A
Acceptance
If you wish to accept a lender’s mortgage offer this document will need to be signed and return to the lender.
Annual Equivalent Rate (AER)
A notional rate that is often quoted on interest paid on savings and investments. It aims to demonstrate 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)
The APR is a figure that is used to compare different mortgages. Defined by law, it includes repayments on the loan plus any fees such as booking, arrangement or redemption fees. The APR shows the true cost of borrowing and should appear on all mortgage illustrations and quotes.
Applicant
The name given to a potential purchaser, often used by estate agents/auctioneers.
Arrangement Fee
This is a charge levied by the lender to cover the costs of administering and reserving the funds for certain types of mortgage. May be paid separately or added to the loan amount.
B
Base Rate
The lowest rate of interest a bank will charge when it lends money, used as a benchmark to set interest rates for borrowers. This rate is set by the Bank of England and is reviewed several times a year. Lenders will charge borrowers a margin above the base rate.
Bear Market
A stock market in which share prices fall steeply, typically 15%-20%.
Beneficial Owner
Refers to a person who owns the land and is entitled to it for his own benefit. Not, for instance, a trust that holds the land for the benefit of another.
Bridging Finance
Under certain circumstances, a purchaser may wish to complete the purchase of a property before his own has been sold. If necessary, lenders will advise as to whether the necessary temporary finance can be made available and the purchase can go ahead earlier. Some people use this means for a few days to enable them to move from property A to property B over a couple of days.
Broker’s Fee
A Fee charged by a broker for locating the most appropriate mortgage.
Bull Market
A market where prices roar ahead, increasing significantly.
C
Capital
The amount of money either put into buying a property or the deposit placed on a property. Also known as equity.
Capped Rate
The maximum interest rate you will pay on a mortgage for an allocated period of time, usually the first few years of the loan.
Caution
Entries on the land register protecting the interests of a third party. Any applicant for first registration of title is notified to him whereupon he can take appropriate action to protect his interests.
Charge
If a property owner uses his security in the property to service a loan, a charge is registered and certified. This entitles the lender to be regarded as a secured creditor who will be paid from the proceeds of a sale in the event of a default on the loan.
Charge Certificate
A certificate issued by the Land Registry to a lender giving evidence of the lender’s charge over the property.
Collateral
Property pledged as a guarantee for the repayment of a loan.
Commission or Fee to the Estate Agent/Auctioneer
The sum of money paid to the agent, usually on completion, although legally it is payable on exchange of contracts.
Completion
The finalising of the sale when all monies are exchanged and the purchaser gains access to the property.
Contract
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.
Conveyancing
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.
Covenant
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.
Credit Check
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. The check will include items such as credit card repayments, outstanding debts, arrears and County Court Judgements.
Credit History
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.
Credit Rating
An assessment of a person`s likelihood of keeping up – or otherwise – on the repayments on their loan. 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.
Credit Report
A report prepared by a Credit Reference Agency and which details the credit history of an individual. The credit report will be used by a lender to help assess the applications of prospective borrowers.
D
Debt Service Cover Ratio (DSCR)
The ratio of net operating income to debt payments on an investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to cover its mortgage payments. The higher this ratio is, the easier it is to borrow money for the property.
Deed
The legal document that sets out your ownership or title to a property.
Delayed Completion
Completion can take place anytime after the exchange of contracts. If this takes longer than 28 days it is referred to as delayed.
Discounted Cash Flow (DCF)
A method of evaluating an investment by estimating future cash flows and taking into consideration the time value of money.
Discounted Rate
A mortgage with an interest rate lower than the lenders’ Standard Variable Rate (SVR).
E
Early Repayment Charge
A charge incurred if part or all of a mortgage is paid earlier than agreed.
Easement
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.
EBITDA
Earnings before Interest, Taxes, Depreciation and Amortisation. EBITDA equates to operating revenue minus operating expenses plus other revenue.
Engrossment
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.
Equitable Interest
Legal rights in a property that do not include the right to sell its legal title.
Equity
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.
Equity Release
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.
Exchange of Contracts
The stage when the buyer and seller exchange signed, binding contracts of purchase and sale. Both then become committed to complete the transaction.
Execution
Signing, sealing and delivering a deed in front of an independent witness.
Existing Liabilities
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.
F
Fixtures and Fittings
Any items that are included in the sale of a property, e.g. carpets, curtains, curtain rails, wall lights, cooker etc.
Flying Freehold
A flying freehold is formed when part of a freehold property overhangs a different freehold property or land.
Freehold
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.
G
Gearing
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.
Ground Rent
Applies to Leasehold properties and is a sum paid annually to the Freeholder by the Leaseholder.
Guide Price
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.
I
Illiquid
An investment is said to be illiquid if it can’t easily be turned back into cash quickly and at a low cost.
Improvement Grant
A grant made by the local authority towards the cost of repairing or improving the property.
