Jargon Buster: the Ultimate Guide to buy and rent a property in London and the UK.
Here’s the Ultimate Jargon Buster Guide, to joggle with all the terms you need to know when buy and rent a property in London or UK.
This document has to be signed and returned to the lender, to accept a lender’s mortgage offer on your property.
Amortisation is the gradual decrease of a liability until it expires. For example, this could be the case for a mortgage paid back in various instalments.
ANNUAL EQUIVALENT RATE – AER
AER a notional rate, often quoted on interest paid on savings and investments, demonstrating what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).
ANNUAL PERCENTAGE RATE (APR)
An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment and is expressed as a percentage that represents the actual yearly costs of funds over the term of a loan.
In the real estate world, the applicant is the name of the potential purchaser.
The lender charges this fee to cover the costs of administrating and reserving the funds for particular types of mortgages. The fee can be paid separately or added to the to the total fund amount.
Auctions can be a quite entertaining event to sell properties. Usually, a listed property is sold only if at least the reserve price is reached. This moment is usually represented by the auctioneer’s hammer falls, representing an exchange of contracts. The bidder will be legally obliged to pay a 10% deposit and sign a memorandum of sale before leaving the auction. Completion usually takes places 28 days later and the buyer is not in a position to re-negotiate any of the stipulated terms and buys the property “as seen”. Structural surveys and searches would have to be made in advance by a bidder.
The base rate is the lowest rate of interest a bank can apply to lend money and is used as a benchmark to set interest rate for borrowers. The Bank of England reviews it throughout the year. Lenders will charge borrowers a margin above.
The beneficial owner is the person owning the land and is entitled to it for his own benefit.
This event happens when a purchaser is wishing to complete the purchase of a property before his own has been sold. Lenders will advise the person on what sort of temporary finance is required. As a result, some people use bridging finance to move to the new property whilst selling the older one.
The capital is the money used to buy a property or the deposit placed on a property. It’s also called equity.
The capped rate is the maximum interest rate to pay on a mortgage for an allocated period of time (usually only for the first few years of the loan).
Entries on the land register protecting the interests of a third party. Any applicant for first registration of title is notified to him/her whereupon he/she can take appropriate action to protect his/her interests.
Property pledged as a guarantee for the repayment of a loan.
Completion is the final beautiful moment when all monies and the purchaser is finally the owner of the new property.
Entered into by the vendor and purchaser of a property that only becomes binding on exchange of contracts, i.e. when both parties have signed the contract and the purchaser has handed over the agreed deposit (if any) to the vendor.
This involves two or more purchasers who want to buy the same property. Either purchaser or vendor can instigate it although usually it is the latter. The winner is the first purchaser to exchange contracts.
In this case, the legal process transferring ownership from vendor to purchaser.
COUNTY COURT JUDGEMENT (CCJ)
Whenever someone fails to pay for something and is subsequently taken to court, the magistrate may issue a County Court Judgement against that individual to pay the outstanding debt that will only be removed when the debt is cleared.
A legal requirement of the owner to do, or not to do, something in relation to the property. For example; restrictions on its use, changes to its appearance.
The procedure by which a check is made on the credit history of a mortgage applicant, usually conducted by one of the large dedicated credit check agencies on behalf of a prospective lender. Consequently, The check will include items such as credit card repayments, outstanding debts, arrears and County Court Judgements.
A history of an individual`s open and fully repaid debts. Checking a credit history helps a lender to assess the likelihood that a prospective borrower will maintain their mortgage repayments.
An assessment of a person`s likelihood of keeping up – or otherwise – on the repayments on their loan. Hence, a credit rating is usually based on a person`s credit history.
CREDIT REFERENCE AGENCY.
A company that collects and stores financial and public records dealing with the payment history of a prospective borrower. Most lenders will employ a Credit Reference Agency to check your payment records as part of their assessment of your application.
A report prepared by a Credit Reference Agency and which details the credit history of an individual. Consequently, the credit report will be used by a lender to help assess the applications of prospective borrowers.
DEBIT SERVICE COVER RATIO(DSCR)
The ratio of net operating income to debt payments on a investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to cover its mortgage payments. Therefore, the higher this ratio is, the easier it is to borrow money for the property.
The legal document that sets out your ownership or title to a property.
DISCOUNTED CASH FLOW(DCF)
A method of evaluating an investment by estimating future cash flows and taking into consideration the time value of money.
