Glossary of Terms
| A | B | C | D | E | F | G | H | I | J | K | L |
| M | N | O | P | Q | R | S | T | U | V | W | Z |
A |
Acquisition |
| The process by which a property/development is purchased. |
Annual percentage rate |
| A percentage representation of the full payment of a loan/mortgage which is inclusive of all fees. It is usually compared to interest rate payment. |
Arrangement fees |
| Chargeable cash sum from the mortgagee for the preparation of the mortgage; can be added to the total mortgage payment |
Assignable Contracts |
| The ability to sell on the rights to a flat which you have exchanged upon. |
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B |
Bank of England Base Rate |
| The standard rate of interest that the bank of England sets to lenders. |
Bridging loan |
| A financial arrangement enabling the purchaser to buy another property by releasing the equity from a previous purchase. Usually involves relatively high arrangement fees and interest payments. |
Buy to Let |
| A specific mortgage built around the acquisition of a property for the purpose of renting it. |
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C |
Capped |
| A term usually used in relation to a mortgage with a variable rate. Effectively it will track the base rate with e.g. 0.5% above until the rate hits e.g. 6% where it will remain the same even if the base rate continues to rise. |
Completion |
| The final stage in the conveyancing process. This will involve the mortgage funds or, in the case of a cash purchase, the remaining percentage after initial deposit being transferred to the vendors solicitor. |
Contract |
| The binding legal documentation that is signed on exchange of a property. This sets out the parameters of the acquisition. |
Conveyancer |
| The specific term used to describe the legal representative that deals with contracts of a property. Be careful as a legal conveyance does not necessarily have to be a fully qualified solicitor. |
Covenants |
| Regulations and rules relating to the property that are covered in its lease/title deeds. |
Capital Appreciation |
| The amount that your property has increased in value over a specific period, usually one year. This can either be expressed as a percentage, or as a monetary amount. For example, you purchase for £200,000 and the property is now worth £230,000. The increase in price is £230,000 - £200,000 = £30,000. This is £30,000/£200,000 = 15% growth from your purchase price. |
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D |
Deeds |
| The legal documentation showing the right of ownership of a property which is usually held by the mortgage company. |
Deposit |
| The amount of money required in order to facilitate contractual exchange of a property. |
Development |
| Term used to describe a site which is/has been built. |
Disbursements |
| Various charges that are additional in the acquisition of a property charged by official bodies. Such as Stamp Duty, Local Authority Searches etc. |
Draft Contract |
| The initial contract in its basic form which is sent over to the purchasers' solicitor to identify any weaknesses that may need to be changed. |
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E |
Equity |
| The amount of money you need to leave in a particular property will vary from deal-to-deal. It may include; the amount of the purchase not covered by your mortgage loan, legal and professional fees, stamp duty, refurbishment costs, incidentals such as carpets, curtains, white goods, complete furnishings if appropriate, insurance paid in advance an so on. You need to know the total amount in order to calculate your Return on Investment |
Exchange |
| Also known as Contractual Exchange. This involves the wiring of the deposit to the seller's solicitor and is the first legally binding stage of the acquisition. Contracts are signed and the conveyancers for each party agree that both clients are satisfied with the agreements. A date for completion is set at this point. |
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F |
Free Cash Flow |
| The amount of cash that a property generates over a period - monthly or annually. This is usually the same amount as your net income, but may vary slightly depending on when payments are made and rent is received. Generally we advise property investors to only purchase property that has free cash flow, otherwise you are committed to funding the property on a monthly basis. However, there are special situations where it would make sense to purchase property with a negative cash flow if it were for a limited period for example if you expect to resell for a profit in (say) 12 months time. |
Fixed rate |
| Term related to a type of mortgage where the payments are put at a fixed percentage for a number of years. |
Flexible Rate |
| Term related to a type of mortgage that allows you to pay varying amounts back dependant on your circumstances. |
Fixtures & fittingse |
| All the various goods which are included in the sale of a property e.g. Kitchen comes with Fridge, freezer, dishwasher etc |
Freehold |
| The full purchase of a property which is not limited by time |
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G |
Gross Rental |
| Monthly or annual rental income you can expect to obtain from your property. For example, £600 per month or £7,200 per year. Multiple monthly rent x 12 to get annual rental. |
Gross Purchase Price |
| Total purchase price including stamp duty, legal fees, mortgage fees, finder's fees and so on. These may add anything from 2% to 7% to the property price. |
Gross Rental Yield |
| Divide the gross rental income by the gross purchase price. For example, Gross purchase price £160,000. Gross rental £12,000. Gross rental yield is £12,000/£160,000 x 100% = 7.5% |
Gazumping |
| When a vendor excepts an additional offer on a property that is already being purchased by one party |
Gazundering |
| Also known as chipping. When a purchaser puts in a lower offer than originally agreed just before exchange of contracts |
Ground rent |
| Usually an annual figure charged by the freeholder to the leaseholder essentially for literally renting the ground of which the flat pertains too. |
Guarantor |
| A person standing in as the responsible party in either a mortgage or rental contract. Usually used in the case of someone who is unable to obtain worthy accreditations to rent a property or obtain a mortgage. |
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H |
Homebuyer's Report |
| See Survey |
HMO |
| Homes of Multiple Occupancy |
Holding Deposit |
| A cash amount held on account to initially reserve a property from the market. Usually in the region of £2000 |
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I |
IFA |
| Independent Financial Advisor. |
Individual savings account (ISA) mortgage |
| This is where you have a savings account linked to a interest only mortgage account. Effectively similar to endowment mortgages without the risk as you are literally saving the monies in a high interest, tax efficient way rather than paying into an unsecured asset. |
Interest charges (mortgage) |
