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Property Jargon Buster

In the property world, there are many abbreviations used which can get quite confusing! We’ve listed meanings for the most used property terms below.

A

Adverse Credit

A term that describes credit history with negative entries i.e. missed mortgage payments (arrears), county court judgments, unpaid credit cards, etc.
Lenders will look upon a borrower’s credit score as a way of assessing the risk; adverse credit may result in the lender deciding not to lend or lending with a higher interest rate.

AIP

Agreement in Principle (AIP) also known as a Decision in Principle (DIP) or Indicative Mortgage Offer (IMO). This is the first part of a mortgage application which predicts what you can potentially borrow subject to a full application, valuation (if necessary) and further underwriting checks.

ALIE

Assets Liabilities/Income Expense (ALIE) is a snapshot of an individual’s finances as to what they own (assets – properties), what they owe (liabilities – mortgage/debts/loans), what they earn (income – employment/rental income) & what they have outgoing (expenses – living costs). This is designed to give a summary of the net worth and disposable income per month.

Article 4

Homeowners can make minor changes to their properties without needing planning permission from the council; this is called ‘permitted development rights’. However, sometimes these rights are removed to protect the character of an area.

An Article 4 Direction removes these ‘permitted development rights’ as a way in which councils can control building works and changes of use which would ordinarily be ‘permitted development’. Article 4 Direction examples are:

  • Conversion of commercial premises to residential uses
  • Conversion of C3-dwelling houses to C4-Houses of Multiple Occupation (HMO)

If an Article 4 Direction is in place, you would need to apply to the council for full planning permission first.

APR

The Annual Percentage Rate (APR) is the true cost of borrowing. APR considers the standard fees/charges & interest rate to reflect the total cost of your borrowing for a year.

Arrears

Arrears refer to a payment that is overdue/missed, whether this be a late credit card payment or a missed mortgage payment. They show up on your credit score and can impact negatively towards future borrowing with lenders.

AST

Assured Shorthold Tenancy (AST) is the most common agreement used within the buy-to-let industry, this is between the landlord and the individual (not including corporate tenants), which underlines the terms for occupying the property.

B

Base Rate

This is the Interest rate determined by the Bank of England for lending to other banks/lenders. The Base Rate is used to benchmark the interest rates the banks/lenders charge for products they offer such as mortgages & loans.
The Base Rate is also referred to as the Index Rate (See below).

Bedsit

This is a rented one-roomed unit of accommodation which shares the bathroom with other tenants but has its own kitchen facilities.

BMV

Below Market Value (BMV) refers to a property that is purchased below its market value; this may be due to the seller needing a quick sale. As the property is under-priced, it can be seen as a good deal to investors however, lenders may ask for more information into the background of the BMV; to ensure it’s not a distressed sale.

Bridging Loan

A short-term loan to “bridge the gap” for purchases and refinances. Investors and businesses can use a bridging loan to secure a fast purchase of a property as they have the advantage of removing the chain, making them cash buyers. Bridging loans can also be used to purchase a property in need of work to convert into a lettable condition; the funds can be raised for any legal purpose.

BRRR

Buy, Refurbish, Refinance, Rent (BRRR) is a strategy investors use to expand their property portfolio. The aim is to recycle your initial deposit so that you can keep adding properties to your portfolio, therefore your deposit is not tied up in your first deal.

BTL (Buy-to-Let)

A property that is purchased with the intention to rent out for income. These properties require a BTL mortgage and an agreement drawn up between the landlord and the individual.

C

CCJ

County Court Judgement (CCJ) occurs when money is owed for a service or goods and the court has ruled that you pay it back. CCJs show on credit scores as Adverse Credit and can affect any chances of borrowing from lenders.

CGT

Capital Gains Tax (CGT) is a personal taxation (excluding limited companies), that occurs when you sell (or “dispose of”) something (an “asset”) that has gained in value; you must pay capital gains tax on the profit. It’s not the quantity of money you get, but the gain you create that is taxed.

