess affordability.
Default: A formal record that payments on a debt have been persistently missed, remaining on your credit file for up to 6 years.
Deposit: The upfront sum you contribute towards a property or asset purchase, with the remainder covered by borrowing.

Early Repayment Charge (ERC): A fee charged by some lenders if you repay a mortgage or loan, in full or in part, before an agreed period ends.
Electoral roll: The official register of UK voters, used by lenders to help verify your identity and address history.
Equity: The portion of your property's value that you own outright, calculated as property value minus any outstanding mortgage balance.

Fixed-rate mortgage: A mortgage where the interest rate is locked for an agreed period, keeping monthly repayments the same regardless of market rate changes.
FCA (Financial Conduct Authority): The UK regulator responsible for authorising and supervising financial services firms, including lenders and mortgage brokers.
Further advance: Additional borrowing from your existing mortgage lender, secured against the same property, without switching to a new lender.

Guarantor loan: An unsecured loan where a second person agrees to make repayments if the main borrower is unable to, typically used by those with limited credit history.
Gifted deposit: Money given by a family member towards a property deposit, usually requiring a signed letter confirming it doesn't need to be repaid.

Hard search: A credit check, visible to other lenders, carried out when you formally apply for credit — can have a small, temporary effect on your score.
Hire Purchase (HP): A car finance agreement where you pay fixed instalments covering the vehicle's full value, becoming the owner once the final payment is made.

Interest-only mortgage: A mortgage where monthly payments cover only the interest, with the capital balance repaid separately at the end of the term.
IVA (Individual Voluntary Arrangement): A formal agreement between a person and their creditors to repay debts over a set period, recorded on the credit file for up to 6 years.

LTV (Loan-to-Value): The mortgage amount expressed as a percentage of the property's value — a lower LTV generally unlocks better interest rates.

Mortgage in principle: A lender's initial, non-binding indication of how much they might lend you, based on a quick assessment of income and credit history.

Offset mortgage: A mortgage linked to a savings account, where your savings balance reduces the amount of mortgage debt interest is charged on.

PCP (Personal Contract Purchase): A car finance agreement with lower monthly payments based on depreciation, and a large balloon payment due if you want to keep the car at the end.
Product transfer: Moving to a new mortgage deal with your existing lender, without a full new application or switching to a different provider.

Representative APR: The APR that at least 51% of successful applicants receive — your own personal rate may be higher or lower.
Remortgage: Switching your mortgage to a new lender, or to a new deal, typically involving a full application and (usually) legal work.

SDLT (Stamp Duty Land Tax): A tax paid on property purchases in England and Northern Ireland, calculated in bands based on the purchase price and buyer type.
Secured loan: A loan backed by an asset (commonly your home) as security, which the lender can claim if you fail to repay.
Shared Ownership: A scheme allowing you to buy a percentage share of a property and pay rent on the remainder, with the option to buy further shares over time.
Soft search: A credit check that doesn't affect your credit score and isn't visible to other lenders, used for eligibility checks and your own report checks.
Stress test: A lender's check on whether you could still afford mortgage repayments if interest rates rose significantly above your actual rate.
SVR (Standard Variable Rate): A lender's default interest rate, applied automatically once an initial fixed, tracker or discount deal ends, usually among their most expensive rates.

Tracker mortgage: A mortgage where the interest rate moves directly in line with a reference rate, almost always the Bank of England base rate, plus a fixed margin.