Buy to Let Mortgage Glossary
Buy to Let Terms Explained in Plain English
Buy to Let mortgages come with their own terminology.
You may hear mortgage advisers, lenders, accountants, solicitors and property professionals talking about ICRs, stress tests, LTVs, SPVs, rental yields, portfolio landlords and personal guarantees.
Understanding these terms can make it easier to compare properties, understand mortgage options and make sense of the application process.
This glossary explains many of the common mortgage and property-finance terms a landlord may encounter.
A
Additional Borrowing
Extra borrowing secured against a property where the lender's criteria allow it.
A landlord might consider additional borrowing for property improvements, another property purchase or another acceptable purpose.
Increasing borrowing increases the debt secured against the property.
Agreement in Principle
An initial indication from a lender that it may be prepared to consider a particular level of borrowing, subject to its full underwriting, property assessment and other requirements.
It is not a mortgage offer and does not guarantee that the lender will approve the application.
Arrangement Fee
A fee associated with a mortgage product.
It may also be described as a product fee.
Depending on the mortgage, the fee might be a fixed amount or calculated as a percentage of the mortgage.
AST
AST stands for Assured Shorthold Tenancy, a term historically associated with many private residential tenancies in England.
Landlord and tenancy legislation can change, so landlords should ensure they understand the current legal framework applying when the property is let rather than relying on older terminology or documentation.
B
Bank of England Base Rate
An interest rate set by the Bank of England's Monetary Policy Committee.
It can influence borrowing costs across the wider economy.
However, fixed mortgage rates do not simply move directly in line with the Bank of England Base Rate.
Bridging Finance
Short-term property finance that may be used in situations where a conventional mortgage is not suitable immediately.
For example, it may sometimes be considered for properties requiring substantial refurbishment before they can qualify for longer-term mortgage finance.
Bridging finance can be more expensive than conventional mortgage borrowing and requires a credible repayment or refinancing strategy.
Buy to Let
A property purchased or owned primarily for the purpose of renting it to tenants rather than occupying it as the owner's main home.
Buy to Let Mortgage
A mortgage designed for a property that will be rented to tenants.
Buy to Let mortgages can have different affordability assessments, deposit requirements and lending criteria from residential mortgages.
C
Capital
In mortgage terminology, capital generally means the amount borrowed, excluding interest.
If you borrow £200,000, the £200,000 is the original mortgage capital.
Capital Appreciation
An increase in a property's value over time.
Property values can also fall, so future capital appreciation should never be assumed.
Capital Raising
Increasing borrowing against an existing property in order to release money from its equity.
The amount that can be raised depends on lender criteria, property value, rental affordability and other factors.
Completion
The point at which the legal property transaction is completed and mortgage funds are released as required.
For a purchase, ownership normally transfers to the buyer at completion.
Consent to Let
Permission from a residential mortgage lender to rent out a property that was originally mortgaged as the borrower's home.
Consent to Let is different from arranging a Buy to Let mortgage and is subject to the existing lender's criteria.
D
Deposit
The portion of the purchase price being provided by the buyer rather than funded through the mortgage.
The required deposit depends on the lender, property, applicant and mortgage product.
Director's Loan
Money introduced into or withdrawn from a limited company by a director can potentially be recorded through a director's loan account, depending on the circumstances.
This can become relevant when directors provide funds to a property company for a deposit.
The accounting and tax treatment should be discussed with an appropriately qualified accountant or tax adviser.
Down Valuation
When the mortgage lender's valuation is lower than the purchase price or expected property value.
A down valuation can affect the maximum mortgage available and may mean a larger deposit is required.
E
Early Repayment Charge
Usually abbreviated to ERC.
An Early Repayment Charge may apply if a mortgage is repaid, refinanced or substantially reduced during a period specified by the mortgage terms.
ERCs are particularly important when considering an early remortgage or property sale.
Equity
Broadly, the difference between the value of a property and the mortgage secured against it.
For example, a property worth £300,000 with a £180,000 mortgage has £120,000 of gross equity before considering selling or refinancing costs.
Having equity does not mean all of it can necessarily be borrowed or withdrawn.
Exit Strategy
The planned method for repaying a mortgage or other form of property finance.
An exit strategy can be particularly important with interest-only mortgages, bridging finance and development finance.
F
Fixed Rate Mortgage
A mortgage where the interest rate is fixed for an agreed initial period.
This can provide certainty over the mortgage rate during that period.
Once the fixed period ends, the mortgage will normally move to the rate specified by the mortgage terms unless another product or mortgage is arranged.
Freehold
A form of property ownership where the owner generally owns the property and the land on which it stands.
This differs from leasehold ownership.
Further Advance
Additional borrowing from an existing mortgage lender, subject to that lender's criteria.
It may be considered instead of a full remortgage in some circumstances.
G
Gross Rental Income
The total rent received before expenses are deducted.
It should not be confused with investment profit.
Gross Rental Yield
A basic measure comparing annual rental income with the property's value or purchase price.