Completion

Completion is the final stage in the sale/purchase process, where the funds are transferred to the solicitor and the property changes ownership on a date already agreed upon.

Delayed completion is sometimes allowed if, for example, the valuation has picked up on some work that needs rectifying before the bank will lend. The buyer can exchange contracts to show they are going ahead with the purchase but is delaying completion until the work has been carried out.

Condition Precedent

A condition precedent is an event that must occur prior to the fulfillment of a contract. Before making funds available, lenders may require borrowers to provide certain documents and/or information, such as the company’s current financial information; these requirements (if any) will be listed in the mortgage/loan offer.

D

Debenture

This is a charge over ALL assets belonging to a Ltd Company or LLP. More than one bank can have a debenture, but they are prioritised depending on the date when the debenture was first registered.

If a bank wants to take out a second charge on a property within the debenture, the first lender must issue a letter of ‘non-crystallisation’ which dictates that although they have a debenture, they will not crystallise this so the second lender may have a 2nd charge over the property.

DSCR

Debt Service Cover Ratio (DSCR) is a ratio used in mortgage analysis to assess the affordability of a mortgage. It takes the income (less costs and adjustments) as a percentage of the repayments to the lender. 

Dual
Representation

This refers to a solicitor who is acting for both the client & the lender.

E

EPC

Energy Performance Certificate (EPC) is a report that assesses the efficiency of a property.

ERC

Early Repayment Charges (ERC) are fees charged by a lender if a customer wishes to end the loan agreement early.

Exchange of Contracts

The contract is the sale & purchase contract. The seller and the purchaser have the same contract. Once the solicitors have exchanged these, both parties are legally bound to complete. Failure to do so could end up in loss of deposit or being sued for any loss.

F

FCA

Financial Conduct Authority (FCA)regulates financial services firms and financial markets in the UK.

Freehold

The owner has unlimited access to the property and the tenure is set on a permanent basis. The freehold can be gifted or sold at a later date.

FRI Lease

Full Repairing & Insuring (FRI) – Vast majority of these leases are associated with commercial / business premises.

FSCS

Financial Services Compensation Scheme protects you when financial firms fail, for example, if the financial firm you’ve used has gone out of business and can’t pay your claim, they can step in to pay compensation.

FTB

First-Time Buyer (FTB) is a person who has never owned a property before and has no property to sell. They are not a homeowner or a landlord yet.

G

GDV

Gross Development Value (GDV) is the projected value of the property once all works have been completed.

GIA or GEA

Gross Internal Area or Gross External Area of the property.

H

Heavy Refurbishment

This is classed as structural works; where a property requires planning permission or building regulation approval. Even when a property changes its use (i.e. nursing home being converted into flats).

HMO

House in Multiple Occupation (HMO) is a property that consists of 5 or more households (not from the same family). A household may comprise more than 1 adult per room although this is unusual. Tenants must be renting a room and sharing facilities (kitchen/bathroom); this is sometimes known as a “House Share”.

I

ICR

The Interest Coverage Ratio (ICR) is a debt and profitability ratio that measures how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense over a specific period.

IHT

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s passed away.

Independent Legal Advice (ILA)

Sometimes a lender requires an ILA from a customer. An example of when an ILA is required; If a customer is guaranteeing a limited company or if the customer is elderly and requires help with understanding legal documents.
An ILA covers the lender should a customer state they didn’t sign into an agreement part way through the term.  

Index Rate

This interest rate fluctuates in accordance with the movement of a certain benchmark – BBR (Bank of England Base Rate) / SONIA (Sterling Overnight Index Average). Variable-rate credit products use indexed interest rates.

Interest Margin

The interest margin is the difference between the total interest rate the customer pays, less the index rate (see above).
For example, if the customer pays 6% and the index rate is 3%, the interest margin will be the difference which is 3%.

J

JV or JVP

Joint Venture or Joint Venture Partner.

