Get Help From Our Jargon Buster

Buying and selling a property can be confusing at times we have put together so we’ve put together this jargon buster to explain terms/words often used in the property industry that you may not be familiar with. We hope it helps but feel free to call us if you are not clear.

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Acceptance
If you wish to accept a lender’s mortgage offer this document will need to be signed
and returned to the lender.

Agricultural Covenant
A planning condition permitting the erection of a residential dwelling providing it is
occupied by a person employed or associated with working on the land. Properties
subjected to this covenant are effectively “blighted” by this stipulation and values are
relatively low because they cannot be sold to anyone who fails to meet the condition
imposed, unless the planning authorities agree to lift the covenant.

Amortisation
The gradual elimination of a liability, for example, a mortgage through regular
payments over a set time period or the amount paid by way of capital or principle
repayments on a loan annually.

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 or Tenant.

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.

Auction
A means of selling a property whereby it is listed at an auction and if the property
does not reach the reserve price then it is not sold. If it does then the auctioneer’s
hammer falls that represents an exchange of contracts and the successful bidder is
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.

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 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.

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.

Carry Trade
Occurs when investors borrow money at low rates of interest in one currency and
invest it at higher rates in another.

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.

Chief Rent
A payment made on freehold land to the original freeholder forever. This differs from
ground rent which is only payable for a limited period.

Collateral
Property pledged as a guarantee for the repayment of a loan.
Collateralised Debt Obligation (CDO) or Collateralised Mortgage Obligation

(CMO)
An investment-grade security backed by a pool of bonds, loans and other assets. A
term more widely used in the US.

Commercial Paper
An IOU used by banks in money markets to lend and borrow from each other. The
paper is backed, in theory at least, by assets.

Commission of 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.

Contract Race
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.

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 propective 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 thier 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.

Debt 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. 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 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).

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.

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.

Gazumping
A term denoting a situation where the vendor has accepted an offer but
subsequently accepts a higher offer from another purchaser.

Gazundering
A term used to denote a situation where the purchaser lowers his offer immediately
prior to exchange of contracts.

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.

IFA
Independent Financial Adviser.

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
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.

Joint Tenants
Two or more people who hold a property as co-owners. When one dies, his share of
the property automatically passes to the survivor(s).

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.

Land Registry Fee
A Charge Levied by a solicitor to register ownership of an area of land with the land
Registry.

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.

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 Backed Securities (MBS)
Debt obligations purchased from banks, mortgage companies, credit unions and
other financial institutions that are assembled into pools by a governmental, quasigovernmental,
or private entity. These entities then sell the securities to investors.

Mortgage Deed
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.

Mortgage Offer
The letter or advice from the lender offering a loan and setting out the terms and
conditions upon which it is offered.

Mortgagor
The borrower and owner whose property is secured for the loan.

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.

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.

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 knowledgably,
prudently, and without compulsion.

Peppercorn Rent
A term used to denote a trivial amount of ground rent.

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.

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 thier 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.
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 thier
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.

Senior Debt
Debt that has priority of claim ahead of other financial obligations.

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 on-going 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.

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 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.

Structural Survey
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
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.

Subordinated Debt or Junior Debt
Debt that has a claim against the issuer’s assets that is lower ranking, or junior to,
other obligations, and is paid after claims to holders of senior securities are satisfied.

Sub-Prime Loans
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.

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.

Tenant
A person or organisation who is entitled to occupy a property under the terms and
conditions of a tenancy agreement.

Tender – For Sale by Tender
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.

Tenure
Refers to whether a property is freehold or leasehold.

Thin Capitalisation
A company is said to be thinly capitalised when its capital is made up of a much
greater proportion of debt than equity, i.e. it has a high level of gearing. Revenue
authorities in many countries will often limit the amount that a company can claim as
a tax deduction on interest, particularly when it receives loans at non-commercial
rates.

Title – Absolute
The highest form of tenure available.

Title – Abstract
A summary of title documentation used in the Conveyancing of unregistered
properties to prove that the vendor has the right to sell.

Title Deeds
These are legal documents describing the rights and liabilities that are attached to
the property and prove ownership of property.

Title Report
Solicitors’ certificate confirming that the title of the property is acceptable. A Lender
must have a Title Report before an advance cheque for the mortgage monies can be
issued.

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 effect 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.

Unadopted Road
A road which has not been accepted by a Local Authority possibly as a result of it not
meeting the standards laid down (e.g. road surfaces, drainage etc.). This indicates
the possibility of a road charge liability if and when the road is adopted.

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
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.

Unencumbered
A property that has no loans or borrowings secured on it.

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.

Writ of Summons
Mode of commencing legal proceedings.

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.

Call 01925 575 883

Liam James Residential Ltd.
Unit 2
Ribban Court
Warrington
Cheshire
WA2 7NG

Office: 01925 575 883
Click here to contact us.

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