A mortgage with an interest rate lower than the lenders’ Standard Variable Rate (SVR).
EARLY REPAYMENT CAHRGE
A charge incurred if part or all of a mortgage is paid earlier than agreed.
A legal right that one person has over a property he or she doesn’t own. A positive easement is a right to do something on another person’s property. A negative easement is the right to prevent the owner of the property from doing certain things.
Earnings before Interest, Taxes, Depreciation and Amortisation. EBITDA equates to operating revenue minus operating expenses plus other revenue.
The formal and final version of a document prepared by a solicitor ready for signing and sealing following agreement of the final draft between the parties.
Legal rights in a property that do not include the right to sell its legal title.
In housing terminology this is the difference in the value of the property and the amount outstanding on any loan secured against it. If the size of the outstanding loan is greater than the market value of the property, you have negative equity.
The mortgage taken out on a home that is already fully owned, typically in order to make use of the capital tied up in it.
ECHANGE OF CONTRACTS
The stage when the buyer and seller exchange signed, binding contracts of purchase and sale. Hence, both then become committed to complete the transaction.
Signing, sealing and delivering a deed in front of an independent witness.
Your financial outgoings, such as loan repayments, regular fees or child maintenance before taking out a mortgage. Borrowers are obliged to disclose all such outgoings as part of the mortgage application process.
Any items that are included in the sale of a property, e.g. carpets, curtains, curtain rails, wall lights, cooker etc.
A flying freehold is formed when part of a freehold property overhangs a different freehold property or land.
Absolute ownership of land with or without Chief Rent.
FULL REPAIRING AND INSURING (FRI)
Refers to the lease terms obliging the tenant (as opposed to the landlord) to carry out all repairs and maintenance to the building both internally and externally. Many (but not all) leases to retail or commercial tenants are on this basis.
A term denoting a situation where the vendor has accepted an offer but subsequently accepts a higher offer from another purchaser.
A term used to denote a situation where the purchaser lowers his offer immediately prior to exchange of contracts.
Using loaned funds to progress investments. For example, buying a house with a small deposit and the rest with a mortgage and then selling the property on at a higher price, making a profit. Leverage is another word for gearing.
The Leaseholder pays it annually to the Freeholder.
Usually referred to in auction catalogues. The guide prices are often subject to change and are not necessarily what the property will sell for. Sometimes the reserve price is higher than the guide price.
Independent Financial Adviser.
An investment can’t easily be turned back into cash quickly and at a low cost.
A grant made by the local authority towards the cost of repairing or improving property.
The term used when the estate agent has the formal instruction by a property owner to market the property, usually by private treaty, in order to find a purchaser.
INTERNAL RATE OF RETUN (IRR)
This measures development or investment opportunities. It takes into account all of the income streams, in terms of the initial outlay, net rental or other income, and growth in capital value of the asset. Most noteworthy, it takes into account the timing of each payment or distribution.
A certificate issued by the Land Registry as proof of ownership.
The process of registering your title to an area of land with the Land Registry, typically handled by a solicitor.
A Government department where details of properties with a registered title are recorded along with any charges e.g. mortgages.
LAND REGISTRY FEE
A Charge Levied by a solicitor to register ownership of an area of land with the land Registry.
Ownership of property by way of a leasehold interest for a fixed term, usually with a ground rent payable annually.
Ownership of land, normally for a fixed period, that is subject to an annual payment of a ground rent to the owner of the freehold.
The person/company who grants a lease i.e. the landlord.
The legal right of one person to hold the property of another as security for a debt.
LOAN TO VALUE RATIO (LTV)
It represent the proportion of the value of the property that the lender will loan. This can be up to 100%.
LOCAL AUTHORITY SEARCH
A check carried out by a purchaser`s solicitor to ensure that the prospective property is not subject to any local authority issues such as road or town planning or any enforcement notices.
LONDON INTER BANK OFFERED RATE (LIBOR)
The rate of interest at which banks offer to lend money to one another in the wholesale money markets in the City of London.
The charge made, usually annually, by the landlord, to cover the costs of maintaining the property as set out in the lease.
A long-term loan for which property is the security.
The document incorporating the conditions of a loan secured on a property.