K

KFI

A Key Features Illustration (KFI) contains information describing projected performance and the effect of charges. For mortgages, an in-depth mortgage quote is sent to a customer explaining what the future payments will be including interest rates, fees, monthly payments, ERCs, etc.

L

Let-to-Buy

Let-to-buy is a term used to explain the situation of not selling your existing property to buy a new one, but to rent out your existing property and buy a new one to live in.
Let-to-buy involves holding two mortgages at once; the mortgage on the existing property is converted onto a let-to-buy mortgage so it can be rented out, and a new residential mortgage is taken out on the new home being purchased.

Leasehold

As opposed to a Freehold (see above), you only have the right to occupy the demised premises for a fixed period of years. You don’t own the property, the landlord (or Freeholder) owns the property; you’ve purchased a lease from the landlord for the right to occupy it.
As the property is a leasehold, you cannot make any changes to the property without the landlord’s consent.
See The Leasehold Advisory Service for more information.

Local Housing Authority (LHA)

Local authorities (local district council) are responsible for providing rental/property support for the vulnerable.
They are the main providers of social housing for people who cannot afford to buy a home or rent accommodation privately.

Local authority housing is allocated according to eligibility and need. Rents are based on the household’s ability to pay.

Light Refurbishment

This is classed as nothing structural, for example; installing a new kitchen or bathroom, general decorating, damp proofing, re-wiring and re-plastering.

LLP

Limited Liability Partnership.

LTC

Loan to Cost is the ratio between the amount a lender will provide as a loan, against the total cost of the project.

LTGDV

Loan to Gross Development Value is the ratio between the amount of money lent against a property development project and the estimated open market value of the development after the works are completed.

LTV

Loan to Value (LTV) is the percentage of the value of a property the bank is prepared to lend.

M

MMC

Modern Method Construction

MO

Mortgage Offer

MR

Market Rent

MV

Market Value

N

NP

Net Profit is the total revenue/income minus the total expenses = net profit. 

O

Open Market Value

Open Market Value is the estimated amount that a property would sell for. In the opinion of the valuer, it is the best price that might be expected for the property from an unconnected party on a specific date.

P

PA

Per Annum.

PCM

Per Calendar Month.

Portfolio Loans

This is a loan secured over more than 1 property; there is no limit to the number of properties the loan can cover.

Planning Permission

Planning Permission is needed if you are looking to build something new on your property, make a major change to your property such as an extension, or if you want to change the use of your property. For more information on when planning permission is required, contact your local council.

Passing Rent

Passing Rent, as opposed to Market Rent, is the definitive rent that’s being paid by the tenant to the landlord. This could differ from the market rent if the tenant had already signed a long-term lease agreeing on a price, the tenant would continue to pay this amount until the lease expires. The landlord can start negotiations on the rent once a new lease is needed, to bring it in line with the market rent (see above).

PRS

Private Rental Sector.

PRA

Prudential Regulation Authority (PRA) is a financial services regulator that regulates & supervises around 1,500 financial institutions including banks and insurance companies, but not consumers.

Purpose of loan

Whether it’s a new purchase or re-mortgage/re-finance.

R

Regulated Tenancy

A tenancy prior to February 1997 gives the tenant security of tenure. Would need evidence that the correct notices were served to move them onto an AST.

Repayment Types

Interest Only – only the interest of the loan is repaid over the term, the full balance is due at the end of the term.

Capital & Interest – Both the interest and the capital are paid off over the term (also known as Repayment).

Part & Part – This is a combination of both the above types, however at the end of the term, there is a residual lump sum payment to be made (also known as a balloon payment).

Retained Interest

Retained interest applies to short-term loans like Bridging. This is where the interest from the term of the Mortgage/Loan is deducted from the initial advance by the lender, therefore there are no monthly payments that the borrower needs to make.

Retention

The payment is withheld by the lender for minor property works that do not inhibit the property being let, but the lender requires them to be made. A re-inspection by a surveyor/valuer is carried out once the works are complete; if satisfactory, the retention is released by the lender.