| A percentage charge of the loan amount borrowed in a mortgage |
Interest-only mortgage |
| A mortgage only requiring the repayment of the interest incurred for borrowing the loan from the bank |
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J |
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K |
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L |
Land registry fee |
| Payment to Land Registry Office to process the change of ownership of the property. |
Lease |
| Legal document stating the terms under which a person rents premises for a set amount of time. |
Leasehold |
| Classification of a development where the purchase obtains the rights to a property for a certain period of time. |
legal fees |
| Payment to solicitors for conveyancing services. |
Listed building |
| Building which has a local authority building planning restriction on it. Developments tend to be Grade I or II listed. |
Loan to value (LTV) |
| The amount of money, usually measured as a percentage, borrowed against the full market value of the property. |
Local authority search |
| The investigations concerning planning, waterways, highways and environmental searches bought from the local authority where the properties are located. |
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M |
Maintenance charge (or service charge) |
| Payment to the Managing Agent in order to fund the upkeep of the building. |
Mortgage |
| A loan taken out over a number of years related to the acquisition of a development or singular flat/house. |
Mortgage deed |
| The legal documentation setting out the parameters of a loan against a property. |
Mortgage indemnity guarantee (MIG) |
| If the loan to value on a property is above a certain value the mortgagee may ask the client to take out a protection against the higher amount. |
Mortgage indemnity premium (MIP) |
| Insurance protecting the mortgagee against default payment of the loan. |
Mortgage payment protection (MPP) |
| In case of illness, redundancy or disability, it is possible take MPP insurance to protect your payments of a mortgage for a set period of time. |
Mortgage rate |
| The percentage of payment for a loan to the mortgagee usually set in line with the Bank of England Base Rate. Mortgage term The amount of years that a loan is taken over. |
Mortgagee |
| The bank/building society that is lending the money. |
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N |
Net Rental |
| Monthly or annual rental income, net of all expenses. These can include management fees, service & maintenance charges, repairs, buildings, contents and tenants insurance, inventory charges, allowance for replacement of furniture if furnished and so on. Typically you can expect to lose 15 to 30% of your gross rental on an unfurnished property to various fees. |
Net Rental Yield |
| Divide the net rental income by the gross purchase price. For example, assume our £12,000 gross income falls to £9,000 after costs. Net rental yield is now £9,000/£160,000 x 100% = 6.25% |
Net Income |
| The net rental income, calculated as above, minus your mortgage payments. Suppose your net rental income was £8,000 per annum, and your mortgage payments £5,000 per annum, your net income from letting the property is £8,000 - £5,000 = £3,000. |
Negative equity |
NHBC scheme |
| (National House-Building Council) |
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O |
Ombudsman Of Estate Agency |
| An optional regulatory body for the property industry. |
Open market value |
| The price a property will achieve when sold through the normal channels of estate agency. |
Opportunity |
| JCJ classify any of our developments as opportunities. |
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P |
Preliminary enquiries |
| Initial questions submitted from a purchaser's solicitor raising any issues about the draft contracts. |
Principal |
| The loan amount which the interest payments are worked out from in a mortgage. |
Purchaser |
| The person who is acquiring the property/development |
Purchase price |
| The monetary value that a property is being acquired for. |
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Q |
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R |
Redemption |
| When a mortgage is fully repaid. |
Re-mortgage |
| Refinancing a property by either switching a mortgage from one lender to another or by taking out a second mortgage to draw down any equity gained by a rise in value. |
Repayment mortgage |
| A mortgage repaid by way of monthly repayments of capital combined with interest. |
Repossession |
| When the mortgage lender takes possession of your property due to non-payment of the mortgage. |
Retention |
| An agreed cash sum which is held in an escrow account for any outstanding payments that the previous vendor may have overlooked. Usually held for up to a year. |
Return on Investment |
| A percentage representation on the amount of growth over a set period of time of an investment in comparison with the initial capital injected into an opportunity. |
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S |
Service charge |
| See Maintenance Charge. |
Sole agent |
| When a vendor chooses to sell through one company. |
Solicitor |
| Legal representative who deals with the documentation of a property transaction. |
Stamp duty |
| Taxation paid to the Inland Revenue for a property purchase. |
Structural survey |
| See Survey |
Surveyor |
| Professionally-qualified expert who carries out the survey. |
Survey |
There are three types:
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T |
Tenancy |
| The possession of a property for a temporary period of time. |
Tenancy agreement |
| A legal document signed by the Tennant and the Landlord setting out the parameters of the lease agreement. |
| The possession of a property for a temporary period of time. |
Tenant |
| The person who holds the temporary lease on a property. |
Total annual return |
| Your total 'profit' from a property is made up of the capital appreciation plus your net rental income. For example, your property cost £120,000 and increased in value by £10,000. Plus you received £3,000 in net rental income. Your total annual return is £10,000 + £3000 = £13,000 per annum, or £13,000/£120,000 x 100 = 11% approx. |
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U |
Under offer |
| When a property has an agreed offer which has not legally exchanged. |
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V |
Valuation |
| See Survey |
Variable base Rate |
| The basic rate of interest charged on a mortgage. This may change in reaction to market conditions, so your monthly payments can go up or down. |
Vendor |
| The legal name for a person selling a property. |
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W |
Withdrawn |
| Property which has been taken off the market. |
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X |
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Y |
Yield |
| Income from a property calculated as a percentage of it's value. |
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Z |