Property Investing Jargon
a
List and description of property related and finance terms
Click on the term to jump to description
Assignment
The sale of a tenant's entire lease to another person
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Adverse Credit
A poor credit record.
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APR
APR stands for Annualised Percentage Rate. A lender is always
required to quote the APR rate when advertising a loan / borrowing rate.
The lender will usually also quote the headline rate, and the APR next
to it. The headline rate states the rate of interest you pay per month
or per year on the mortgage, but the APR calculates the total amount
of interest that will be paid over the whole term of the loan. It should
also take into account any charges, which the borrower has to pay during
the loan period. The APR is therefore always higher than the headline
rate, and is a realistic representation of the cost of the mortgage
over time.
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Arrangement Fee
The charge some lenders make for providing a loan
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ASU
Accident Sickness & Unemployment Insurance
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Base Rate
The UK's core interest rate, set by the Bank of England. The
lender's Standard Variable Rate (SVR) is higher than the Base Rate,
but is often adjusted by reference to it
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Bonding Scheme
An agreement by members of a profession or trade to establish
a central compensation fund which consumers can draw on in cases of
fraud or insolvency.
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Booking Fee
The charge paid on application to secure funds, usually required
for special deals such as capped or discounted rates
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Broker
A person that advises on a mortgage or loan that will suit
your needs. They usually work from a restricted range of deals
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BSA
Building Society Association, the trade body for building societies
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BTL
Buy To Let
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Building Insurance
Insurance cover which protects the holder against damage to
the property itself (although it can be linked with contents insurance
in a combined policy). The amount insured may vary from the purchase
price/valuation of the property depending on the type of location of
the property. The valuer will usually provide a rebuild cost for insurance
purposes
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Building Survey
A detailed survey of the property you are planning to buy.
Also known as a full structural survey
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Buy To Let
The practice of buying a house or flat for investment purposes.
Income is provided by the tenants' rent, and capital growth (if any)
by the property's increasing resale value
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Buy To Let Mortgage
A loan to buy an investment property
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Capital
The amount of money borrowed to buy your property
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Capital & Interest
In the context of mortgages, a capital and interest mortgage
is also known as a repayment mortgage. It involves paying all of the
interest plus repayment of a little of the capital each month; an interest
only mortgage involves only paying off the interest
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Capped Rate
A mortgage which allows your interest rate to climb or drop
no higher or lower than a specified level, usually for the first few
years of the loan
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Cash Back
A mortgage that provides a borrower with an immediate lump
sum payout on top of the sum borrowed to buy the property. This has
to be paid for one way or the other, so cash back mortgages will typically
be at a higher rate than other mortgages and will usually have redemption
penalties for several years
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CAM
Current Account Mortgage
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CML
The Council of Mortgage Lenders, which has devised the Mortgage
Code to ensure lenders treat customers fairly
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Compulsories
This is shorthand for compulsory insurances. Some lenders,
at least for certain mortgages, insist that you take out their buildings
insurance - which needn't necessarily be the most cost effective on
the market. Our Mortgage Wizards allow you to select out these products
if you wish to (although sometimes of course, the mortgages can be so
good that it outweighs the potential disadvantage of taking the compulsory
insurance)
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Completion
The final stage of the house-buying process, which comes after
exchange of contracts. The sale must proceed after Exchange, but Completion
occurs when the property's agreed sale price (less any deposit already
paid) safely reaches the seller's bank account
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Contents Insurance
Insurance covers which protects the personal belongings your
home contains. In the case of rented accommodation, the landlord is
responsible for insuring those contents, which he owns, but not those
owned by his tenants
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Conversion
Can refer to a property that was once a house but has been
converted to a flat. Also could refer to a loft that has been converted
to a room. Changing from one use to another
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Conveyancing
Normally carried out by a solicitor or licensed conveyancer
on the buyer's behalf, conveyancing includes proving the property is
really owned by its seller, making sure that all the loans secured on
it are discharged, establishing its legal boundaries and searching local
planning information for upcoming developments which could affect the
property's value
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Council Tax
A local authority charge, which replaced the Community Charge in 1993/94.
Generally speaking, the more valuable your property is, the higher your
Council Tax bill will be, although the amount for an identical property
can vary considerably between different local authorities. In rented
or buy to let accommodation, the tenants are usually responsible for
the Council tax
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CCJ
County Court Judgement. If a County Court rules against you for defaulting
on a debt, that ruling is listed on your credit record. Having such
a judgement listed against you may mean you are turned down for future
loans, or be expected to pay a higher rate than other customers. The
Scottish equivalent of an English CCJ is a Decree
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Credit Reference Agency
When assessing your application, a mortgage lender will study your credit
records. These records are held centrally by credit reference agencies,
and contain information from many different aspects of your life
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Current Account
A bank account linked to a chequebook and/or debit card. In exchange
for instant access and the ability use cheque or debit facilities, most
pay little or no interest on the balance they contain
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Deeds
The formal written document, which lists exactly who owns a property
and enables transfer of a property's ownership from seller to buyer.