A common calculation is:
Annual Rent ÷ Property Value × 100
If a £200,000 property generates £12,000 per year in rent:
£12,000 ÷ £200,000 × 100 = 6%
This would represent a 6% gross rental yield.
The calculation does not account for mortgage payments, taxation, maintenance, management or other costs.
Ground Rent
A payment that may apply under some leasehold arrangements.
The legal treatment of ground rent depends on the lease and applicable legislation.
Your solicitor should explain the obligations applying to a particular property.
H
Holiday Let
A property used for short-term holiday accommodation rather than conventional longer-term residential letting.
Holiday-let mortgages can have different lender criteria and affordability assessments from standard Buy to Let mortgages.
HMO
HMO stands for House in Multiple Occupation.
Broadly, it describes certain properties occupied by people who do not form a single household and share facilities.
The precise legal, planning and licensing position depends on the property and applicable requirements.
HMO Licence
Certain HMOs require a licence from the relevant local authority.
Licensing requirements can depend on the property, occupancy and location.
Mortgage approval does not replace the landlord's responsibility to establish and comply with applicable licensing requirements.
I
ICR
ICR stands for Interest Coverage Ratio.
It is a calculation commonly used by Buy to Let lenders when assessing whether the expected rent provides sufficient coverage for the mortgage interest figure used in their affordability assessment.
Different lenders can apply different calculations.
Interest
The cost charged by a lender for borrowing money.
The mortgage interest rate is applied to the outstanding borrowing according to the terms of the mortgage.
Interest-Only Mortgage
A mortgage where the contractual monthly payments generally cover interest rather than repaying the original capital borrowed.
At the end of the mortgage term, the capital balance remains to be repaid unless it has been reduced separately.
A credible repayment strategy is therefore important.
L
Landlord
A person or organisation that owns property and rents it to tenants or occupiers.
Landlords have legal and regulatory responsibilities that extend beyond arranging the mortgage.
Leasehold
A form of property ownership where the property is held under a lease for a specified period.
Leasehold properties can involve additional considerations such as service charges, lease restrictions, remaining lease term and management arrangements.
Limited Company Buy to Let
A Buy to Let property purchased and owned by a limited company rather than directly by an individual.
The mortgage is taken by the company, although lenders may also assess the directors and shareholders and can require personal guarantees.
Loan-to-Value
Usually abbreviated to LTV.
Loan-to-value compares the mortgage amount with the property's value.
The calculation is:
Mortgage Amount ÷ Property Value × 100
For example, a £150,000 mortgage against a £200,000 property represents 75% LTV.
LTV Band
A loan-to-value range used by lenders when determining mortgage product availability and pricing.
Changing the mortgage amount or property value can potentially move the application into a different LTV band.
M
Mortgage Offer
The formal mortgage offer issued by a lender once it is satisfied with the application, property and relevant underwriting requirements.
It sets out the terms on which the lender is prepared to provide the mortgage.
Mortgage Term
The overall period over which the mortgage is arranged.
This is different from the initial fixed or discounted product period.
Multi-Unit Freehold Block
Often abbreviated to MUFB.
This generally refers to a freehold property containing multiple separate residential units.
It is different from an HMO, where occupants commonly rent rooms while sharing certain facilities.
Mortgage lenders can treat MUFBs as specialist property.
N
Net Rental Income
Rental income remaining after relevant property expenses have been deducted.
Exactly which expenses are included depends on the calculation being used.
Net Yield
A measure that attempts to account for property costs when assessing investment return.
Unlike gross yield, net yield incorporates certain expenses.
There is no single universally applied calculation, so it is important to understand what has and has not been deducted when comparing figures.
O
Overpayment
A payment made towards a mortgage above the contractual amount required.
Mortgage products can have limits on how much can be overpaid without triggering charges.
The mortgage terms should therefore be checked before making substantial overpayments.
P
Personal Guarantee
A legal commitment given personally by an individual in relation to borrowing undertaken by another entity, such as a limited company.
Personal guarantees are commonly encountered in limited company property finance.
Their legal implications should be understood before signing.
Portfolio Landlord
A landlord who owns multiple mortgaged rental properties and falls within the relevant lender's definition for portfolio underwriting.
The precise way lenders define and assess portfolio landlords can vary.
Portfolio Underwriting
A lender's assessment of a landlord's wider property portfolio rather than looking only at the individual property being mortgaged.
The lender may consider property values, mortgage balances, rental income, loan-to-value and other portfolio information.
Product Fee
A fee associated with a particular mortgage product.
It may be a fixed amount or percentage of the mortgage, depending on the product.
Product Transfer
Moving to another mortgage product with the existing lender rather than remortgaging to a different lender.
Eligibility and available products depend on the lender.
R
Rental Affordability
The lender's assessment of whether the expected rental income sufficiently supports the mortgage requested.
This is different from residential mortgage affordability, which is generally more focused on personal income and expenditure.
Rental Stress Test
A calculation used by Buy to Let lenders to test whether the expected rent provides sufficient coverage for the mortgage under the lender's assumptions.
The lender may use a stressed interest rate rather than simply the initial mortgage rate.
Rental Valuation
An assessment of the rent a property could reasonably be expected to achieve.