ROE / ROI

Return on Equity / Return on Investment.

ROT / COT

Report on Title / Certificate of Title – This precedes final completion of a loan/mortgage. It’s a written status on the property the solicitor writes and sends to the lender which must include any defects the property has. Once the lender receives the ROT/COT, they can proceed to completion.

S

SA

Serviced Accommodation (SA) refers to a fully furnished property available for short or long-term lets, like an Airbnb. The landlord is providing services such as Wi-Fi and housekeeping.

SDLT

Stamp Duty Land Tax.

Semi-Commercial / Mixed-Use

A commercial property (i.e. shop) with a residential flat above it. The flat must have its own separate entrance which is not accessible through the shop.

Self-contained Unit

This is a property that comes complete with its own kitchen, bathroom & living space.

SONIA

Sterling Overnight Index Average (SONIA) is an important index rate benchmark. SONIA is based on transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors. Essentially SONIA is the rate the banks borrow the money, the BBR is then determined from this.

SPV

Special/Single Purpose Vehicle (SPV) – A company that has been set up solely for the purpose of purchasing, renting, or developing properties.

SSTC

Sold Subject to Contract.

SVR

Standard Variable Rate (SVR) can change at the lender’s discretion and is dependent on the lender’s own cost of funds which is charged on top of the lender’s Interest Margin.

T

Term

Length of the loan/mortgage.

Title Insurance

This is used in re-mortgages for a quicker transaction, for example, You purchased a house on a 5-year fixed mortgage which is now due for renewal, as all the searches and conveyancing were done 5 years ago these are not needed again, so the conveyancer will purchase title insurance to cover should a problem arise that cannot be resolved using the existing paperwork trail.

Trading Ltd Company

A trading limited company is different from a company set up as an SPV (see above).  A trading limited company’s principal activity is primarily through business trading e.g. a mortgage broker, a finance company, or an architect; their main objective is trading not property investing.
A trading limited company could have a secondary nature of buying properties, but investors would normally buy properties in an SPV company.

U

Unencumbered Property

A property without any financial commitments. A property that is mortgage free and has no debt.

V

Valuation Definitions

MV (Market Value) – The value of a property considering any income it may earn (rent), if it’s a HMO. If it’s a trading business, it is referred to as MV1. This means the valuation also takes into consideration the fixtures and fittings if the business is a going concern and goodwill.

MV2 – For trading businesses, the same as MV1 but without the same level of goodwill but assuming there are no accounts for the business although it is still trading.

MV3 – The business is closed.

EV (Estimated value) of property -before an actual valuation has taken place.

VP (Vacant possession) Also known as Bricks and Mortar. This is the valuation of an empty property, with no going concerns or income to take into consideration.

PP (Purchase price) The price the property was purchased for.

VAT (Value Added Tax)

This is a tax added to most products and services sold by VAT-registered businesses. The below points reflect how VAT can impact the cost of works for property transactions:

  • Residential Refurb = 20% VAT is applicable.
  • Commercial to Residential = 5% VAT is applicable. Therefore, the contractor should only charge 5%. Alternatively, you become VAT registered, which we understand is not easy and can be complicated unless the business will be a permanent trading business. The 5% VAT rate also applies to where you increase the number of units into a residential dwelling (ie house to flats) and refurbishing property that has not been occupied for 2 years
  • New Builds = 0% VAT is applicable – If the person instructs a contractor, the contractor should charge the client 0% because they will claim the VAT back, but if someone builds a property themselves and buys material directly, they should pay the 20% and get VAT registered to claim the VAT back. A full-time developer would be VAT registered anyway, and for self-build properties there is a special VAT dept for this which makes the process easier to claim the VAT back.

Y

Yield

The term ‘Yield’ is a comparison tool for different investment types, it’s used to help measure the return on an investment expressed as a percentage. Example:

Property Value: £240,000
Rential Income: £1,000 per month / £12,000 per year
Calculation: 12,000 / 240,000 X 100 = 5% Yield

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