A mortgage lender will record details of their mortgage on these deeds
(which means they can take ownership of the property if you default
on the loan payments)
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Deposit
In the context of mortgages, the deposit is the initial lump sum payment,
which the buyer must contribute to the property's total purchase price
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Disbursements
The costs of the legal process that your solicitor or conveyancer will
have to pay for on your behalf and which are added to their bill. (i.e.
land registry searches)
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Discharge Fee
A fee charged by a lender for releasing its charge over a property once
you have paid off your loan. You may incur this fee if you move to another
lender
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Discounted Rate
A mortgage which has an interest rate below the lender's standard variable
rate (SVR), Bank Base Rate or Libor rate, typically for the first few
months or years of the loan. The rate payable may move up and down,
but the discount on SVR remains constant
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Diversification
The principle that wise investors should spread their risk among many
different types of investment. A properly balanced portfolio will contain
elements of share, deposit-based and property investments. Fund performance
and objective achievement are not guaranteed
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Drawdown Facility
The ability to borrow extra money through your mortgage later on, possibly
after you have paid some off. You can be issued with a chequebook for
this
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Early Redemption Penalties
Fixed-rate, capped-rate, cash back and discount rate mortgages commonly
carry early redemption penalties which can in some cases persist long
after the initial special rate itself has expired. This can make it
prohibitively expensive to move to a rival lender in the first few years
of the loan. The Charcol online web site shows you the size of any redemption
penalty and how it changes over time
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Employment Status
A term used by lenders to describe potential borrowers' working arrangements.
Self-employed applicants are sometimes seen as a greater risk than employees
are. But many specialist lenders and mortgages have emerged in recent
years designed specially for different types of employment status, and
the Charcol online website has a wide variety of these in its database
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Endowment Mortgage
A mortgage funded by an insurance-based savings plan, which may give
you a bonus payment or additional returns by the end of the loan's term
if it performs well
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Equities
Another name for ordinary shares
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Equity
The difference between the value of your property, and the amount of
loan secured on it
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Exchange Of Contracts
The terms of a property's purchase become legally binding for both parties
when contracts are exchanged. The buyer is then committed to buying,
and the seller to selling. As a buyer, you should normally ensure that
building insurance from this date covers you, because even if the property
were damaged badly, you would still have to buy it
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Execution-only
A service, which offers no advice, but merely carries out the customer's
orders
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Feuhold
A form of legal title applicable only in Scotland
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First Charge
The legal charge a lender has over your property. They have first call
on funds available from the sale of a property
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Fixed Rate
A mortgage, which fixes your interest rate at a specified level, typically
for the first few years of the loan
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Flexible Mortgage
A mortgage, which allows borrowers to make overpayments when they have
spare cash. Other features could include the option to reduce or miss
payments altogether when times are tight, and to re-borrow any overpayments.
Not all flexible mortgages offer all of these features. Often useful
for self-employed people, whose income varies from one month to the
next. The most flexible form of mortgage is a Current Account Mortgage
(CAM), which can potentially save you money by linking your current
account and mortgage together
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Freehold
Ownership of the land on which a property stands
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Full Status Loan
A loan where complete checks are made on your credit history and income
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Gearing
Using lenders funds to fuel your investment growth. Remortgage to buy
more, realising equity and keeping it moving.
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Gross
Before tax
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Growth
A growth strategy is one, which seeks to maximise the capital value
of your investment without the requirement to generate any minimum level
of income. Any income may be reinvested
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Ground Rent
Annual rent paid by the owner of a leasehold property to the person
who owns the freehold
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Guarantor
Someone who agrees to guarantee your loan or payments should you default
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Illustration
In the context of mortgages, a lender's estimate of the monthly payments
you would have to make under a particular loan arrangement, together
with the costs to set it up
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Impaired Credit
Impaired credit mortgages are specialist loans for customers whose credit
problems disqualify them from using mainstream lenders' standard products.
Some lenders specialise in loans like these, which are also known as
adverse credit loans
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IFA
Independent Financial Adviser
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Income Multiplier
How a mortgage lender works out how much you can borrow usually by multiplying
your income
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Interest
The premium, which a borrower must pay a lender in return for use of
the lender's money
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Interest-only Mortgage
With a mortgage like this, your monthly repayments cover only the interest
element of the loan. You will normally need a repayment vehicle, such
as an ISA, endowment or a personal pension, to repay the capital
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ISA Mortgage
A mortgage loan funded by contributions to an Individual Savings Account.
ISAs provide tax-free growth, generated mainly by stock market investment.
