As if getting a mortgage isn’t stressful enough, the industry is full of acronyms that seem like a secret code. In today’s blog, we look at breaking down and understanding these abbreviations is crucial for making informed decisions about your mortgage. We’ll break down some common acronyms related to mortgages, making the lending landscape a little less daunting.

1. APR: Annual Percentage Rate

The APR represents the total cost of borrowing over a year, expressed as a percentage. It includes the interest rate, fees, and other associated costs, providing a comprehensive view of the loan’s overall expense. When comparing mortgage offers, focus on the APR to get a more accurate understanding of the financial commitment involved.

2. LTV: Loan-to-Value

LTV is a key ratio that compares the loan amount to the appraised value of the property. For example, if you’re borrowing £150,000 for a home valued at £200,000, your LTV is 75%. Lenders often use this metric to assess risk – lower LTVs typically indicate lower risk for the lender.

3. SVR: Standard Variable Rate

The SVR is the default interest rate set by the lender, which borrowers revert to once any introductory fixed or tracker rate period ends. Changes in the Bank of England’s base rate can influence SVRs, impacting your mortgage payments. We cannot stress enough how important it is to start reviewing your options around 6 months before your product ends, making sure you have a new rate in place the day after your rate ends. This will avoid you going onto the SVR and often doubling your monthly payment.

4. ERC: Early Repayment Charge

An ERC is a fee you may incur if you repay or change the product on your mortgage before a specified period, often associated with fixed-rate or discounted deals. It’s crucial to be aware of ERC terms, as they can significantly impact your financial plans.

5. CML: Council of Mortgage Lenders

The CML is a trade association representing UK mortgage lenders. While it doesn’t directly affect borrowers, keeping an eye on CML publications can provide insights into market trends, helping you make informed decisions.

6. AIP / DIP: Agreement/Decision in Principle

An AIP or DIP is a preliminary assessment by a lender indicating the amount they are likely to lend you based on your financial information. It’s a useful tool for understanding your borrowing capacity and will allow you to make an offer on a property when house hunting.

7. HMO: House in Multiple Occupation

If you’re considering an investment property, understanding HMO is essential. An HMO is a property rented out by at least three people who are not from one ‘household,’ but share facilities like the bathroom and kitchen. Certain lenders have specific criteria for HMO mortgages.

Navigating the mortgage market becomes much more manageable when you decode the acronyms commonly used in the industry. Whether you’re a first-time buyer or a seasoned homeowner, understanding these terms empowers you to make well-informed decisions, ultimately leading to a smoother and more confident mortgage experience.

Annabelle Bezant, February 2024