MORTGAGE INDEMNITY GUARANTEE (MIG)
An insurance policy taken out by a lender against any loss caused by a mortgage default. MIG is typically required for loans with an LTV of 90% or higher. Also known as Mortgage Indemnity Fee and as Mortgage Indemnity Premium.
The letter or advice from the lender offering a loan and setting out the terms and conditions on the mortgage
The borrower and owner whose property is secured for the loan.
A situation where two or more agents are acting on behalf of the vendor. The Agent will receive commissions only if he successfully introduces the buyer to the vendor.
A method used in evaluating investments whereby the net present value of all cash outflows (such as the cost of the investment) and cash inflows (returns) is calculated using a given discount rate, usually a Required Rate of Return. A positive NPV means the investment is acceptable.
NOMINAL INTEREST RATE
The interest rate not adjusted for inflation.
Outgoings incurred by a landlord of a property which cannot be recovered from a tenant via, for example, a service charge. These may typically include property management and letting agency fees, an allowance for vacancies and rent arrears, an allowance to cover the costs of refurbishment of vacant units in order to re-let and possible certain items of maintenance cost depending upon what is referred to in the lease.
The buyer will place an offer to purchase the property, including price and timeline.
OPEN MARKET VALUE (OMV)
The estimated amount for which a property should sell assuming there is a willing buyer and a willing seller involved in an arms-length transaction. This assumes there has been adequate marketing and that parties had each acted knowledgeably, prudently, and without compulsion.
A term used to denote a trivial amount of ground rent.
A set of questions raised by the solicitor of the purchaser and sent to the vendor via his solicitor, prior to exchange of contracts. They ask for clarification of specific points about the property and the present vendor’s ownership of it.
Sale of a property by private treaty is the method employed by most estate agents, preparing descriptive details of the property and quoting a definitive asking price. Details are circulated – by post, email, website, local paper etc: potential buyers may view the property and either agree to buy at the asking price or submit an offer to purchase. Agreement to buy at this stage (for England and Wales) is subject to formal contracts being prepared and those contracts being signed and exchanged between the vendor and the purchaser.
The official process of proving the validity of a will. In many cases part of the estate will involve a property, which might need to be valued for Inheritance Tax purposes. A probate valuation is generally a negotiated value with the district valuer representing the Inland Revenue. A sale cannot proceed to exchange of contracts until probate has been granted.
Let’s explore the rates in this jargon buster. The annual rate, expressed as a percentage, of interest on a loan.
REAL INVESTMENT (REITs)
These represent pooled funds allowing investors to buy into property without actually owning buildings. The funds can invest in commercial and residential property and do not pay tax on rental incomes or capital gains on properties within the fund, but the investor pays tax on dividends and unit appreciation.
REAL INTEREST RATE
The rate of interest, less the current rate of inflation. For example, if a bank account pays 6% interest and inflation is 3% then the real rate of interest is 3%.
A penalty levied by the lender when the borrower pays off a mortgage.
The Land Registry manages a database of properties to include the ownership information of lands. It easy to check the ownership of a property in London and UK, simply logging into the Land Registry website.
The process whereby a new mortgage replaces an old one and both use the same property as security.
When a borrower defaults, the lender starts a legal procedure to gain possessions of the mortgaged property . The borrower loses right on the property that goes to forced sale or auction.
Usually referred to in an auction catalogue as the minimum price at which a seller is willing to sell.
It represents an amount held back from the initial loan by the Lender until certain repairs or improvements have been completed. In some cases, it covers possible road charges on a new estate.
RIGHT OF WAY
An individual’s legal right to use a particular part of a property, in order to gain access to any particular part of his own property.
A term used to denote the physical and written procedure for determining any adverse effects in or on a particular property, whether already in effect or planned to take place.
A mortgage intended for borrowers who are unable to categorically prove their income by conventional means such as payslips and fully audited accounts, but can provide alternative evidence and thereby demonstrate the level borrowing is affordable. Typically the lender will charge higher rates of interest, or require a larger deposit.
SELF INVESTED PERSONAL PENSIONS (SIPPs)
SIPPs allow complete control over pension savings and where they are invested. It may be used to invest in stocks and shares, government securities, unit trusts and investment trusts. Also, SIPPs may be used for commercial property, insurance company funds, traded endowment policies, deposit accounts with banks and building societies, and National Savings products. They may, under certain circumstances, be used for residential property investment.
Debt that has priority of claim ahead of other financial obligations.