The ISA aims to repay the loan's capital at the end of its term, but
the interest element must be paid separately as you go along. It's important
to remember that past performance is not necessarily a guide to future
performance
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K
Symbol for a thousand when added to the end of a sum of money ie £13k
is £13,000
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Land Registry
The official body responsible for maintaining records of property ownership
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Leasehold
Ownership of a property, but not the land on which it stands. When the
lease expires, the property reverts to the freeholder
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Lenders Reference
An endorsement from a previous or current lender to say if you have
maintained your payments
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Letting Agent
A property agent who can help landlords locate suitable properties for
purchase, and who finds tenants to occupy those properties and can manages
the rental process which follows
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LIBOR
London Interbank Offered Rate, the rate at which banks notionally buy
and sell money to each other. LIBOR-Linked mortgages are susceptible
to a change in interest rate every three months
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LTV
Loan To Value This is the amount you want to borrow divided by the purchase
price. In other words, it reflects the size of your deposit. Generally,
the lower the loan to value, the safer the lender will view the loan
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Missives
Scottish equivalent of exchanging contract. No deposit is required but
it is legally binding
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MIG
Mortgage Indemnity Guarantee This is an insurance premium which you
have to pay for some mortgages, usually when the Loan To Value is higher
than a certain figure. It protects the lender to some extent if you
default on the mortgage for any reason. It is important to understand
that although you have to pay the premium, the lender benefits from
any payout, and that if the payout doesn't cover their costs they may
seek further money from you. With many mortgages you can add the MIG
to the loan, unless this takes your Loan To Value over a certain figure.
The insurer may pursue the defaulter for reimbursement of any monies
which have been paid out in respect of lenders claim
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Negative Equity
Where the size of your property loan is greater than the market value
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Net
After tax has been deducted
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No money down deal
Using Finance to place a deposit, or finding finace that covers whole
purchase. Some lenders offer Loan To Value and so if you buy a reduced
price property, you may not have to put money down.
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OMV
Open Market Value The price a property fetches when there is a willing
buyer and willing seller
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PPR
Primary Place of Residence, also known as Primary Domicile.
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Repayment Mortgage
A mortgage loan funded by simple monthly repayments, calculated to repay
capital and interest usually over a term of 25 years (less if preferred)
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Retention
Holding back part of a loan until repairs to a property are complete
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Reversionary Interest
This is a contractual ownership where people sell their house but they
are allowed to remain living in it until some future date, usually until
they die.
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ROI
Return on Investment
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RSL
Registered Social Landlord. (Housing Association)
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Sealing Fee
See Discharge Fee
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Search
A local authority search is an examination of local planning records
to uncover details of any upcoming developments near the property which
could affect its future value or existing restrictions on the site
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SHEP
Second-Hand Endowment Policy Endowment policies part-way through their
term can sometimes be sold on the open market. Disposing of an unwanted
policy in this way often produces a better price than the traditional
route of early surrender. Also known as Traded Endowment Policies (TEPS)
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Secured (loan)
If you should default on your mortgage, the lender can ultimately repossess
your property to recover their money. The loan is hence said to be "secured"
on the property
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Self Build
Where you design, manage and build your own property
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Self-certification
Where no proof is available, prospective borrowers are sometimes allowed
to vouch for their own income. Self-employed applicants who lack the
two years' record of accounts that lenders would normally require most
commonly use this process, known as self-certification. Many lenders
charge a small premium on self-certificate business to reflect the extra
risk involved
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Sitting Tenant
Someone who has a legal right of occupation, even if the property is
sold to someone else, and can apply to the local authority to have a
fair rent set
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SVR
Standard Variable Rate. A mortgage lender's main interest rate. Fixed-rate
and discount loans usually switch to SVR when the special offer period
expires. Conversely, tracker mortgages switch to a fixed percentage
above Bank Of England Base rate (or LIBOR)
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Status
A shorthand term for the borrower's credit record and employment situation.
See "Non-Status Loan"
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Stamp Duty
A government tax on property purchase. Some property is exempt from
this
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Sub-Prime
Borrower with adverse credit
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Surrender
The process of cashing in an unwanted endowment policy with the insurer
who sold it to you. Doing this often produces a poor return for the
money invested to date in the policy's early years
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Survey
An expert examination of the property you are considering buying,
aimed at discovering any structural flaws or repairs needed which you
may have failed to notice yourself
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Term
The period of time over which your mortgage will run. Typically 25 Years
or to expected retirement date if that comes first
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Title Deed
Legal document assigning ownership of a property or land
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Tracker
Tracker mortgages link your interest rate to a benchmark, such as Bank
of England base rate. The rate you pay moves up and down in line with
the benchmark selected
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TEP & SHEP
Traded Endowment Policy (TEP) Another name for Second-Hand Endowment
Policy (SHEP)
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Under Offer
A term used when a seller of a property has provisionally accepted a
buyers offer
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Valuation
A very basic survey of a property to determine its value. Mortgage lenders
insist on this before lending on a property
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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
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Vendor
Seller
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Yield
Profit or return on investment
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