Jargon Dictionary:

Making sense of it all:

None of us like to be bombarded with acronyms and phrases that only experts can make sense of. However there are some phrases that are so commonly used in our industry that it is useful to know them.

You could of course just ask us and we would be happy to tell you, and if you want to find them out for yourself then we have placed what we feel to be the most useful ones here:

Enjoy

AST [Assured shorthold tenancy]:

The most common type of residential tenancy agreement in England and Wales. An AST sets out the terms under which a property is to be let, most commonly for a period of 6 months. Most buy to let lenders will insist on using this type of tenancy agreement as it offers a good level of protection.Bridging finance [Bridging]:

This is a quickly available form of short term finance usually secured on a property. It is usually used in cases where mortgage finance isn’t suitable, available or fast enough.

Broker:

A mortgage broker is an intermediary who provides advice on mortgages. A broker will usually offer mortgages from many lenders and is able to tailor products to a client’s specific requirements. Whilst most Brokers can operate with most products they will often specialise in certain types of mortgage such as Buy To Let, Adverse Credit etc.

Below Market Value [BMV]:

A property that is below market value [BMV] is one that has been purchased or sourced at a discount of its value. Be aware of the variant between property valuation and property resale value as they can be different.

Buy to let [BTL]:

Exactly what is says it does. Buying to let is purchasing a property with a view to renting it to a tenant for investment purposes rather than to live in on a 'residential mortgage.'

Cash-back:

This is a scenario where you have borrowed more than you need to put into a property deal. For example you may buy a property with a 15% discount and get a 90% mortgage which leaves a 5% differential. The mortgage company will generally still give you the full loan on the property and you take the last 5% as a 'cash-back.'

We would suggest that you be very wary when over borrowing. This leads to properties being 'upside down' [see 'upside down'] and can seriously affect long term financial stability.

Capital Repayment:

With a capital repayment mortgage, where you are paying off your mortgage over a period of years [as opposed to interest only where you only pay interest], the capital and interest elements of the loan are paid off with each monthly installment. The balance reduces over the term [perhaps 25 years] until you have fully paid off your house.

Capital growth:

The increase in value of a property. This creates increased equity with all other things being equal which can be accessed through sale or a remortgage.

Completion:

The legal completion of a property is the date when the ownership of a property is transferred from the seller to the purchaser. This process takes place once all searches and enquires have been completed by the 'conveyancer' and monies are paid on behalf of the purchaser and lender to the seller or vendor.

Conveyancing:

The process responsible for processing the sale/purchase of a property. There are usually 2 'conveyancers' or solicitors involved in the transaction, one acting for the buyer and one for the seller. They will perform various checks on the property via searches and enquires between themselves. They will usually handle the money on behalf of both parties and the lender.

Decision in Principle [DIP]:

This is exactly what it says it is: a decision in principle from a mortgage broker about your eligibility for a mortgage on a property. A quick check of your eligibility is made [income, rental income, credit] and a mortgage is agreed in principle and quotations given.

Exchange:

Exchange of contracts is the point at which all checks have been completed and the buyer and sellers become legally bound to the transaction. It is customary for the buyer to pay a 10% deposit at this point.

Freehold:

As opposed to a leasehold, if you have a freehold you own the property and the land it is situated on.

Further advance:

Further borrowing taken from the existing lender of a property at a point after the initial mortgage has started. This is a way of obtaining further borrowing a property without the need for a re mortgage.

HMO:

These are houses rented by the room on separate tenancy agreements to a number of people as opposed to a single tenancy agreement for a family or a single occupant.

Law society:

The body responsible for regulating solicitors in England and Wales. All solicitors must be registered with the law society.

Leasehold:

As opposed to freehold, if you have a leasehold you own the property but not the land it is situated on and you have to pay 'ground rent' for you property on that land.

Letting:

Letting a property is renting it out to a tenant.

Loan to Value [LTV]:

The level of a mortgage as a percentage of the value and/or purchase price of a property which a lender will advance [lend].

Re-finance/Remortgage:

The process of switching the lender on a property from one to another, usually performed by a solicitor or 'conveyancer'.

Refurb:

The refurbishment of a property will take sub standard accommodation to a welcoming standard of decor which is suitable for letting.

Rental coverage:

The percentage over and above the monthly mortgage payment that the rental income is. The market norm is around 125%.

Rent assessment:

A surveyor will usually provide a rental assessment on a property for the lender when surveying a property for a buy to let mortgage. This rental figure is then used to calculate the amount which the lender will advance [lend].

Rent back:

A property purchase where the owner stays in the property after completion and rents it back from the purchaser. The benefit for the purchaser is that they may be able to negotiate a lower price with the seller. The seller gains as they can stay in their home when the property may otherwise be repossessed.

RICS:

The Royal Institution of Chartered Surveyors is the leading body which accredits surveyors in the UK. Mortgage lenders insist on using a RICS accredited surveyor on their panel to carry out valuations and surveys to protect the bank and purchasers interests.

ROCE:

Return on capital employed. This is generally shown as a percentage and is the amount you get returned on your 'spent' money.

For example, if you make a £100,000 investment but are able to borrow £85,000 your total input is £15,000. If this investment rises by 15% or £15,000 your return on capital employed is 100%.

If you invest this £20,000 and £5,000 is 'employed' and you make £5,000 on your investment in year 1 then you ROCE is 100%.

ROI:

Return on Investment. This is generally shown as a percentage and is the amount that you get returned on your invested money generally on a yearly basis.

For example if you invest £100,000 and in year 1 you make or return £20,000 then that would be a 20% ROI.

Searches:

A series of checks performed by the 'conveyancer' or solicitor on behalf of the purchaser and lender. These usually include water, drainage, mining and coal searches which check the connection status of services and proximity of extraction sites. Local authority searches check a variety of areas including charges on the property and local planning decisions.

Simultaneous exchange and completion:

Many investment purchases exchange and complete on the same day negating the need for a deposit other than one stipulated by your lender.

Specialist lenders:

Lenders who specialise in mortgages for specific markets such as Buy to Let, Adverse Credit or No Deposit deals. These lenders can be useful when looking to achieve mortgages with higher loan to values, for clients with adverse credit history or a lack of documentary proof of income.

Stamp Duty:

A charge or tax levied by the government on house purchases over £125,000 and on ann incresing sliding scale as follows:

• Up to £125,000 No stamp
• £125,001 - £250,000 1%
• £250,001 - £500,000 3%
• £500,000 or more 4%

Survey:

An on site visit by a surveyor will usually include basic structural and dampness checks which will be reported to the lender.

Upside down:

This is a term used to describe a property that costs you on a monthly basis to keep because the costs [mortgage, maintenance, service charge etc] are higher than the income through rent.

Most properties are now a little 'upside down' especially with recent interest rate rises, and a little each month is certainly acceptable.

Properties that are heavily 'upside down' or costing you more money each month than they bring in can be detrimental to your long term wealth.

Valuation:

A process which is included in the survey which is carried out by the surveyor to assess what the property is worth. He will usually asses this based on comparable properties sold in the area.

Yield:

Gross yield is the percentage of the value of a property which the yearly rental income makes up. The higher the yield the easier it is to cover the mortgage and running costs attributed to the property. As a broad rule the lower the value of a property the higher the yield.

Any more questions we have not answered?

Please do not hesitate to contact us

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