For a Buy to Let mortgage, the lender may rely on a valuer's rental assessment when calculating affordability.
Remortgage
Replacing an existing mortgage with a new mortgage.
A landlord may remortgage when an existing deal is ending, to review borrowing costs, restructure finance or potentially raise additional capital.
Repayment Mortgage
Also known as a capital-and-interest mortgage.
Monthly payments include both interest and repayment of the capital borrowed.
Provided the required payments are maintained, the mortgage balance should reduce over the term.
S
Service Charge
A charge commonly associated with leasehold properties for maintaining and managing shared areas, buildings or services.
Service charges can have a significant effect on the net return from a rental property.
Source of Funds
Evidence explaining where money being used in a property transaction originated.
This could relate to savings, investments, inheritance, a property sale or another source.
Lenders and solicitors may require supporting evidence.
SPV
SPV stands for Special Purpose Vehicle.
In property investment, it commonly refers to a limited company established specifically for property-related activity.
Mortgage lenders that accept limited company Buy to Let may have criteria concerning the company's activities and structure.
Standard Variable Rate
Often abbreviated to SVR.
A variable interest rate set by a mortgage lender.
A mortgage may move onto a lender's applicable variable rate after an initial mortgage deal ends, depending on the mortgage terms.
Stress Rate
An interest rate used by a lender when assessing Buy to Let rental affordability.
It may differ from the actual mortgage interest rate being offered.
Stress Test
A lender calculation designed to assess whether the property's rent provides sufficient coverage under specified assumptions.
T
Tenancy
The legal arrangement under which a tenant occupies a property.
The type of tenancy can be relevant to both the landlord's legal obligations and mortgage lender criteria.
Tenant
A person who occupies a property under an appropriate tenancy arrangement and normally pays rent to the landlord.
Top Slicing
A Buy to Let affordability approach used by some lenders where an applicant's personal disposable income may potentially be considered alongside the property's rental income.
Not every lender offers top slicing, and those that do can calculate it differently.
Tracker Mortgage
A mortgage with an interest rate that tracks a specified reference rate according to the mortgage terms.
If the reference rate changes, the mortgage rate can change.
U
Underwriting
The lender's assessment of the mortgage application.
For Buy to Let, this can include reviewing:
applicant circumstances;
credit history;
income;
rental affordability;
property;
valuation;
deposit;
ownership structure; and
wider property portfolio.
A mortgage application is not approved simply because an initial lender calculation appears to fit.
V
Valuation
An assessment used by the mortgage lender to determine whether the property represents acceptable security and establish an appropriate value for lending purposes.
For Buy to Let, the valuer may also assess expected rental value.
Variable Rate
A mortgage interest rate that can change rather than remaining fixed for an agreed period.
The circumstances in which the rate changes depend on the mortgage product.
Void Period
A period during which a rental property, or part of it, has no paying tenant.
Mortgage payments and many other property costs can continue during a void period.
Landlords should therefore consider potential voids when assessing cash flow.
Y
Yield
A measure used to compare rental income with property value.
The most common simple version is gross rental yield:
Annual Rental Income ÷ Property Value × 100
Yield can be useful when comparing properties, but it does not by itself show how profitable an investment will be.
Mortgage costs, management, maintenance, taxation, insurance, service charges and other expenses also need to be considered.
Mortgage Terms Can Sound More Complicated Than They Are
Buy to Let terminology can initially make property finance seem unnecessarily complicated.
The important thing is to understand what each term means in the context of your own transaction.
For example:
LTV tells you how much you are borrowing relative to the property's value.
ICR helps a lender assess whether the rent provides sufficient mortgage coverage.
Stress testing examines affordability using the lender's assumptions.
Yield compares rental income with property value.
Equity represents the difference between property value and secured borrowing.
ERCs can affect the cost of leaving a mortgage early.
Understanding these concepts makes it much easier to evaluate mortgage options and ask the right questions before committing to a property.
Speak to Cambs Ely Mortgages About Buy to Let
Whether you're purchasing your first rental property, building a portfolio, buying through a limited company, considering an HMO or holiday let, or reviewing an existing Buy to Let mortgage, we can help you understand the mortgage terminology and options relevant to your circumstances.
Cambs Ely Mortgages provides Buy to Let and property finance advice to landlords and property investors in Ely, Cambridge, Cambridgeshire and across England, with remote appointments available.
Discuss Your Buy to Let Plans
Building Blocks for a Brighter Future.
#BuildingBlocksForABrighterFuture
Important Information
This glossary is intended as a general educational explanation of commonly used Buy to Let and property finance terminology. The precise meaning or treatment of a term can depend on the lender, mortgage product, legal documentation and individual circumstances.
It does not constitute personalised mortgage, investment, financial, legal, accounting or tax advice.
Mortgage availability, interest rates, fees, loan-to-value limits, rental affordability calculations and lender criteria can change.
Property investment involves risk. Rental income and property values are not guaranteed.
Legal, tenancy, licensing and tax requirements can also change. Appropriate professional advice should be obtained where required.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some forms of Buy to Let mortgage.