A Scheme whereby a borrower purchases part of a property and the other part is purchased by a third party, such as a housing corporation. A shared equity scheme differs from shared ownership in that no ongoing rent is paid to the third party. However, any future increases to a property`s value results in the third party`s share of equity in the property increasing proportionately. In other words, a borrower does not fully benefit from future increases in a property`s value.
To occupy the property as a tenant, and have legal rights without a lease. Any sale would be subject to any rights of a tenant who has occupation. Hence, a property with a sitting tenant can often have a much reduced asking price.
Authority to sell a property lies with one agent.
SOLE SELLING RIGHT
An agent controls the sale of a property and has the right to his fees, on selling it.
Tax paid by the purchaser of a property to the Government in the UK. You can simply calculate it on a sliding scale depending on the purchase price of the property.
STANDARD VARIABLE RATE
The standard interest rate (SVR) set by lenders, and which is subject to increasing or decreasing at the discretion of the lender. Consequently, the standard variable rate often applies at the end of any fixed, capped or discounted period.
A survey of the condition of a property, undertaken by a qualified surveyor, and for which the surveyor is responsible. A structural survey is the most detailed – and most expensive – of the property reports available. Also known as a “Building Survey”.
SUBJECT TO CONTRACT
It represents a provisional agreement before exchange of the contracts where either party may still withdraw from the transaction.
Loans or mortgages given to borrowers with poor credit records who are often unable to obtain more conventional loans. Borrowers put down little or no cash themselves.
This is the lease that the landlord holds. This is often the case in a property where the owner has the leasehold interest, but another individual owns the freehold. There is then this lease under which the Property owner is responsible for the obligations/covenants.
After exchange of the contracts, a purchaser may seek to take possession of a property before financial and legal completion. This could be to carry out repairs and decorations or to take up residence early. The purchaser paying an appropriate rate of interest on the balance of the outstanding monies (i.e. purchase price less deposit paid) instead of rental.
The tenant (a person of organisation) holds the right to occupy a property, under the Tenancy Agreement.
This is the situation where the asking price is not actually stated, but offers are invited. Details of the property are prepared, circulated and advertised and the closing date for the tender is noted. In most cases the vendor will reserve the right to refuse the highest offer, thereby not being committed to sell. Offers tendered are usually opened in the presence of the vendor’s solicitors, at a prescribed date and time. An acceptance of an offer by the vendor constitutes an immediate contract, and in most cases, the party tendering will have made their financial arrangements and have had a structural survey carried out in advance.
Refers to whether a property is freehold or leasehold.
TITLE – ABSOLUTE
The highest form of tenure available.
ITLE – ABSTRACT
A summary of title documentation used in the Conveyancing of unregistered properties. Because of this, it proves that the vendor has the right to sell.
The Title Deed represents the legal documents describing the rights and liabilities, attached to the property and prove ownership of property.
Solicitors’ certificate confirming that the title of the property is acceptable. A Lender holds a Title Report before issuing an advance cheque for the mortgage monies.
An investigation carried out by a conveyancer or solicitor, into the history of ownership of a property. The search will check for unpaid claims, restrictions or any other problems that may effect ownership.
A type of mortgage whereby any changes in the rate of interest charged follow exactly (`track`) another, specified, interest rate or index. Typically a tracker mortgage will track the Bank of England base rate.
When the vendor has accepted an offer for his home. Either party may still withdraw from the transaction. The agent will often display a board saying “Sold subject to contract” at this point.
In this case, an agreement will allow to reduce the repayments. Some mortgages (flexible mortgages) allow for a specified level of underpayment.
A property that has no loans or borrowings secured on it.
The previous occupants must vacate the property before you move in, including any tenants. In London, some properties have a tenant when offered to the market, and you should check when the property will be vacant, prior to put an offer.
The owner of a property, willing to offer it to the market.
A simple survey carried out on a property for the benefit of the lender. The surveyor makes a mistake you have no legal claim against him.
WRITE OF SUMMONS
Mode of commencing legal proceedings.
Refers to the financial income from an investment. The income yield on an investment is the annual dividend or interest payment, multiplied by 100 and divided by the market price.
YIELD – NET
Rate of return on an investment after subtracting all expenses, such as commissions, costs of purchase, and taxes.
YIELD – GROSS
Finally, we have reached the end of the jargon buster.
The return on an investment before deducting costs or losses incurred in procuring and managing the investment.
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