Instruction
The term used when the estate agent is formally instructed by a property owner to market the property, usually by private treaty, in order to find a purchaser. The resulting contractual agreement confirms the terms under which the instruction is offered by the vendor and accepted by the estate agent.
Internal Rate of Return (IRR)
This is used to measure 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 importantly it takes into account the timing of each payment or distribution.
L
Land Certificate
A certificate issued by the Land Registry as proof of ownership.
Land Registration
The process of registering your title to an area of land with the Land Registry, typically handled by a solicitor.
Land Registry
A Government department where details of properties with a registered title are recorded along with any charges e.g. mortgages.
Lease
Ownership of property by way of a leasehold interest for a fixed term, usually with a ground rent payable annually.
Leasehold
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.
Lessor
The person/company who grants a lease i.e. the landlord.
Lien
The legal right of one person to hold the property of another as security for a debt.
Loan to Value Ratio (LTV)
The proportion of the value of the property that the lender is prepared to 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.
M
Maintenance Charge
The charge made, usually annually, by the landlord, to cover the costs of maintaining the property as set out in the lease.
Mortgage
A long-term loan for which property is the security.
Mortgage Deed
The document incorporating the conditions of a loan secured on a property.
Mortgage Offer
The letter or advice from the lender offering a loan and setting out the terms and conditions upon which it is offered.
Multiple Agency
A situation where two or more agents are acting on behalf of the vendor. The agent who introduces a successful purchaser is the only one paid.
N
Net Present Value (NPV)
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
An interest rate which has not been adjusted for inflation.
Non-Recoverable Expenses
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.
O
Offer
Make an offer on the purchase price with the intention of purchasing Part-Possession: The term used when a property is being sold, where a tenant has legal right of occupation.
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.
P
Preliminary Enquiries
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 that is being sold and the present vendor’s ownership of it.
Private Treaty (For sale by Private Treaty)
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.
Probate
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.
R
Rate
The annual rate, expressed as a percentage, of interest on a loan.
Real Estate Investment Trusts (REITs)
These are 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%.
Redemption Penalty
A penalty levied by the lender when the borrower pays off a mortgage.
Registered Land
Land (including buildings on it) the title to which is registered at the Land Registry and legal ownership is guaranteed.
Remortgaging
The process whereby a new mortgage replaces an old one and both use the same property as security.
Repossession
The legal procedure by which a defaulting borrower is deprived of their interest in the mortgaged property, typically involving the forced sale of the property at public auction.
Reserve Price
Usually referred to in an auction catalogue as the minimum price at which a seller is willing to sell.
Retention
An amount held back from the initial loan by the Lender until certain repairs or improvements have been completed or in some cases to cover 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.
S
Searches
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.
Self Certification
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. SIPPs may be used to invest in stocks and shares, government securities, unit trusts and investment trusts. SIPPs may also 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.
Shared Equity
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 result 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.
Sitting Tenant
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 an occupation. A property with a sitting tenant can often have a much reduced asking price.
Sole Agency
Authority to sell a property lies with one agent.
Sole Selling Rights
Where one agent has complete control of the sale, and is entitled to his fee however the property is sold.
Stamp Duty
Tax paid by the purchaser of a property to the Government in the UK. Currently based on the following rates:(from March 2006 Budget) Up to £125,000 – nil; £125,001 to £250,000 – 1%; £250,001 to £500,000 – 3%; more than £500,000 – 4%.
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. The standard variable rate often applies at the end of any fixed, capped or discounted period.
Subject to Contract
A phrase, often seen on estate agents boards, used as a provisional agreement before contracts have been exchanged where either party may still withdraw from the transaction.
Superior Lease or Head Lease
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. When a property is let the tenant renting also has to comply with any of these obligations – e.g. not to hang out washing on a balcony etc.
T
Tenancy at Will or Licence
After contracts are exchanged 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. This can often be organised and a licence arranged between both parties’ solicitors. 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.
Tenant
A person or organisation who is entitled to occupy a property under the terms and conditions of a tenancy agreement.
Tenure
Refers to whether a property is freehold or leasehold.
Title Deeds
These are legal documents describing the rights and liabilities that are attached to the property and prove ownership of property.
Title Search
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 affect ownership.
Tracker
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.
U
Under Offer
When the vendor has accepted an offer for his home but contracts have not yet been exchanged. Either party may still withdraw from the transaction. The agent will often display a board saying “Sold subject to contract” at this point.
Underpayment
A situation where repayments are reduced so that the mortgage is not repaid by the end of the agreed term. Some mortgages (flexible mortgages) allow for a specified level of underpayment.
V
Vacant Possession
The previous occupants must vacate the property before you move in, including any tenants.
Vendor
The owner of the property to be sold.
Valuation
A simple survey carried out on a property for the benefit of the lender. Because the report is carried out for the lender, if the surveyor makes a mistake you have no legal claim against him.
Y
Yield
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
The return on an investment before deducting costs or losses incurred in procuring and managing the investment.
